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It Is About The Relationship Not The Transaction

Co-creation emphasizes the generation and ongoing realization of mutual organization-customer value. Historically, organizations spent too much time and effort to extract as much value out of a relationship as possible. Unfortunately, customers are now more knowledgeable, connected and interactive than they have ever been. This was one of the themes in my Evolution of the Contact Center post last month, I subtitled this ‘Governance’. In trying to play catch-up on my reading, the June issue of Harvard Business Review took a similar stance.  They called it “Pricing to Create Shared Value” (by Marco Bertini and John T. Gourville).

While my focus was (and still is) customer service, the HBR article in the June 2012 issue focuses much more on pricing strategies. There are some great examples, ones many of us have heard before. The airlines (yes, the poster child for doing things wrong). Do everything they can to extract value. Once you have confirmed your seat, everything else is a cost; from baggage to pillows. In this instance, the overall customer experience is abysmal and the traveler is left with a sour taste in their mouth.

Where does value originate?

Before I read this article, I had not considered this point. According to the authors “value neither originates with nor belongs solely to the firm. Without a willing customer, there is no value.” Fascinating in the simplicity of the statement. When I was first reading the article, I was about ready to challenge the premise, until the last phrase. Without a customer, there is no value – simple really. The authors extend the premise by simply using logic. If you cannot have value without a customer, value must be shared. Value can be enhanced (expanded) via co-creation. It is true that there is a little bit of chicken and egg going on here, as the company must initiate the process of creating something valuable, but it is positive feedback loop if done right.

Price, Money or Value?

Money or currency always seem to be an afterthought in these conversations. Academics talk about value exchange, when they really just do not like say the word ‘money’.

“Consumers often come to identify with the brands they buy, and firms hope to encourage this, preferring loyal customers to ones who engage on a merely transactional basis. But pricing decisions often undermine the relationship between brands and their followers.”

Why is it that pricing decisions undermine the the relationship? Because, the firm tries to extract as much value from the individual as possible (to make the numbers). However, if the firm is transparent about how it makes money  – yes, businesses are there to make money – the transparency builds trust and loyalty. Within the article, there is an a great example, especially for those who have heard the phrase ” You do not actually want a drill, what you want is a hole in the wall”. Hilti is a company who created a Fleet Management program, operating on just this premise. The realization was that construction company’s do not really care about owning tools, what they wanted is the outcome of using the tools (aka a hole in the wall or a hole in the ground).

There is a whole lot more to the article, I only hit the tip of the iceberg, well worth the read.

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  1. July 18, 2012 at 2:40 pm

    Reblogged this on BPO According To Mike and commented:
    It is amazing how many organizations have worked hard at removing the “Relationship” from business. Take for instance the use of a Procurement or Sourcing department. These departments are professional buyers of goods and services, whose entire mission is to extract as much value as possible from a new vendor. (i.e. – get the best service for as cheap as possible) The issue here, as the article describes is that by starting a relationship in this manor places the “Relationship” secondary, and forces the new vendor to already be on the defensive because of tight margin to provide the goods/services requested.

    So my question is simple, does procurement and sourcing teams help establish sound business relationships, or does it simply create a transactional business environment?

    • Mitch Lieberman
      July 19, 2012 at 5:35 am

      Mike,

      Thanks for stopping by and your point is excellent. This is especially true in government and anything with a high level of scrutiny. My experience is exactly what you describe, even further the procurement folks almost feel like an ‘objective third party’ in the transaction. I can see why some of these are in place, however. Being from a small state, with small companies trying to make their way in, they are blocked by the ‘old boys network’ in many companies.

      In this case the relationship is being abused, my opinion, and there is another element at play which alters the value equation. Interesting…

      Mitch

  2. TedRubin
    July 19, 2012 at 7:50 am

    Great post and insights Mitch. No matter what anyone in the automated, re-order, multi-touch CRM world says… It is All About Relationships, and always will be especially as everything being sold becomes more commoditized. Good customer service, updated info, valuable content, follow-up… even if not done one-to-one, but many-to-one, that’s relationship building.

  1. July 20, 2012 at 10:55 am

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