Transactions, Conversations and Relationships

Christopher Carfi—Cerado, Inc.
Member

Posted 09-Nov-2004 11:43 AM
Had a very interesting dinner on Saturday with a bunch of folks, including Doc Searls, who wrote Cluetrain.

Not surprisingly, we got to talking about conversations and relationships between customers and companies.

The whole story is here , but the most salient bit was the following:

"[When there is a true relationship] everything about the transaction, including the price, must be mutually discovered."

So gurus, do you agree?

Simone Oltolina
Member
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Posted 09-Nov-2004 12:05 PM
I diligently followed the link and read the whole story. Basically your "nigerian gentleman" is talking about what academics around the world have termed "relationship marketing." Agreed, between the buyer and the seller there is much more going on that a mere transaction. This concept was popularized in the '80s by studies conducted in B2B environments and (later) in services. Relationships between vendors and buyers can be either weak (meaning that there is just a little dialogue going on but not much else) or strong (if they involve a greater level of commitment, like investment to build EDIs, networks or integrated logistics and they're handled in a customized/individualized way). So yes, even the price can be the result of a mutual agreement. Price discrimination exists even in consumer markets (it's called dynamic pricing), but it's a quite controversial topic because of ethical concerns.

Amazon.com, if I'm not mistaken, tried its hand with that once but was forced to retreat when customers discovered that they were paying different prices for the same item.

Apparently, there is a solution to that: you can still use price discrimination, albeit in a disguised way. Use discounts (higher-value customers get the bigger ones, of course) and slight changes in the product configuration to make sure you reward your loyal and valuable customers without the mid- and low-tier ones noticing it.

Christopher Carfi—Cerado, Inc.
Member

Posted 09-Nov-2004 12:53 PM

Price discrimination exists even in consumer markets (it's called dynamic pricing), but it's a quite controversial topic because of ethical concerns.

I think you missed the point. It's not price discrimination, it's price discovery. If this level of relationship is being achieved, there is no "discrimination," which implies the seller setting different prices for different buyers. This is wholly different, although the end result may look similar on the transaction dimension ("different prices for different people"). This indicates that the relationship affects the price—and it can move in either direction, based on a mutual agreement.

Apparently, there is a solution to that: you can still use price discrimination, albeit in a disguised way. Use discounts (higher-value customers get the bigger ones, of course) and slight changes in the product configuration to make sure you reward your loyal and valuable customers without the mid- and low-tier ones noticing it.

This parargraph is at the heart of the issue. This assumes that the seller sets the price and all the parameters, and the customer needs to take-it-or-leave-it. IMHO, there's neither conversation nor relationship in that scenario, and it's purely transactional, which is the core of the problem.

Simone Oltolina
Member
Picture of Simone Oltolina

Posted 09-Nov-2004 11:17 PM
mmm, I still can't see the difference between "price discrimination" (maybe I chose the wrong word, I didn't mean it in a negative sense) and "price discovery". If I'm a medium-sized company that signs a major, 5-years-long, supply deal with a vendor, then I'll probably want to know my supplier better (after all I'm betting on its reliability). There will be much "dialogue" going on (which is no chitchat between friends because, after all, we're still doing business) and the price is the result of a long discussion/debate between the parts involved. The price can go down ("We've been doing business with your firm for years and we were never late on payments", "heck, we're paying in cash!", "look, we can lend you a couple of engineers to look after that problem you were talking about, does this make us friends?") or up ("ok, you're doing much more for us than merely supplying technology, you helped us develop a new breed of products so I'll gladly pay you more") as you suggested.

What about relationships in consumer markets, where you (often) have millions of customers? (unless we're discussing neighbourhood boutiques or small companies where everybody knows the customers by name). There can still be a relationship but it has to be largely automated. So, "price discovery" can't be the result of a dialogue because I don't see Amazon.com bargaining via email with each customer that makes a purchase. But: the CRM infrastructure can help keep track of data about the customer and handle the relationship with him (which is not merely a series of transactions beacuse there are other aspects like customer care, one-to-one marketing campaigns, etc.) in a personalized, quasi-human, way. An evangelical approach to CRM would probably state that it strives to recreate in a large-scale market the degree of intimacy that your average neighbourhood shop can build with its clientèle. This is the ultimate GOAL. In such a scenario, which is needless to say, far removed from the present reality, you can have dialogue and TRUE relationships even in consumer markets. But as I wrote, we're still far from it.

On a tangent: these are just my opinions on the topic. I'm not a "guru", nor pretend to be one. On the contrary, I'm eager to read what the true experts here we'll say.... In the past I found their advice/help/opinions to be extremely valuable and insightful.

Graham Hill
Guru
Member

Posted 09-Nov-2004 11:43 PM
Christopher

I am not so sure that it is Simone who is missing the point!

When talking to a Nigerian the first thing that should come to mind is that society is very different in Nigeria compared to, say, California. And even within Nigeria, society within Christian-dominated areas is very different to society in the much larger Muslim-dominated ones.

The way that transactions are made, conversations are had and relationships are developed, strongly reflects the society in which people are brought up and the society in which they live.

I am not an expert on Nigerian society, however I would suggest that Nigerian society and the markets within it are likely to be much more local, barter-based and 'traditionally' regulated than free-for-all, open markets in California. If that were the case, you would expect that transactions in Nigerian markets would be made more carefully, ideally with people you know, than in California.

In such a market, conversations would be more useful in establishing the intentions of the other party than in a highly-regulated Californian market. And price would have to be mutually agreeable and fair to both parties if they expected to do business again. And in local markets, the probability of having to do repeat business is obviously much higher.

Transactions made with the support of conversations and relationships are important in all societies. But I suggest they are both easier and more necessary in Nigeria than in California.

As Simone pointed out in a different context. I don't want a conversation with Amazon and you can forget about a relationship. I just want the right books, with as little hassle as possible, as quickly as possible and at the lowest price possible.

That sounds like a fair transaction to me.

Graham Hill
Independent management Consultant

Christopher Carfi—Cerado, Inc.
Member

Posted 12-Nov-2004 08:36 AM

The way that transactions are made, conversations are had and relationships are developed, strongly reflects the society in which people are brought up and the society in which they live.

That may be the core of my question to the group: are we moving more toward a society where "real" relationships are important between companies and the individuals who represent them, or are we moving further away, toward a more transactional model?

UPDATE: After looking at the above paragraph, it needs to be tweaked a bit. Graham, your point about Amazon is well-taken—for you, you've stated you don't want a relationship with them; it sounds like you want a transaction and a book. Perhaps a more accurate question would be:

"for which industries and classes of products, if any, are conversations and relationships becoming more important and for which industries and classes of products, if any, are we moving toward more commoditized, transactional exchanges?"

Graham Hill
Guru
Member

Posted 15-Nov-2004 12:29 AM
Christopher

You raise a very interesting question, namely, whether society in general, and customers in particular, expect to have more or less of a relationship with the companies they do business with. Or whether nothing has really changed.

This has been an area of interest to those involved in branding for some time. For example, Rice & Hofmeier developed their 'committment model' to identify customers who were emotionally loyal' to particular brands and effectively unavailable to other ones.

But do more customers actually want to have a relationship with a company?

Relations are expensive and time-consuming to develop and maintain. Most studies that I have seen suggest that only up to 5% of customers ever get to the level where they have any kind of real relationship with a company. One that makes them emotionally loyal to it. And most of these customers already had a relationship with a person in the organisation. Most customers are retained because it makes economic sense to stay, because there is no economic reason to switch, or becuase there is a switching barrier like a contract. And none of these studies suggest that customers either want more or less of a relationship with companies than previously.

I suggest that customers can't afford to invest in relationships with anything but a small minority of companies and then only with ones where a relationship would be emotionally rewarding, like Harley Davidson or perhaps Disney. Most customers reserve real relationships for real people and relegate the vast majority of the companies that they do business with to some sort of ongoing transactional relationship.

In my experience, I see no real change in customer's core values, attitudes and behaviour or any change in their relationships with companies.

Graham Hill
Independent Management Consultant

dorthy5
Member

Posted 06-Apr-2007 07:03 AM

"[When there is a true relationship] everything about the transaction, including the price, must be mutually discovered."

I am sure many people with marketing background will agree on that, but from senior management level, I would like to advise that Relationship is the most important building block between a customer and client.