June 8, 2011

Your Business Model: Transactional vs Relationship

Filed under: Growing Your Business — Tags: , , — Meredith @ 9:20 am

Today I want to talk about the difference between modeling your business around transactions versus relationships. This ties into what I talked about earlier this week with regard to customer lifetime value. First, my post Monday was mostly geared to business models that focus on customer relationships. Not all business models have this as a focus. Here’s are some characteristics that make these models different:

Transactional Business Models

  • Focus is on getting the sale, not getting repeat customers
  • Business offers no remarkable brand experience
  • Business sells mainly utilitarian items that people seek out when the items are needed
  • Customers are motivated primarily by price
  • Marketing efforts rely heavily on SEO and programs like Google Adwords, tools that drive customers to the business when customers are shopping for the products they sell.

Here’s an example of what I mean. Last summer we decided it would be nice to string some white Christmas lights around our backyard for evening lighting. We googled “outdoor white christmas lights” and visited sites like Novely Lights and Christmas Lights Etc. I can’t even remember which one I ordered from, probably whoever had the best price. They sold pretty much the same product, and it was the product I wanted. It was also a product I wasn’t going to form a real emotional attachment to or shop for regularly. Trying to form a relationship with me as a customer was probably going to be useless for these businesses and their lack of remarkable branding had no influence on my purchase decision.

If you sell a product like Christmas lights or car batteries, it might make sense for you to focus your marketing on transactions vs. relationship building. You might have some chance of building a relationship as a supplier for a landscaper or mechanic, but probably not with the average retail buyer.

Relationship-Based Business Models

  • Focus is on getting repeat customers, emphasis on lifetime value of customers, not individual transactions
  • Business is heavily focused on creating a unique brand experience
  • Business sells items that people want (instead of need), and shopping behavior can be motivated by new offers or desire for product (i.e. if you sell jewelry, customer is equally likely to buy because they love a new bracelet that was just released vs. needing to get a gift for a friend’s birthday)
  • Customers are motivated to buy based on uniqueness of product and brand experience (i.e. they can buy a bra any place, but they choose a Victoria’s Secret bra because it looks sexiest.)
  • Marketing efforts rely heavily on advertising, PR, social media, email marketing, branding
  • Business may sell a type of product many competitors sell, but have a unique spin on the product either via the products themselves or the shopping experience (consider brands like Banana Republic, Nordstrom, Pottery Barn, Hot Topic, etc.)

In contrast with my Christmas lights example, consider a brand like Tiffany & Co. On the face of things they sell jewelry, but that’s not all. What they sell is an experience. They sell the idea of a classic, the ultimate good taste, luxury. Everything about shopping with Tiffanys is an experience from the unique yet timeless aesthetic of their products to the famous little blue box with the white satin ribbon your jewelry is presented in.

My wedding band is from Tiffanys and it does have a different look and feel compared to other jewelry I own.  The designer’s name is inscribed inside the band, along with the famous Tiffanys logo. The ring has a heavier weight to it and it doesn’t look like a ring I’ve seen any place else. You can say a ring is a ring and tons of places sell them, but this one is distinct and it’s associated with a distinct brand, which caused me to favor this ring over the alternatives.

When I have a really special occasion that calls for jewelry, something that I want to be remembered, Tiffany’s is the first place on my shopping list because of the brand experience and products they offer.

What this has to do with you
As a business owner, you really have to think about what kind of business model makes sense for you. The kind of model you choose dictates everything from your marketing strategies to your website copy to your products and product presentation. If your focus is transactional, you want to devote your resources to acquiring sales. You need the best SEO and the best Adwords campaigns.

If your focus is relationship based, you need to really think about crafting every aspect of your brand in a way that’s remarkable.

Select a model that is appropriate for products you sell and the kind of business you want to build, and focus your attention on the strategies that are most suitable for your business model.

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14 Comments »

  1. This is really great stuff Meredith! Exactly what I needed to read today. Can you see the wheels turning in my brain? 🙂

    Comment by Julie Boyles — June 8, 2011 @ 11:43 am

  2. Well said! In the long run, solid relationships with customers are really what sustains a business. This means we have to be intentional about every single interaction. Every business, even those selling novelty Christmas lights can learn something from this post.

    Comment by Ann — June 8, 2011 @ 12:45 pm

  3. Thank you for a really informative article that has emphasized some great points!
    Best,
    Jeanette

    Comment by Jeanette Risco — June 9, 2011 @ 1:14 pm

  4. Really made me think. From the way the product is packaged to the followup, attention to detail is of upmost importance in a relationship based business. Thanks so much for sharing.

    Comment by Carol DeMumbrum — June 9, 2011 @ 1:52 pm

  5. Thank you – great advice!

    xox dawn xox

    Comment by d.s.lookkin — June 9, 2011 @ 2:15 pm

  6. This is a great article and my business is based more on a relational business model rather than a transactional model though I do have customers from both sides of this fence. Thanks for the thought provoking article and I am going to post some of this article and link to you on my blog. Thanks,

    Comment by Karen — June 9, 2011 @ 4:09 pm

  7. […] http://smallerbox.net/blog/growing-your-business/your-business-model-transactional-vs-relationship/c… […]

    Pingback by Business thoughts for Thursday! « Chocolate Dog Studio — June 9, 2011 @ 5:19 pm

  8. I knew before I read your title which one my business was. My business has always been relational. So your article, in one sense, was affirmation rather than revelation. But I never really realized why transactional businesses act the way they do til I read your post. Your definitions have helped me to clarify what I need to be doing in my own business, both by comparison and by contrast. Thank you very much for the insight!

    Comment by Cecily Maples — June 9, 2011 @ 8:49 pm

  9. With all the hoopla on Etsy over circles, changing forums, and the like, your article sheds a little more light on the benefits of a relational business model. Thanks!

    Comment by Victoria Rickert — June 9, 2011 @ 10:20 pm

  10. […] I like this article? As far as concepts go, Seth’s busker post is a lot like my article on transactional business models vs. relationship-based models. The difference is I didn’t dance around the concept with analogies about buskers and simply […]

    Pingback by Smaller Box :: Blog :: Why I Don’t Read Seth’s Blog — June 13, 2011 @ 3:53 pm

  11. […] week I wrote about the difference between transactional and relationship-based business models. When Etsy mentioned this article in their round up, it drove some readers to Smaller Box who said […]

    Pingback by Smaller Box :: Blog :: It Etsy Hindering Your Customer Relationships? — June 14, 2011 @ 6:26 am

  12. this is a very helpful look at two different ways of running a business. basically you’re talking about the difference between selling commodities versus selling differentiable products, but you’ve turned the focus from the product to the mode of interacting with the customer, which is helpful for us on the interacting side of things.

    Comment by julie green — June 16, 2011 @ 4:48 pm

  13. […] battle here and there if it means we’re winning the war. What we want with our customers is a long term relationship and that means treating them as we we’d want to be treated if we were the […]

    Pingback by Smaller Box :: Blog :: Placing Value on Customer Happiness — June 26, 2012 @ 9:28 am

  14. […] to work extra hard to connect with the people who are. You’ll need to think more in terms of relationship-based marketing. You may not sell as much volume online as other online shops because you can’t sell to […]

    Pingback by Smaller Box :: Blog :: Is Bigger Better? — January 23, 2014 @ 10:40 am

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