Vendor Relationship Management (VRM) - Customer Relationship Management

VRM has a heck of a pedigree.It has landed a wiki at Harvard University called Project VRM and is the product of the fertile mind of Doc Searls (though he didn’t name the technology—Mike Vizard did).Searls is one of the authors of The Cluetrain Manifesto, which is perhaps the best book (if a bit dramatic) on the thinking of the new customer that has been written to date.

VRM is not hard to understand:It is the actions taken by the customer to control the business environment that they are apparently in control of.The name is unfortunate and a bit boring, but the concept is fortunate and anything but boring.The idea is that customers have the means to sculpt their own experience and determine their own fate when it comes to how they deal with businesses of interest.The (abbreviated version of the) definition given to the technology by Project VRM, which is run by Doc Searls and Harvard University, is:

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. . . . 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.

It is the equivalent of the labor side of the labor/capital equation of old.VRM provides customers with the tools and strategies to control the ecosystem that businesses now seem willing to cede to them.

Now it’s time for that handshake and the large café mocha with nonfat milk.Readers, this is Chris Carfi, the CEO of Cerado, a social networking software company and the guy who writes the amazing (and funny) “Social Customer Blog.” As one of the foremost experts in the field, Chris can tell you considerably more about VRM than I can.That’s why he’s hanging out with us.Hey Chris.This is the reader.Reader, Chris.Dude, tell them about VRM.You two enjoy your coffee.I’m going to keep writing.

Conversations with a Regular Expert, Chris Carfi
As of this writing, vendor relationship management (VRM) is an emerging initiative that is creating tools for individuals to manage their relationships with vendors.Now, think about that for a second.VRM is about giving individuals tools to manage their relationships with their vendors!(This is in marked contrast to the traditional role of CRM systems, which gave vendors tools with which they could manage, manipulate, and extract value from customer data and information.) Initially conceived by Doc Searls as the reciprocal of traditional CRM, VRM starts with the individual and seeks to build mutually beneficial relationships between buyers and sellers. Project VRM is an initiative sponsored by the Berkman Center for Internet and Society at Harvard University.

As CRM systems have evolved, organizations have created myriad methods to store, manage, and mine information about their customers.However, these interactions are historically very one-sided;the vendor keeps all the information, and the customer is a passive participant in the transaction, merely exchanging cash for product.But something has changed, and this change affects both sides of the interaction.

On one side, customers are beginning to realize that they are powerful, far more powerful than they have ever been in the past. Through the opportunities to publish their experiences for the world to read (and more importantly, find via search engines), customers are sharing their first hand accounts of their interactions with vendors. They are not only publishing their thoughts on their personal spaces such as blogs, but they are also banding together in online communities such as Yelp, an online review site, in order to proactively praise vendors or warn others away based on a subpar experience.

On the other side, for a vendor that traditionally held all the cards, this increase in customer power is a frightening proposition.Correspondingly, a vendor today can choose to go in one of two directions, either moving toward a direction of maintaining the status quo in an attempt to control all aspects of the customer experience, or lowering the drawbridge to give customers access to the information, the processes, and, most importantly, the people who comprise the vendor organization.

With these changes comes a revelation and a requirement:customers (that is, “we”) need to have tools that allow us, as individuals, to manage our information and relationships, tools that are independent of the CRM systems that vendors have in place.VRM is about the creation of those tools.

So, What Do You Mean by Tools?
Let’s take a simple example, that of a customer’s address.In today’s world, every vendor with which a customer does business has a copy of that customer’s address in its CRM system.Every credit card company, every hardware store, every online catalog, Amazon, the iTunes store, you name it . . . every one has its “version” of the address, with varying levels of accuracy in the data.

Now, the customer moves to a new apartment across town.The way things are today with traditional CRM systems, the customer must enter into an arduous, perhaps months-long process to contact every one of those vendors in order to attempt to change her address.Dozens of phone calls, innumerable postcards, hours on hold in vendors’ call centers, and hundreds of mouse clicks, just to change an address! It is in some ways both humorous and tragic that this is an instance where a physical move of every atom in an individual’s possession only takes a weekend, yet changing a few bits of digital information about that individual might take many months.

VRM proposes a better way for all parties involved and proposes that the customer is in true, independent control of her own information.The customer then selectively grants access to that information to the vendors she chooses.

So how would the scenario above work in practice?While there are myriad implementation options, there are a few fundamental concepts that are illustrative, all of which center around this idea of a personal data store where an individual can collect, store, and selectively grant access to information.

By way of a partial analogy, think about how photo-sharing sites such as Flickr work today.Let’s say your name is John Jones.Flickr gives each individual a unique URL such as flickr.com/johnjones, which can then be shared with others with varying levels of privacy (typical privacy levels would be “everyone, ”“friend, ”and “family”).Instead of giving everyone his photos, John Jones instead keeps his photos in one place and gives others his URL, to which he grants selective access to various photos to various individuals.

Now, the one place where the analogy above admittedly breaks down is that John Jones is still delegating all responsibility to Flickr to keep his photos safe and accessible. But what if he had his own domain, such as johnjones.com, where he could store all his digital information? He could set up a directory, such as johnjones.com/address/, where he could store his address information in an open format such as hCard or vCard.Now we’re getting somewhere! With this setup, when John moves, he simply needs to let all his vendors know simultaneously that they can get his new apartment address at johnjones.com/address/johnjones.vcf and voilà, problem solved.

A more pressing case of the need for VRM comes in the health care arena.Currently, every doctor, every hospital, and every health care system has its own “version of truth” with respect to information on a specific patient.Although (in the U.S., anyway) doctors will give you your health care records upon request, that information is in either printed or fax form, and every doctor you’ve ever visited has a different set of information about your history, based solely on the tests and procedures that she may have performed on you.In the best case scenario, you can walk into a new doctor with a footlocker filled with every bit of medical information on your case history, written in a number of different scrawls.Now, realize that doctor has only allotted 10 minutes to see you.Will that doctor be able to find the needle in the haystack that might enable her to give you the best care?Not likely.

What is more likely is that you’re handed a clipboard upon walking into the office, asking if you know if you have one of dozens of different (and possibly serious) conditions or if you have any known allergies. What if you forget one? What if you spell the name of something wrong? In today’s world, your health and well-being, your possibility of becoming another statistic listed under the euphemistic heading of “negative outcome” on a report, might be based on something as mundane as a typo or a momentary memory lapse.

In a VRM scenario, the situation is quite different.With a VRM model in place, our protagonist would be able to set up into which he could store his medical records.In this personal “health vault, ”John would be able to store the information of all his tests, both common and obscure, past MRIs and x-rays, as well as an ongoing record of any medications he is (or had been) taking. And, when he goes to his new doctor, he can grant his doctor access to and give his doctor the information she needs in order to provide him the best care available.

This idea of a VRM-centric personal data store also can be applied to the more common interactions we have with vendors of all stripes on a regular basis. Let’s say you have a personal blog up at mypersonalblog.typepad.com.One can, today, publish a “feed” of relevant information to which the smart vendors will be paying attention.To that end, let’s use a VRM-based model to purchase a car.Here’s what we want:

  • Looking to:Buy
  • Make:Toyota
  • Model:Prius
  • Model year:2006 or later
  • Trim package:GS
  • Zip code for delivery:94063
  • Contact URL

By simply creating a blog post with this information, John Jones has placed a demand signal into the marketplace.Now, the smart vendors out there should already be setting up alerts that are looking for blog posts or web pages that contain phrases like “looking to buy” and the name of their product or service.Upon seeing this information in John’s feed, vendors who are interested in creating a business relationship should be reaching out to him with further information about how they might be able to fulfill his needs.

VRM:The Reciprocal of CRM
Traditional CRM systems typically address three touchpoints with customers:marketing, sales, and support. So, if VRM is about creating mutually beneficial relationships between customers and vendors, what are the customer side analogues to marketing, sales, and support?

Happily, the answers are intuitive.If marketing is what a vendor does before a sales transaction occurs between itself and a customer, then the customer-side analogue to “what happens before a transaction” is search. So, the VRM model must support search, where a customer can look for as well as store and collect information about vendors and/or products that she in interested in learning more about.

Similarly, when a customer is ready to engage in a transaction, she should be able to place a demand signal into the market, as was exhibited earlier with the auto purchase example.This can be thought of as the case where a customer engages in shop activity to engage in a transaction with a vendor.

To round out the model, a customer needs to be able to get support from vendors with whom she has a business relationship.But instead of navigating through a morass of phone trees or less-than-stellar FAQ (frequently asked question) lists on a vendor’s site, the customer needs to be able to put a description of the problem into her personal data store, to which the vendor (or, perhaps more interestingly, a member of the community at large) can proffer a solution.

Transaction—Conversation—Relationship
The other major difference between VRM and CRM is one of central focus.Perhaps cynically, the implicit question answered by CRM systems has historically been “what can we do to leverage the information we have about this customer to get the customer to engage in (another) transaction? ” The driver behind VRM is very different;VRM is about how a customer manages his own information, independent of any vendor’s silo, in such a way that he is able to engage in the types of business relationships that he desires.

A stellar model for this point of view was put forth by Doc Searls in a December 26, 2007, blog entry.In this post, he notes that there are three levels of interaction:

  • Transaction
  • Conversation
  • Relationship

This perspective is one that is quite different from one that is being myopically driven through quarter-by-quarter financials.Instead, this model notes that the conversation (that is, the interaction of human beings exchanging information and growing increased context) is the cornerstone of customer-vendor interaction.This also implies that, as conversations progress, a (true) relationship develops between a customer and one or more individuals in a vendor organization.

It also means that the transaction is not the paramount artifact of the interaction.Instead, a transaction becomes a “side effect” of rich relationships that are built on conversation.

This notion is fundamental, and is a radical switch in priorities for the interaction between customer and vendor.Instead of the transaction being the goal of the interaction, it instead becomes a side effect.

There are both pragmatic and strategic reasons for an organization to care about VRM.On the practical side, the best person to manage data about an individual is . . . the individual herself! This is the one person who wants to make sure that all information about her is correct, especially when dealing with vendors of high importance (phone, gas, electric, credit cards, etc.) or high value (providers of goods or services that she greatly likes).In fact, enabling the individual to manage her own information could make a dent in the data quality problems that the Data Warehousing Institute estimates costs businesses $600 billion a year.Similarly, a VRM approach where customers explicitly grant access to their information to trusted vendors ensures adherence to privacy laws such as CAN-SPAM.

More interesting, however, is the strategic benefit to vendors that is inherent in a VRM-based interaction with customers.For example, when a customer is searching for information, that is the perfect time for a vendor to get in front of him with information about how that vendor might be able to meet a need.(This was the genius behind Google AdWords.)When a customer puts a “personal RFP” out into the marketplace, it is the perfect time to begin a new relationship with a customer.When a customer notes that she needs assistance with an existing product, the vendor who can ride to the rescue and make a virtual house call to solve the problem is the one the customer will tell her friends about.

The benefits are clear to the vendors who are engaged.

Where VRM Goes from Here
One thing that can not be overemphasized is that, at the present time, the VRM movement is extremely nascent.The concepts offered in this section are the state of the art as of this writing, in mid-2008.However, as with all organic, community-based efforts, its exact endpoints are nearly impossible to predict.Will we end up with tools that grant customers the power and independence to interact on a peer-level with vendors?This outcome is likely, and perhaps inevitable.Can we predict with any credible certainty a date by which this transition will take place, or what it will exactly look like in its final form? Those answers, on the other hand, are less clear.What we do know, however, is that these changes are afoot, the customer is in (increasing) control, and the direction of movement toward increasing customer power is clear.


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