Relationship-building Strategy 3: Increasing Termination Costs


A third way to build deeper exchange partner relationship commitment is to increase relationship termination costs—that is, ratcheting up the “price” one might pay for ending the alliance.  While this strategy must be deployed with sensitivity and caution, it can be an effective method for solidifying relationship bonds.

In any business relationship, there is a cost connected with ending the association.  Sometimes, the cost is near zero, while other times the cost can be quite high. 

For example, on the low side, consider the termination costs of switching toothpaste.  While some people may defend to the death their choice of brands, for most of us, there is relatively little pain or inconvenience in switching to another offering.  From a toothpaste manufacturer’s perspective, termination costs are very low.  There is relatively little pain Procter & Gamble can inflict on you should you decide to ditch your tube of Crest for the siren call of a competing brand. 

On the high termination cost side, consider Southwest Airlines (the “company plane” for many of us road warriors) and its association with Boeing.  Southwest’s entire fleet of aircraft is comprised of some variant of the Boeing 737.  Fleet standardization is a fundamental part of Southwest’s overall business strategy as having a single-model fleet allows them to keep costs low through uniform training, maintenance, operating procedures, etc.  Imagine the “termination costs” of switching airplane suppliers in Southwest Airline’s case.  At this point, it would be nigh impossible. 

Clearly, relationship termination costs can have a strong impact on relationship commitment (though not trust, particularly).  In business, termination costs are frequently contractual, but emotional and psychological termination costs are also very real and very powerful.

Termination Costs as a Strategy

Companies and salespeople should look for ways to increase the “pain” associated with a prospect buying from another vendor, or with a customer switching solutions.  We are NOT saying salespeople should invent ways to try to maliciously punish prospects for not buying or customers for leaving.  We have seen historically, on rare occasions, an angry salesperson attempt to seek petty retribution for losing a fair deal.  This is ridiculous behavior that should never be tolerated in any circumstance.  

Instead, salespeople should make sure: 1) the rules of engagement and disengagement are clearly defined for all parties involved, and 2) such clear value and problem resolution is delivered to the exchange partner that it would be uncomfortable for them to no longer have access to it. 

One way to achieve this is through contractual agreements—a formalized approach to termination cost management (part of the salesperson’s “rules of disengagement” responsibility).  Take your cell phone provider as an example.  If you read the fine print of the contract you’ve signed, you will see it allows you to terminate your service before the contract term expires.  However, you’ll also see there’s a hefty fee to pay if you do it.  Unless you’re really miffed at the provider, you’ll probably just keep the service until the contract expires because the termination costs are too high. 

On the flip side, formal contractual incentives may also be used to increase termination costs.  For instance, some companies offer discounts for first-time buyers, or enhanced customer support options that may only be available in exchange for a renewed or extended purchase agreement.  Even government buyers don’t like passing on “deals” when they can get them.  As such, there is a cost associated with passing up these special offers, even if it manifests itself in the form of an incentive. 

Outside of the contract, there are steps that can be taken to increase termination costs.  Go back to the previous section and think about the list of possible relationship benefits we all seek:  knowledge/expertise, future gain, mutual connection, network access, fame/notoriety.  If you have been really successful in building any of these elements with a prospect or partner, then the removable of these could carry with it a certain degree of pain—clearly a termination cost.  It is actually possible for a salesperson to serve as such a valuable source of positive benefits that the exchange partner would be negatively impacted by the loss of the personal connection.

A word of caution is in order here.  You should be very careful with the deployment of this particular strategy.  If a line is crossed and the customer perceives “coercion” is taking place, you’ll weaken the relationship, not strengthen it.  The exchange partner may put up with you as long as absolutely necessary, then drop you like a hot potato at the first opportunity.  No one likes to feel manipulated or forced into a corner.  Deployed gingerly, however, increasing termination costs can be a useful component of an overall relationship-building plan.

All the best,

Lorin

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