Vendor Relationship Management: Making the Customer King

Stephen DeAngelis

August 21, 2012

According to Harvard University’s Project VRM, vendor relationship management “is the customer-side counterpart of CRM (or Customer Relationship Management). VRM tools provide customers with the means to bear their side of the relationship burden. They relieve CRM of the perceived need to ‘capture,’ ‘acquire,’ ‘lock in,’ ‘manage,’ and otherwise employ the language and thinking of slave-owners when dealing with customers. With VRM operating on the customer’s side, CRM systems will no longer be alone in trying to improve the ways companies relate to customers. Customers will also be involved, as fully empowered participants, rather than as captive followers.” That paragraph is both a bit hyperbolic and a bit optimistic. I doubt that VRM will ever “relieve CRM of the perceived need to capture” customers. Companies obviously prefer establishing unique and exclusive relationships with customers rather than having to compete for them over and over again. I agree, however, that one-sided relationships are not best for customers — which is why VRM came into being.

VRM is a relatively new field. Here is what Wikipedia says about the subject:

“Vendor relationship management is a category of business activity made possible by software tools that provide customers with both independence from vendors and better means for engaging with vendors. These same tools can also apply to individuals’ relations with other institutions and organizations. The term was coined by Mike Vizard on a Gillmor Gang podcast on September 1, 2006, in a conversation with Doc Searls about the project Searls had recently started as a fellow at the Berkman Center for Internet & Society at Harvard University. Vizard saw VRM as a natural counterpart of Customer relationship management. Searls’ project then became named ProjectVRM, and has since worked to guide development of VRM tools and services. VRM tools provide customers with the means to bear their share of the relationship burden with vendors and other organizations.”

To provide a clearer picture of what VRM tools can do for customers, Doc Searls recently penned an op-ed piece for The Wall Street Journal. [“The Customer as a God,” 20 July 2012] He opens his article by imagining what a typical Saturday morning will be like a decade from now. He describes closets full of “smart clothes” that tell owners when they were last worn and cleaned. He describes an espresso machine whose embedded chips inform the owner that it is broken. After receiving that bad news, the owner scans the product on personal hand-held device then verbally commands that device to locate another espresso machine available for rent or purchase. The device, Searls writes, sends out an “intentcast” in order to attract offers from trusted vendors with whom the owner already has a relationship. Shortly thereafter an offer comes in from a reliable vendor willing to fix the old machine or sell the owner a new one. A deal is struck. Searls continues:

“When the replacement arrives, the delivery service scans and picks up the broken machine and transports it to the vendor, who has agreed to your service conditions by committing not to share any of your data with other parties and not to put you on a list for promotional messages. The agreement happened automatically when your intentcast went out and your terms matched up with the vendor’s. Your hand-held is descended from what they used to call smartphones, and it connects to the rest of the world by whatever ambient connection happens to be available. Providers of commercial Internet connections still make money but not by locking customers into ‘plans,’ which proved, years ago, to be more trouble than they were worth.”

Searls indicates that the devices of the future will be more customer-friendly because users will be involved in their design and refinement. “Manufacturers [will] welcome good feedback and put it to use. He explains, “New technology not only evolves rapidly, but appropriately. Ease of use is now the rule, not the exception.” Depending on your point of view, that future can sound either empowering or frightening. Searls believes it will be empowering because customers will decide how their personal data is used and shared. He continues:

“Everything that I just described can be made possible only by the full empowerment of individuals—that is, by making them both independent of controlling organizations and better able to engage with them. Work toward these goals is going on today, inside a new field called VRM, for vendor relationship management. VRM works on the demand side of the marketplace: for you, the customer, rather than for sellers and third parties on the supply side. Since the Industrial Revolution, the only way a company could scale up in productivity and profit was by treating customers as populations rather than as individuals—and by treating employees as positions on an organization chart rather than as unique sources of talent and ideas. Anything that stood in the way of larger scale tended to be dismissed. The Internet has challenged that system by giving individuals the same power. Any of us can now communicate with anybody else, anywhere in the world, at costs close to zero. We can set up our own websites. We can produce, publish, syndicate and do other influential things, with global reach. Each of us can be valuable as unique individuals and not only as members of groups.”

In fact, the Internet gave rise to what became known as the Super-Empowered Individual. An individual in a remote location with a good idea and access to the World Wide Web can start a movement. The Arab Spring was demonstration of this phenomenon. But more can be done to empower individuals. Searls notes that “the Internet is young, and most development work has been done to improve the supply side of the marketplace.” He continues:

“Individual customers have benefited, but improving their own native technical capacities has attracted relatively little interest from developers or investors. As a result, big business continues to believe that a free market is one in which customers get to choose their captors. … It’s why big business thinks that the best way to get personal with customers on the Internet is with ‘big data,’ gathered by placing tracking files in people’s browsers and smartphone apps without their knowledge—so they can be stalked wherever they go, with their ‘experiences’ on commercial websites ‘personalized’ for them. It is not yet clear to the perpetrators of this practice that it is actually insane.”

Searls is a bit harsh in his criticism of big data and the analytical information that can be obtained from it. A great deal of understanding and good can be gained by uncovering patterns that might otherwise be difficult to discover. Big data analytics can save resources, alert organizations to potential threats, and direct organizational efforts into more productive areas. I believe, however, that his criticism is more narrowly aimed at how companies seek to attract customers. Surely, it would be better to for customers to let businesses know what their preferences are rather than having companies trying to devise ways to gather that information using what some consider surreptitious methods. Searls calls this “insanity” and indicates that “the only way to stop this insanity is for customers to start showing up as human beings and not just as cattle to be herded.” He explains:

“That is what VRM is for. In the not-too-distant future, you will be able, for example, to change your contact information with many vendors at once, rather than many times, over and over, at many different websites. You will declare your own policies, preferences and terms of engagement—and do it in ways that can be automated both for you and the companies you engage. You will no longer have to ‘accept’ agreements that aren’t worth reading because, as we all know, they cover the other party’s butt but expose yours. In addition to your personal tool kit, you’ll have software that can knit together your apps with the services offered by companies, saving work for you and creating business for them—all in real time.”

Searls may underestimate the power of lawyers in drawing up terms of engagement, but, for the most part, I believe that many reputable businesses would be willing to engage in the kind of relationship with customers that Searls describes. As I noted in a previous post, many analysts believe that we entering an era that will be defined by customization; however, customization can only go so far and still allow companies to be profitable. That’s where I see a continuing tension between CRM and VRM. I suspect that there will need to be compromise from both the supply side and the demand side.

One of the interesting things that Searls discusses in his article is how VRM tools will help eliminate information silos. He writes:

“With new VRM tools, you will be able to work not only across many silos at once but to improve them by making connections and providing useful data they wouldn’t get on their own. In the process, you show your value as an independent customer to the whole marketplace.”

By showing “your value” to “the whole marketplace,” your information becomes part of big data (the same big data that Searls railed against earlier). He claims that “once economic signaling starts to crank up on the demand side of the marketplace, the supply side will have to start regarding customers as complex and fully empowered actors.” But the supply side will only recognize these “fully empowered actors” because they are using big data analytics to uncover their economic impact. Money still talks and the supply side still needs to understand the demand side. Helping them do that is what Searls sees VRM tools doing in the future. He concludes:

“The move toward individual empowerment is a long, gradual revolution. It began with the first personal computers, which caught on in the early 1980s. … The next stage in the revolution was networking. … The third stage was smartphones. … Smartphones do provide a lot of freedom, but they are still controlled by phone companies, and in some cases (notably Apple’s) also by the manufacturer. … This revolution in personal liberation and empowerment won’t be complete until we are free to use our computing and networking powers with any device we like, outside the exclusive confines of ‘providers.’ This won’t be easy. Big companies and old industries are notoriously bad at changing their ways and giving up control, even when obvious opportunities argue for embracing openness and change. … Progress in empowering customers won’t be smooth or even, but it will happen. Today, the supply side still reigns, but by the time of that dinner party in 2022, everyone will understand that free customers are more valuable than captive ones.”

My suspicion is that Searls’ timeline is a bit ambitious. He admits that change won’t be easy. Even easy changes can take a long time. Hard changes can take decades and I suspect to fully implement Searls’ vision will involve hard changes.