8.3 Choosing the right relationship

Managers are responsible for establishing the type of relationship that is appropriate for each situation. Every situation should be considered inherently different. The dynamics of every relationship are unique and managers must customize their agreements to the situation. Therefore, before deciding what type of relationship to develop several factors need to be considered (Weitz, Castleberry, and Tanner, 2005). These factors include market issues (e.g. maturity, size, and barriers), the potential returns of the relationship, and the capabilities provided by the partners (e.g. experience with technology or access to innovations). In addition, managers must assess the likelihood of success and other risks. These items include both quantitative and qualitative measures that require a manager’s complete attention when designing relationships.

In the previous example, the strategic partnership formed between Time Warner’s AOL and Google was justified, because the company expects a return great enough to justify the investment. Time Warner’s AOL was a suitable partner for Google because the company was large enough to meet Google’s product demands. Conversely, Google would not have entered into a strategic partnership with a small, local Internet provider, because a smaller company would not have enough production capability to meet Google’s demand. The idea is that as partnerships are successful, the companies will make more money, i.e. Google believes benefits will exceed costs as does Time Warner’s AOL.

Strategic partnerships may be established in order to gain access into a specific niche or market. The relationship between Google and AOL may be an example of this type of relationship. Other partnerships may be formed in an effort to improve a company’s image. For example, large oil companies receive a significant amount of bad press due to pollution and environmental concerns. Therefore, it may be in their best interest to partner with companies attempting to develop alternative energy sources, e.g. solar or wind power, to gain goodwill among consumers.

A partnership may be developed in order to gain access to technological innovation. A company may find a relationship with a lead user beneficial. A lead user is someone who has invented or resolved a customer issue months or even years ahead of competitors in the marketplace. They provide information and give companies the ability to co-develop novel products, which provide a competitive edge over other market participants.