Four Fallacies of Vendor Relationship Management


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I have followed Doc Searls’ VRM Project for some time. VRM is Doc’s response to the problems of customers getting the rough end of the stick in their dealings with companies. Rather than companies owning huge databases of customer transaction data which they can mine for their own advantage, customers should take control of their own transaction data and selectively release it to companies when they want something from them. Sounds simple enough doesn’t it. But the devil is in the details.

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, and collectively, well, read for yourself:

  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.
  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.

Whilst I agree in principle that customers need to be given much more control over how they are managed by the companies they transact with, there are already partial solutions in existence such as customer managed relationships, multi-sided markets and even infomediaries, that enable this. VRM is an extreme solution that no-one is really looking for. Not Customers, not companies, not markets, no-one.

What was it that Winston Churchill said about “democracy being the worst form of government, except for all the others that have been tried”?

What do you think? Is VRM the answer to customers’ control problems? Or is it just a well-meaning pipedream?

Post a comment or enail me at graham(dot)hill(at)web(dot)de to get the conversation going.

Graham Hill
Customer-driven Innovator
Follow me on Twitter

Further Reading:

Doc Searls, Project VRM

Paul Greenberg, “Customer Managed Relationships”: I Never Thought I’d Have So Much Fun in the Bathroom

Andrei Hagiu, New Research Explores Multi-Sided Markets

John Hagel, Return on Attention and Infomediaries

Graham Hill (Dr G)
Business Troubleshooter | Questioning | Thoughtful | Industrious | Opinions my own | Connect with me on LinkedIn


  1. Paul Greenberg
    Author: CRM at the Speed of Light, 4th Edition

    Hi Graham,
    Not often I disagree with you – in fact, almost never – but here I have to because I think that this is being over thought. First, I don’t think the level of complexity you’re offering is the level that VRM is offered at. Second, I think that VRM is systematizing what customers and people already do and typically want, the ability to opt in to their own customer experience with companies. I’ve called VRM “the labor movement for customers” for a good reason. By providing some independent organized controls and tools to customers so that they can manage their commerce experiences independent of any particular company, it provides them with negotiating leverage with those companies. They already have that in part through the peer trust that both you and I speak of frequently. This is the equivalent of giving them the power to strike (though not that dramatic) and the right of collective bargaining with tools to aid that along the way. My concern with VRM is that there are no tools for it yet and I know that vendors aren’t going to see that much of a value proposition except as marketing/public relations in helping to develop them – something along the lines of Progressive Insurance getting quotes from multiple companies – an aggregated service for their customers and the good will of the masses so to speak.

    I think that you’re adding far more to it than it really concerns – in my view – not necessarily Doc’s or anyone else associated. However, I see its viability in the terms that I mention above. Thus I see CRM 2.0 as a response to VRM – which to me is just the means to organize the customer’s control of conversation, so to speak.

    Best always,

  2. I see that Doc Searls has a published a rejoinder over at the Project VRM Blog. Doc is careful to pick out the bits of the original blog post that he doesn’t agree with, but he doesn’t actually describe in clear and unambigiuous terms what he thinks Vendor Relationship Management actually is.

    If Vendor Relationship Management is a further evolutionary stage of putting customers in charge of their relationships with companies, as Doc and some others suggest, then they should not be “reluctant to publicize VRM in the absence of working code, working products and working services”. Customers of all types should be actively involved in deciding what they want, how they will get it and how it will work. This is too important to be left to a self-selecting group, no matter how smart. As Booz & Co, Eric von Hippel and other researchers show, innovations that actively involve customers during all stages of the innovation process are generally better, easier to produce and more successful in the market.

    This is what the original post was all about. Let the light shine in and clear up any confusion.

    Read Doc’s rejoinder for yourself. And then ask yourself what you would like to see in a VRM solution. Feel free to contact Doc or myself with your requirements.

    Project VRM Blog
    A little understanding goes a short way

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

  3. I see that the Still Titled blog has also commented on my post and Doc Searls’ rejoinder. Although I wouldn’t quite describe the discussion as an ‘argument that has flared-up’, I do have reservations about what seems to be the dominant-logic of VRM. And I am happy to discuss and debate them with others.

    I am pleased that the post has stimulated so much discussion around VRM. It is an important topic and deserves to be much more widely read and discussed.

    Read Still Titled’s post for yourself.

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

  4. I’m multitasking here. So I may be missing something. But I find it ludicrous that anyone in the CRM business would consider VRM to be a flawed concept.

    In my opinion CRM has a problem that has been faced by Consumer Research forever: it is only as good as the input. When the input is gathered surreptitiously, it has to be manipulated to derive implications that, yes, are better than a wild ass guess. The potential for garbage in – garbage out is high.

    Isn’t the intent of VRM to improve the input?

    Katherine Warman Kern


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