buy-sell-hierarchy

What Is The Buy-Sell Hierarchy And Why It Matters In Business

The buy-sell hierarchy is a visual representation of an increasingly strategic business to customer relationship. The buy-sell hierarchy was developed by consultants Robert Miller and Stephen Heiman in a 2005 book about large account management. Miller and Heiman argued that in business markets, the business (supplier) to customer relationship was the primary determinant of success. To that end, the buy-sell hierarchy was developed so that businesses could objectively assess their interactions with customers and create more value to increase market differentiation.

The five levels of the buy-sell hierarchy

With these insights, a business will also understand how its customers perceive them. Indeed, Miller and Heiman make mention of the fact that it is the customer who decides which level the relationship occupies – not the business itself.

The buy-sell hierarchy is represented by five levels. As a business moves through each level of the hierarchy, it moves from selling a product to making an important strategic contribution to customer business operations.

Progressing through the levels of the hierarchy, other variables decrease, including:

  • Price sensitivity, or the tendency to seek the best price.
  • Competition.
  • The relative importance of product or service features.

Here is a more detailed look at each level.

Level 1 – Delivers a commodity that meets specifications

On the first level, the customer considers a business to be one of many they purchase from. Businesses who offer non-specific consumer goods and staples occupy this level, as their products or services do not vary significantly from the offerings of competitors.

As a result, there is little to no relationship between business and customer. Price and availability are likely to be the biggest determinants in whether the arrangement continues.

Level 2 – Delivers good products and services

Here, customers view a business as a supplier of good (without being great) products. Businesses have gone some way to understanding customer needs by selling products that deliver real benefits.

However, good products are easily imitated by competitors and in abundance, good products simply become the industry standard. Without constant innovation, the relationship runs the risk of falling back to the first level.

Level 3 – Provides dedicated service and support

On level three, a business has earned the right to be seen as the provider of excellent products or services by going the extra mile for consumers. 

A classic example can be seen in hosting providers. At level 2, the hosting provider may provide a shared hosting plan with email support. At level 3 however, the company may offer a faster server with 24/7 phone support and a dedicated customer service representative.

Level 4 –  Contributes to business issues

Miller and Heiman suggest that the difficulty in moving from level three to level four is akin to “crossing a chasm.” 

At this point, customers make an explicit connection between their success and the products or services a supplier offers. This is only possible when a business takes the time to build trust through a deep understanding of customer problems. Ultimately, the business is rewarded since consumers at this level are unlikely to purchase from a competitor.

Level 5 – Contributes to organizational issues

At level 5, the business is an expert in its industry and can accurately anticipate customer problems before they occur. In some cases, the supplier may assist in developing corporate strategy while simultaneously improving its position in the industry. 

The business provides strategic value to the customer in addition to the more obvious financial value, and a partnership may develop as a result. With the mutually beneficial relationship in place, the transactional value of the arrangement is less important so long as the relationship is in the customer’s best interests.

Key takeaways:

  • The buy-sell hierarchy is a visual means of assessing the strength of the business (supplier) to customer relationship.
  • The buy-sell hierarchy was developed for applications in large account management to enable suppliers to strengthen customer relationships and develop a competitive advantage.
  • The buy-sell hierarchy features five levels. As businesses move through the hierarchy, relationships built on trust and collaboration take precedence over exact pricing and product features.

Connected Business Frameworks

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"