A comment I left at Alan Mitchell’s blog, a VRM mailing list participant, about a reducing supplier risk comment by Ted. Markets, prices, and VRM.

@Ted “In any partnership, both parties must assume responsibility for the satisfying each other’s needs.”

In the consumer to producer context, I completely disagree with this. The consumer precisely does not nor ever will have that responsibility. Satisfying his own needs is the consumer’s only responsibility, and I think this sounds reasonable when you realize that the relationship isn’t between a consumer and a producer, but between a consumer and a set of producers (Actually, it’s a set of consumers to a set of producers, but it’s easier to analyze a one to many situation than a many to many.)

CRM is the solution companies have created to solve the producer to consumers (one to many) relationship problem. VRM would solve the reverse one to many relationship problem of consumer to producers. Humans are very good (relatively speaking) at dealing with one to one relationships. We’re capable of projecting and reading those projections like dilated eyes, plushing skin, tone of voice, change in posture. However, our performance is reduced in multi-tasking situations, and we’re not so good at dealing with the one to many problem, which is why we’ve built technology to help us with that.

I as a consumer have no responsibility to any single producer, and I am free to accept or reject the offers of any and all producers. That’s how it is today, and that won’t change with VRM. The producer still bears the risk of invention and production. However, the producer still as rights to the profits of such an endeavor, and since a consumer as no right to those profits, a consumer has no interest nor responsibility in satisfying a single producer’s needs. That’s just how competition works.

It is in the interest of the producer to satisfy the needs of the consumer because that would inevitably bring in more profits (including an appropriate price point as part of a consumer’s needs). However, every interaction between consumer and producer is a potential step in creating or strengthening a relationship. Stronger relationships create stronger bonds between the two parties, and that can turn into a true partnership, but that’s not the goal of VRM. VRM may well improve the one to one relationship, but it’s primary goal is improving the consumer to producers relationship problem.

When a company does something like “guarantees to the customer if the product or service he bought fails to meet his needs” it’s reducing the risk of consumer backlash. Companies do this precisely because the costomer does not “share a small portion of the risk temporarily,” but assumes 100% of the risk permanently at the point of purchase, and at the same point the producer takes 100% of the profit (which is its reward for taking on the original risk of production). Because of that, the producer has an inherent responsibility to the consumer in quality of product at the least, and in the case of consumer dissatisfaction (where there is no legally binding responsibility), it benefits the company to satisfy the consumer post purchase, but that is for its own benefit as much as the consumer’s benefit.

For savvy companies, VRM will open opportunities for reducing investment and production risk. However, most companies probably won’t realize the benefit until the benefit is the same for all companies just as companies are still struggling with the benefits of the internet. Most immediately, VRM will help companies reduce operation costs, instead of reducing risk. VRM will help reduce transaction cost, and other costs associated with information storage such as information gathering and updating.

Still, consumer to producer relationships will improve with VRM much like CRM improved, although did not solve, the one to one relationship. But the primary goal is improving consumer to producers relationship, and that will inevitably help the producer, even if it helps the consumer more.