What's the relationship worth?

Everything that was once true about business is no longer true. Why? Because of this fundamental truth: The power in business relationships has shifted to customers.

Whether you call it the New Economy, Real Economy, Internet Economy or Networked Economy, the promise of technology has arrived, and customers really are in control. This new balance of power changes everything from what constitutes a business and the products and services it offers to our jobs and how we create value. As a result, we must expand our understanding of how we define and measure value and company performance.

Companies are realizing that to profitably satisfy customers, they must focus on what they do best and collaborate with their customers and other business entities. But for the collaboration to work, all parties must receive something they value. And if every party must receive something of value, then by definition, everyone is a customer.

By viewing everyone as a customer, you change the nature of business value. The flow of goods, services, information and money should therefore increase for all concerned. For example, Jeff Reichenthal, general manager of ClubSalon, knows that his customers include the manufacturers, distributors, salons and consumers in the $45 billion salon and spa industry. ClubSalon, an Internet-based industry resource, is generating incremental business for manufacturers, distributors and salon owners by providing them with valuable tools, resources and marketing programs that are truly customer-oriented.

Companies must learn that value can be realized through the exchange of currencies other than cash. According to generally accepted accounting principles, fair market value is measured based on that which is given up. And that's the point: Value is in the eye of the beholder. Most companies base their pricing on costs, rather than on the value they deliver. Only recipients can assess the relative value of something they receive. And in many instances, noncash currencies can be of equal or greater value than cash.

What are some other currencies? Here's a partial list: 1. access to information; 2. access to customer lists; 3. access to the skills necessary to grow business; and 4. third-party validation, such as customer references or awards.

For example, you can share value in a relationship with a supplier (now also viewed as a customer) by sharing customer information that will help that supplier do a better job. In exchange, the supplier may lower your costs. And just as cash is factored into determining company performance, these noncash currencies must help define value and assess performance.

The answer to measuring company performance, now that everyone is a customer, is through the use of a new managerial tool: net relationship value, or the value of a relationship in achieving your strategic goals.

With the net relationship value tool, we can for the first time measure currencies other than cash and use those values and measures to accurately manage the allocation of resources to improve overall company performance.

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