Four Fallacies of Vendor Relationship Management

I have followed Doc Searls' VRM Project for some time. VRM is Doc's response to the problems of customers getting the rough end of the stick in their dealings with companies. Rather than companies owning huge databases of customer transaction data which they can mine for their own advantage, customers should take control of their own transaction data and selectively release it to companies when they want something from them. Sounds simple enough doesn't it. But the devil is in the details.

The problem I have with VRM is that it suffers from a number of obvious fallacies. Each one by itself is probably fatal for VRM, and collectively, well, read for yourself:

1. The Fallacy of Ceding Control - For data rich companies like mobile telcos, credit cards and utilities, cutomer transaction data is a source of huge commercial advantage. It creates literally billions of dollars of incremental revenues for them. Why would these companies and the many others like them give up their expensively collected data and the power it confers, to a rabble of customers? Would you if you had paid millions to collect it?
   Fallacy One: Companies are just not going to cede control over customers' data.
2. The Fallacy of Wanting Control - Which customers actually want control of all their transactional data, have anywhere to put it or would know what to do with it? What are they going to do with all those gigabytes of telephone CDRs, supermarket transactions, credit card transactions and all the other myriads of on and off-line purchase data?
   Fallacy Two: Customers way want more control over the marketing which is sent to them, but not their actual transaction data.
3. The Fallacy of Managed Markets - VRM seems to rest on the assumption that it offers a superior way of deciding what products, services and expeiences to offer to customers than the current free market system. Marketers are currently free to offer their wares to customers through advertising and targeted marketing to the market as a whole. They are not perfect at it, but by and large it works. Customers are offered a huge range of products and are perfectly able to decide what they want and what to ignore. I am not sure why customers reqesting that companies make specific offers to them is in any way better. The customers ends up with all the work of researching the products they want. Each tin of beans, each torch battery, each litre of drinking water. Customers would end up limiting their own choices of product, choices of company and that would only lead to one thing. Higher prices!
   Fallacy Three: The customer-managed market upon which VRM is built is not viable.
4. The Fallacy of the Economic Model - Transaction cost theory suggests that companies only exist as a bettter way of organising to produce standardised products than markets of individuals. If everyone wants an iPod then better that a company does all the work to design, make and market it than individuals themselves. What do I know about integrated circuits and memory chips? Precisely zero! And what did I know about the iPod until Apple designed, made and marketed it? Precisely zero! By and large the current system works well and has allowed a huge range of products to be available to you and I. The free market system has driven unprecedented prosperity in those allowed to participate in it too. I don't see many people queueing up to enter into planned market economies these days? Why throw all that away for a transaction cost heavy model whose economics hasn't even worked out, let alone tested and proven?
   Fallacy Four: There is not a viable economic model underneath VRM.

Whilst I agree in principle that customers need to be given much more control over how they are managed by the companies they transact with, there are already partial solutions in existence such as customer managed relationships, multi-sided markets and even infomediaries, that enable this. VRM is an extreme solution that no-one is really looking for. Not Customers, not companies, not markets, no-one.

What was it that Winston Churchill said about "democracy being the worst form of government, except for all the others that have been tried"?

What do you think? Is VRM the answer to customers' control problems? Or is it just a well-meaning pipedream?

Post a comment or enail me at graham(dot)hill(at)web(dot)de to get the conversation going.

Graham Hill
Customer-driven Innovator
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Further Reading:

Doc Searls, Project VRM

Paul Greenberg, "Customer Managed Relationships": I Never Thought I'd Have So Much Fun in the Bathroom

Andrei Hagiu, New Research Explores Multi-Sided Markets

John Hagel, Return on Attention and Infomediaries