A number of writers have noted that business relationships also follow distinct phases as the relationship develops over time. The common themes in these works suggest that the relationship life cycle has at least four distinct stages, each requiring different actions on the part of the supplier, and each entailing different rewards.
The prospective phase
All relationships start with a single trial purchase, though the prospective phase may last indefinitely, with the customer making occasional purchases from a range of suppliers without committing to a particular one. These customers represent relationship prospects. Little investment is made on either side, with no attempt by the supplier to develop customized offerings, or to invest resources in an attempt to better understand the buyer. Similarly, the buyer makes no special demands on the supplier, being content to make occasional purchases from the supplier’s standard listings. There is little or no trust between the two parties. The task for the supplier in this phase is to select those customers that offer the greatest potential for long-term relationships and seek to move them into the development phase.
The developing phase
A move to this phase requires a conscious effort on the part of the supplier, whether or not the move is prompted by the buyer. Relationship development requires the supplier to invest time and resources in better understanding the needs of a specific buyer and developing skills, products or processes to satisfy those needs. This stage, therefore, represents the biggest risk for the supplier. Whilst an investment is made in the hope of future benefits, the relationship is still in a relatively unstable state, and carries a high risk of failure. As business increases, so mutual understanding and joint systems develop between the two parties. These may be embodied in explicit contracts or agreements between the two parties, or reside in an increasingly strong relational norms.
The established phase
The established phase demands less of both parties, and offers much higher rewards. According to White (2000), the mature stage is characterized by lower costs, supported by open communication and mutual problem solving, whilst Zineldin (1996) states that in the final stage, customers are prepared to pay premium prices in return for superior perceived value.
Hence, turnover and profitability levels for the supplier peak in this stage. The task for the supplier in this phase is to maintain the relationship.
The declining phase
The declining phase may consist of a gradual deterioration, or a sudden exit on the part of either customer or supplier. Its onset may be stimulated by a failure (or repeated failures) on the part of the supplier, by competitor activity, or by circumstances beyond the control of either party, such as a dramatic change in the financial circumstances of one of the partners (Donaldson and O’Toole 2000). Whatever the causes, the decline phase involves a reduction in satisfaction, trust, and hence commitment on one or both sides, and a consequent reduction in business. It should be stressed, however, that the decline of a relationship is not always a negative event -managing the declining phase and having an exit strategy is just as much a part of RM as identifying and developing new relationships.