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Using Transformational Relationship Events To Improve Customer Loyalty And Strategic Planning Processes

Changing landscape of strategic planning, the integration of transformational relationship events

3Jan

'Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security' – John Allen Paulos. We live in an age of disruption, where entrepreneurs are looking at their daily lives to identify shortcomings in existing processes and value propositions. These entrepreneurs are utilizing technology to improve on or create substitute product offerings that better integrate into the new digital era of today, completely disrupting the giants of yesterday. The taxi service in New York city is a great example of such disruption - poor service, dirty cabs, expensive fares, and low availability during rush hour had everyone open to accepting many alternatives to what was available. Welcome to the world of Uber. Within this disruptive space, implications on strategic planning are being shaped – old strategic planning models are failing to address all possible events. Savvy strategists with great business acumen, intuition, and market knowledge need to consider a variety of new implications shaping industries.

Strategic planning consists of various considerations, multiple phases, and typically within any organization the process requires some assessing of existing market space using SWOT analysis, PESTEL, and Porters Five Forces model to name a few. The problem with many of these is that they do not fully evaluate the implications related to customer loyalty and relational event triggers. Consider the following sub-segments of larger industries - credit card transactions, medical doctors, and mortgages. In all three segments, buyers, suppliers, substitutes, new entrants, and competitive rivalry are in favor of those offering the service. The US has one of the lowest physicians to general population ratios (2.4 to 1,000 people), credit card transactions continue to be siphoned back through the major three or four banks, and the mortgage processes are filled with middlemen who run a non-standardized evaluation process. In all three cases, innovation is incremental or non-existent. During the strategy process, technological threats which could introduce substitutes to the markets discussed above are disregarded as a possible fad. Though in some cases, this is true, consider the disruption of clean energy sources to long-time established fossil fuels, and the fact that acceptance or rejection of a new fad is ultimately dependent on transformational relationship events (TREs).

Before discussing how TREs affect the strategic planning process, disruptions to long-established markets, products, and organizations – let’s consider the psychological implications which form mental models of expectations between a buyer and supplier. Relational expectations evolve over time, and thus, each exchange event (meeting, presentation, proposition, or transaction) alters the standards of such interpretations. When a new supplier or partner is brought on, the expectations of mutually beneficial behaviors are low. In Figure 1 below, consider this expectation to be the black line, while the two blue lines are the zones of indifference, meaning any events within the zone of indifference will have little to no negative or positive impact on the relationship.

Figure 1)

As trust grows with each successful encounter, parties form informal psychological contracts which are supported by emotional attachment and communal norms. These informal psychological contracts gradually displace formal contracts, since these events evolve to form higher and more firmly defined standards for evaluating the relationship. Early in the process, a wide variety of information informs a partner’s expectations, and are thus merely estimates of expected partner behavior. Gradually as the relationship evolves, learning occurs at each event in a way where previous negative expectations become increasingly less probable, while positive expectations become more clearly defined. In figure 1, Example 1 – positive events occurring early in the relationship would provide a supplier with a large relational disconfirmation. Since the expectation would initially be low, any effort to drive significant value would positively affect the relationship in a significant way. This same event, occurring in Example 2 (months or years into the relationship) would only yield a small positive relational disconfirmation. Example 3, early on the relationship would yield a small negative relational disconfirmation, which would slightly alter the relationship in a negative way. However, later in the relationship, the same event would have a large relational disconfirmation, significantly affecting the relationship negatively and possibly impacting the strategic direction of a customer.

What the dynamic relational expectations and disconfirmation model in Figure 1 goes to show is that, if you never received health care in your life, your initial contact with a physician who is late for his appointment would not significantly alter your perception of that physician in a negative way. Over the years and after you have seen many physicians, late appointments significantly affect your perception of the relationship – in such a way that a possible solution to the issues, intended to disrupt the existing sub-segment of medical care, would go from a fad to mainstream use. TREs in conjunction with mainstay strategic planning tools will only move to reinforce strategic planning process and rigors in a way not utilized previously. High gas prices, sustained for a long period of time, negatively affect the relational expectation and disconfirmation in a way that shapes the path for Tesla to disrupt and establish themselves in the automobile market. Sub-segments operating in monopolistic or semi-monopolistic industries will need to integrate TREs into their strategic planning process to avoid mitigate risks associated with such possible disruptions. Entrepreneurs can also gain to benefit from the utilization of TREs, by not only determining what solutions they can address with technological advancements but whether or not they will have a sustainable business model which will move possible customers from fad and into mainstream use.

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