Donaldson and O’Toole (2000) provide a framework for classifying relationships for portfolio planning purposes. Although the model was developed from a study of industrial markets, there are obvious parallels with consumer markets. Donaldson and O’Toole define relationship strength by the level of belief and action components. Belief components are the attitudes towards the customer or supplier – the trust, commitment and loyalty that exists between the two parties. Action components are the more tangible measures of the relationship – the frequency and volume of transactions, the investment in resources specific to the relationship, etc. By separating these two components, Donaldson and O’Toole distinguished four types of relationship.
Bilateral relationships are those in which there is a high level of both action and belief components. The relationship is important to both parties economically, and considerable trust and commitment to the long-term development of the relationship exists on both sides. The management focus of such relationships will be on the maintenance and development of these bonds, and the exploitation of the relationship for mutual benefit.
Hierarchical relationships are those in which the economic content is high, but the belief components are not. Such relationships are characterized by either supplier or buyer dominance, where the junior partner is dependent on the senior for either sales or supplies, but this dependence is not reciprocated. The management task here is to either move the relationship onto a more equal footing, or to end it altogether.
Recurrent relationships, in contrast, include a high belief and low action components. Though trust and commitment exists between the two parties, the economic content is low. It is tempting to recommend that managers seek to develop this into a bilateral relationship, by developing the action component on both sides. It must not be forgotten, however, that one or both parties may have no interest in developing such a relationship, or that the product or market conditions may limit such opportunities. If Donaldson and O’Toole’s framework were applied to consumer markets, for example, the majority of relationships would be classed as recurrent. Although consumers may trust a particular manufacturer or service provider, they are unlikely to make a significant economic commitment to it. Similarly, a manufacturer is unlikely to make a significant commitment to an individual consumer. Where there is no potential for developing a recurrent relationship, management should focus on maintaining the belief components as cost effectively as possible.
Discrete or opportunistic relationships are characterized by low belief and action components. Again, such relationships are not necessarily a negative feature of a portfolio – by definition, all relationships must begin as opportunistic ones – nor should it be assumed that the optimum strategy is to develop all opportunistic relationships into more solid partnerships. However, those relationships that are not to be developed should be granted a low priority in terms of the resources and strategic attention afforded them.
Although Donaldson and O’TooIe’s framework is a useful one, by looking at two different dimensions of relationship strength it captures information about the relationships in their current state only. It should be remembered that the planner’s task is to manage future events. Product portfolio managers may draw on a range of portfolio analysis techniques such as the Boston Consulting Group, Shell and General Electric Matrices (see Wilson and Gillighan, 1997 for a full description of these models). Although these techniques differ in the specific criteria they use, they all use indicators of product strength and product potential in order to make portfolio management decisions. In the same way, relationship managers may classify relationships either by segment or by individual account, using the relationship strength-potential matrix.