posted 18 Apr 2005 in Volume 8 Issue 7
The customer is (finally) king: Knowledge sharing, collaboration and communities in a buyer-centric marketplace
The buyer-seller relationship is changing. Driven by shifts in the global economy and fuelled by the proliferation of knowledge-sharing networks and collaborative communities, the customer is finally taking charge. KM practitioners in turn will play a key role in the transition from a marketplace dominated by seller/push, to one increasingly characterised by the emergent buyer-centric model. By Jan Wyllie
Two of the most important contributions knowledge management has made to organisations are in the fields of knowledge sharing and collaboration. Successful knowledge-driven organisations do not act on the basis of personnel hierarchies, ideologies and prejudices; they act on the basis of the best available knowledge and expertise and, by being effective collaborators, apply that knowledge to achieving their purpose.
Many, if not all organisations, are using the array of KM practices to improve service, to win more customers, work better as a group, and save time and money with the purpose of maximising profit. Organisations with the best prospects of profit growth are in turn the most attractive to investors.
But what would happen in a contracting marketplace, where the customers no longer have the financial means to pay for market growth? Factors such as ‘peak oil’, consumer indebtedness, negative growth, recession and worse are far from remote, theoretical possibilities. They are now probabilities (see sidebar: New probabilities).
Under these conditions, good intelligence and knowledge management are likely to become even more important as organisations look to adapt to change, with very little margin for error. The practices, processes and tools of knowledge management will need to extend beyond the organisation to include self-reliant trading communities of buyers and sellers. For example, in an environment of ever-growing energy costs, the use of common taxonomies and collaboration software and techniques would significantly cut commuting and business travel, saving both energy and people’s time.
Knowledge practitioners – business storytellers, taxonomists, collaboration facilitators and network analysts, together with their software tools – will play a key role in the transition from a marketplace dominated by seller/push, to one increasingly characterised by a buyer-centric or purchaser/pull model.
Understanding the buyers’ market
So given that suppliers could soon be facing contracting markets, it is likely that their income and profits will also decrease. The open market will become cut-throat and unpredictable, advertising (except to children, perhaps) will become even less effective than it is reported to be now, and thriftier buyers will become even more demanding.
From the buyer’s point of view, cash-strapped suppliers operating in an uncertain marketplace will not be able to give them the quality and reliability they have come to expect. The experience of paying more for less is unlikely to be a happy one, especially when money itself is scarce. The experience of unreliable supply may be even worse.
In a buyer-centric marketplace, groups of buyers and their agents would engage groups of sellers to fulfil specified needs. Groups of buyers would be able to negotiate better prices from sellers; sellers would benefit from a relatively secure and predictable income. Massive savings will potentially be made by eliminating the need for marketing, advertising and even financing, since trusted traders are more likely to be given the option of entering into interest-free mutual-credit agreements. Both sides stand to benefit. This marketplace would, as it happens, be much like the collaborative networks and knowledge-sharing communities with which readers of Inside Knowledge are so familiar, which is why the knowledge-management community has such an important part to play, both during and after the expected transition.
When waste and unnecessary frills become too expensive to sustain, the wasteful and expensive seller-centric, push model will come under increasing pressure. The thrifty buyer-needs-first model is likely to be more favoured. Among those who would not benefit from the establishment of buyer-centric marketplaces are sales-oriented middlemen: retailers, credit-card companies, advertisers and advertising-supported media. Most other suppliers would potentially benefit from the more direct buyer-centric relationships in which uncertainty of demand and price can be minimised.
Going beyond CRM
Even without considering the spectre of peak oil, people’s attitudes to the mass marketplace have been showing signs of changing for some years now. This transition started with concepts such as relationship marketing (in the 1980s) and customer-relationship management (CRM) in the 1990s, both of which promised personalised, one-to-one interactions between suppliers and buyers informed by a new richness of ‘customer knowledge’ stored in CRM software suites, available at the touch of a key stroke. The most advanced CRM software connects customers, sales people, call-centre staff, marketing and production departments in a two-way network designed using what Patricia Seybold, author of The Customer Revolution, calls “customer scenarios”, which are stories relating to everything a type of buyer might do and feel during the course of the transaction.
Now the buyer-centric market model has been emerging as an alternative to the dominant supplier/push market model, starting with the early flowering of business-to-businesses exchanges. The first signs that CRM was changing into a radically different way of doing business began to appear during 2000.
The difference between a customer and a buyer is that a customer is defined as belonging to the supplier company, as in ‘they are customers of IBM’, while the term ‘buyer’ implies an independent entity beholden to no-one. The statement ‘they are buyers of
IBM equipment’ does not suggest that buyers in any way belong to IBM.Alan Mitchell’s Right Side Up: Building Brands in the Age of the Organised Consumer identifies three main types of buyer-centric market arrangements.
The first is when groups of buyers use agents to specify requirements and negotiate more favourable terms. The second is reverse auctions, in which sellers bid each other down until the buyer decides that the price is right. This kind of auction is very effective when there are too many suppliers in a marketplace. The third type of agent Mitchell calls a “solution agent”, who, much like a consultant, is tasked with helping buyers achieve their goals. According to Mitchell, a key component of the buyer-centric marketplace is community, organised around interests and around purposes.
In his 2003 article ‘A new typology for buyer-centric commerce’, Scott MacStravic puts forward the concepts of shared success and what he calls customer-success management. The primary goal of a supplier according to this model is not to increase sales for the sake of its own interest, but rather to act as much in the interest of the success and good health of the buyer as possible. Instead of achieving a balance between the essentially adversarial relationship between buyer and seller – when the buyer’s interest is to buy cheap and the seller’s interest is to sell dear – the goal, in this kind of relationship, is now mutual benefit.
For example, success for a chocolate supplier may be to sell less, not more, to a community, if obesity is becoming a problem. Equally, if a seller within a trusted trading community gets into difficulties, then mutual interest dictates the community provides a level of support, rather than taking advantage or buying from a competitor.
Existing buyer-centric organisations operate by reversing the knowledge flow. A well known example, at least of a step in this direction, is Dell Computers, which manufactures computers to order according to customer specifications, rather than manufacturing a batch of one particular model with the intention of selling them all. The direction of the specification flows from the customer to the production department.
The success of E-bay also shows the huge potential of self-managed, trusted trading communities. One of the key factors in E-bay’s success is that all participants in transactions are evaluated by each other. This kind of trading reputation is much more useful to buyers and sellers than the self-serving communications of marketers and advertisers. Peer assurance becomes even more valuable when money is short, when buyers cannot afford to take chances on sales pitches.
Psychologists say that unlearning is much harder to accomplish than learning. Probably the most difficult task in dealing with peak oil and stringent limits to spending is unlearning a set of assumptions about growth, prosperity and what it means to be successful, which are the real cause of the hardships to be faced by both buyers and sellers in the wake of peak oil and unsustainable finances. People working in the knowledge-management field will have a crucial role to play in adapting people’s thinking to the new reality of thrift and community trading. An economy driven by a psychology that drives individuals and corporations to maximise advantages for themselves would need to change to the psychology of trading for mutual benefit by selling precisely what is needed.
As for opportunities, trusted trading communities have the potential to offer new types of work, interest-free mutual credit and a secure members-only electronic trading system. A mutual-benefit economy would promote work-sharing schemes, whereby community members would be able to obtain goods and services from the community in return for work needed by their peers. Buyers and sellers would be able to exchange services, keeping track of transactions using interest-free mutual credit units, thereby reducing the need to borrow interest-bearing money. By far the greatest benefit of this buyer-centric, mutual-credit trading model, however, is that because it works by demand/pull, rather than supply/push, it can reverse the compound-interest-driven growth imperative, at the same time as mitigating its painful financial consequences. And since less would have to be made and sold, people would have more time to pursue their own non-profit-based interests.
Organisations need to commission more research into peak oil and its implications, and set up intelligence-monitoring systems to keep abreast of developments and trends. Also, they need to look beyond the facile consumer-confidence indexes to consider the actual state of, in particular, US consumer finances. Then projections need to be made about buyers’ future income and expenses, including projected tax rises and soaring energy and medical costs (factoring in inadequate pension provision for the baby-boom generation, not to mention the consequences of a falling dollar).
If, after doing this research, preparing for a buyer-centric marketplace still seems like a prudent option, the next question is, how much time is there before any serious market contraction takes place? Although it is impossible to know exactly, the answer to this question is not actually important. With the probable threat as it is, the only rational course of action is to start preparing now and hope that there is enough time. If there is not enough time, then at least some preparations will have been made. Being prepared early will only relieve a great deal of stress during what promise to be extremely demanding times.
A wealth of precedents
The good news is that there are precedents to draw on. In the
During and just after the last, late-1980s recession in the
Business barter schemes such as Bartercard (see www.bartercard.com) are reported to be growing at a rate of 20 per cent a year, with an estimated 1,500 exchanges worldwide. With an average of 1,000 members per exchange, the global trading community already incorporates some 1.5 million companies. In 2003, according to International Reciprocal Trading Association (www.irta.com) and National Association of Trade Exchanges (www.nate.org) statistics, $14.27bn of barter trading, that is trading relying on either no cash or part cash/part barter, was carried out.
Simply being listed in the right category as part of a community replaces the need for advertising and marketing. Of course, how a supplier presents itself and its offerings will make a lot of difference. Above all, though, and just as with E-bay, the recommendation of other community members will be what counts most in securing work. Members of existing B2B exchanges could easily decide to issue credit to each other in a form that was tradable with other members. Indeed, many already do so, by counter-trading surplus goods, for example.
As yet, little significant growth is reported in end-user buyer co-ops, whose raison d’etre is negotiating better terms from suppliers. Early examples are Mercata.com and Letsbuyit.com. By aggregating buying power, these buying agents aim to give their members both lower prices and reliable service.
There is no disputing that the traditional supplier/push model of doing business is still very much in the ascendant. However, when the need arises – that is, when consumers run out of easy money and seriously need to practice the art of thrift – there will be very little development work to facilitate the transition, because both the experience and the technology are readily available and tested, and reliable precedents already exist. Therefore, the change from the seller-centric to the buyer-centric marketplace could take place very quickly, particularly if the buyers of last resort, mainly US consumers, hit their credit limit and curtail their spending.
The first rule of wing-walking is not to let go of the strut you are holding before you have a firm grip on the next, otherwise you will be blown off before you realise what has happened. It seems obvious, but organisations all too often embark on a programme of change without sufficient knowledge of what they are actually looking to achieve.
The ideal situation would be to try out any new system before making a significant commitment to it. In the case of trading communities based around mutual credit, this suck-it-and-see strategy is eminently possible and cheap, especially if the process can be fuelled by the exchange of mutual credit between all trading parties. Signing up to an existing service, such as Bartercard, is a cheap, quick and easy way of obtaining a first taste of community trading with interest-free credit.
However, to set up a new service or to change an existing B2B system is an intensely collaborative process. Every participant needs to consider key issues, such as the value of their time and the value of what they produce. They must write their entries in the database of offers and wants. Once the database is published, buyers with needs must look through what is on offer that they can obtain without cash, using what amounts to an interest-free loan from the seller. Note that for the seller, the value of this loan is not guaranteed by the buyer, but by the whole community of traders who promise to return equal value from the community’s selection of skills and assets.
A key component of the success of this kind of trusted trading group is how the database of offers and wants is organised. What is most needed is a first-rate, intuitive taxonomy of goods and services. Organisations need to reverse their information and workflow from broadcasting (creating demand) to receiving (being responsive to buyer needs).
Other tasks to be carried out include making rules of inclusion and exclusion based on proficiency and ethics. Standards of transparency within the communities must be very high, as the basis for building trust between traders. One of the great powers of this kind of trading group is that any party found stealing or working against the interests of the group can be punished with the ultimate sanction: exclusion, and all trading rights revoked. Credit limits must be set so that trading does not get out of balance, with certain members owing too much without paying it back, for instance.
New processes will have to be invented to evaluate the success of mutually beneficial transactions where benefits accrue to both parties. Systems are being developed by Microsoft, among others, to enable buyers to keep, and control access to, their own trading information in ‘personal data vaults’, so that this data will simply not be available for any unauthorised use, wiping out unsolicited direct marketing at a stroke.
The hope must be that the buyer-centric marketplace is the harbinger of a different form of human enterprise, based on the traditional economic virtues of thrift, self-reliance and community, rather than the post-WW2 economic consensus of ‘growth at all costs’. KM practitioners have the capabilities – intelligence-gathering, knowledge-sharing and collaboration expertise – to usher this mutual-benefit marketplace into the world.
James Howard Kunstler, author of Geography of Nowhere and described by the New York Times as being one of a growing band of “new urbanists” (13 March 2005), is quoted as calling oil-guzzling, car-dependent American suburbia, “the greatest misallocation of resources in the history of the world.
According to Kunstler and a growing band of local political organisers and energy-generation entrepreneurs, the “end of suburbia” is the inevitable consequence of what is known as ‘peak oil’. This term refers to the fact that known reserves are being drawn down faster than new discoveries are being made. Oil companies have been reluctant to spend their huge profits in finding and exploiting what are increasingly risky, low-margin, remote reserves.
The consequence of peak oil is that the price of oil will rise faster as the rate of depletion increases. A growing portion of buyers’ income will have to be devoted to energy expenditure. At the same time, a greater portion of suppliers’ costs will need to be allocated to energy, pushing up prices of necessities such as food and water, as well as the prices of virtually everything else. Under these conditions, discretionary income and government tax receipts would fall, while self-employment, unemployment and supplier costs would increase.
Current debate among experts is not about whether peak oil will happen, but about when it will happen. Some experts say it may already have occurred. An article in the New Scientist recently placed the year of peak production as 2004. Virtually all experts believe peak oil will occur before the end of this decade. Only a few say that the peak will come in 25 years or more.
The relationship between buyers and sellers is, for this reason alone, about to change significantly, as is the way that knowledge flows between them. For example, it will no longer pay for sellers to create the desire for cars that buyers cannot afford or even use.
Limits to spending
Although companies have been trying with some success to become, first, customer-focused and, later, customer-centric, the purpose of the exercise is still to sell customers as many products or services as possible. In markets that have in most cases been characterised by oversupply, companies try to hook customers into repeat buying: ‘cross-selling’ and ‘up-selling’ using better customer knowledge and loyalty schemes that promise benefits such as gifts and discounts to regular customers. Achieving customer ‘lock in’ is the apotheosis of the traditional CRM programme.
The ideal marketing campaign combines CRM and multi-media advertising to find and sell to target customers. The nature of the supplier-to-customer relationship is that the supplier is the active party doing something to or for the customer, whose sole role is to choose from the options on offer or to complain if the product or service is deficient.
In consumer markets, sellers use all manner of actions, including sex, status, greed and addiction, as strategies to attract more customers who can then be made ‘loyal’ using an array of powerful CRM techniques based on better customer knowledge. There can be no denying that, as a strategy, this enhanced, traditional supplier-to-customer relationship has worked pretty well since the early 1990s, pushing both consumer spending and debt to unprecedented levels.
The question is whether this increasing indebtedness is any more sustainable than the high levels of energy consumption in the face of the peak-oil threat. Also, like peak oil, although this financial crunch is self-evidently coming closer, it is impossible to say exactly when it will happen. Again in common with peak oil, the consequence of chronic long-term indebtedness will be sharply reduced consumer spending.
Once and future exemplars
WIR, here since 1934
WIR (www.wir.ch) is short for ‘Wirtschaftsring’, which means economic circle. It is a Swiss business community that has been using its own private, interest-free currency for trading since 1934. Initially, the idea was simply that business people who knew and trusted each other would extend each other credit for purchases within and between their group, cutting down the need to borrow from banks. It has grown to more than 60,000 account holders and has a turnover in excess of £1.2bn. If new WIR members satisfy the community’s collateral and credit terms, they are given a loan in WIR, a cheque book, a plastic charge card and a large directory listing all the other members with whom they can spend their loans.
Since WIR credit cannot be spent outside the community, purchasing power stays within it, generating more business for all participants. The cost of the loan is very low, typically 1.75 per cent for mortgages. A huge range of products and services are listed in the WIR directory. According to WIR’s public-relations office, the main areas are gastronomy and the building trade, both key locally based industries.
Local energy generation and saving
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