Vendor Relationship Management

With VRM, the customer is in charge of the relationship. Not the vendor.

We will be able to manage vendors at least as well as they manage us.

- Doc Searls

If we are moving towards a Intention Economy or a Pull Economy, where the demands of active consumers become primary, rather than the supply of vendors, then we need a new type of tool, so that we as consumers, can manage vendors relations and become independent of any one of them.

Citation

Doc Searls:

"I want to notify the whole market that I want to rent a car, in effect a personal RFP that goes out when I arrive at the airport to Hertz and Avis and all the others. I would like to be the bridge. I would like to handle my own health care data. I should be able to inquire and relate to whole markets, on the fly." The users need to be the platform of the future." (http://www.lunchoverip.com/2007/12/leweb3---doc-se.html)

Description

Doc Searls:

"Imagine being able to relate to vendors -- productively, on mutually agreeable terms -- rather than just paying them money for whatever they're selling, and occasionally giving them "feedback" through surveys that aggregate our "input" inside some impersonal "customer relationship management" (CRM) system. That's the idea behind VRM, or Vendor Relationship Management. It's the reciprocal of CRM: a toolset for independence and engagement. That is, of independence from vendors and engagement with vendors."

""...the inside-out nature of relationships between customers and vendors. That is, customers are at the center -- at the inside -- and relate outward toward any number of vendors. The idea is not to take the old top-down few-to-many pyramid of vendor-controlled markets and turn it upside down, with customers now on top. Instead, we equip customers with the means to function in more ways inside marketplaces, at the center of relationships with any number of vendors."

2.

"VRM, or Vendor Relationship Management, is the reciprocal of CRM or Customer Relationship Management. It provides customers with tools for engaging with vendors in ways that work for both parties.

CRM systems for the duration have borne the full burden of relating with customers. VRM will provide customers with the means to bear some of that weight, and to help make markets work for both vendors and customers — in ways that don't require the former to "lock in" the latter.

The goal of VRM is to improve the relationship between Demand and Supply by providing new and better ways for the former to relate to the latter. In a larger sense, VRM immodestly intends to improve markets and their mechanisms by equipping customers to be independent leaders and not just captive followers in their relationships with vendors and other parties on the supply side of the marketplace.

For VRM to work, vendors must have reason to value it, and customers must have reasons to invest the necessary time, effort and attention to making it work. Providing those reasons to both sides is the primary challenge for VRM." (http://cyber.law.harvard.edu/projectvrm/Main_Page)

3.

"VRM’s goal is to help you play a larger role in the relationship between you and your vendors. Though its origins are earlier, the term stems from a conversation at Visual Identity World in Denver in 2004 where Drummond came up with “CoRM” (Company Relationship Management – later modified by Mike Vizard during a discussion on the Gillmore Gang to VRM). Any technology or system that puts the customer at the center of the relationship falls under the general umbrella of VRM, but the canonical version sees you owning all of the information that is currently locked in each vendor’s silo and sharing it with vendors as you choose. Obviously a strong sense of Identity along with the principles of Data Portability need to be in place for this vision to become a reality." (http://drstarcat.com/archives/29)

Requirements

"There are a number of technical things that are needed: a robust way for customers to manage their own online identities without getting trapped in any vendor's silo, a way for customers to only share the aspects of identity that they want to share with a particular vendor (perhaps anonymously), and a robust way for vendors to interact with those customers. But more importantly than the technical aspects, the cultural shift of actually putting the customer in charge may end up being the largest challenge." (http://www.socialcustomer.com/2006/12/vrm_vendor_rela.html)

Characteristics of VRM

• Data Independence - "Individuals needs to own and control their own data, independent of vendors"

• Customer-Centricity - "Customers are at the center -- at the inside -- and relate outward toward any number of vendors"

• Reputation, Intention and Preference - "All three bear on relationships, and there is an enormous amount that can be done with each of them."

(http://lists.ssc.com/pipermail/suitwatch/2006-December/000124.html)

• A "personal RFP". Requests For Proposal, or RFPs, are formal appeals for bids that companies send out to suppliers.

Advantages/Disadvantages

Graham Sadd:

Buy-side benefits of VRM:

1. My identity, multiple persona and personal data and documents, stored in my personal, secure ‘digital safe deposit boxes’ accessible only by me.
2. The ability to ‘share’ relevant data or documents, on demand or persistently, with specific suppliers with whom I want a relationship.
3. The convenience of ‘write once, use many’.
4. An audit trail of organisations that have, with my permission, viewed or copied information.
5. The ability to have specific data and documents ‘authenticated and certified’ by appropriate trusted third parties and agencies to increase trust/value.
6. Revenue potential for me to ‘market’ my personal information (eg anonymous medical records).

Sell-side benefits of VRM:

1. Reduced costs of collection, storage, maintenance.
2. Increased accuracy and granularity of data (what I want rather than what I have bought).
3. Reduced risks, financial and criminal, of data abuse/loss.
4. Improved relationship with respect for my information.

VRM issues:

1. Drivers – victims of identity/information abuse; convenience of ‘write once, use many’; income from personal data marketing.
2. Laziness – many individuals will baulk at the prospect of entering sufficient data to enjoy the benefits of VRM. They are, and will continue to be, content with being ‘managed’ until abused.
3. Resistance – defence of suppliers legacy systems/process/investment.
4. Trust – verification, authentication and certification of identity and data by trusted third parties will be a growing service, as will independent key server providers for security."

(http://www.mycustomer.com/cgi-bin/item.cgi?id=133716&d=101&h=817&f=816)

Discussion

Critique

Graham Hill:

"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:

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." (http://www.customerthink.com/blog/four_fallacies_vendor_relationship_management)

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."

More Information

Project VRM

1. VRM Working Group
2. The Social Customer Manifesto, at http://www.socialcustomer.com/2006/12/vrm_vendor_rela.html

Podcasts:

1. Discussion on Vendor Relationships Management
2. Doc Searls on Vendor Relationships Management