Use the Net to invest in relationships

One of the biggest challenges facing business leaders is identifying and nurturing relationship capital. This is the value of the relationships a company develops with its customers, suppliers and sometimes even competitors.

Relationships are now assets, giving rise to the discipline of "relationship capital management." Managers must know how to design the new relationships and exploit the wealth they represent.

While the virtue of deep customer relationships, for example, was always self-evident in theory, it wasn't a practical goal for large businesses prior to the emergence of the Internet. But now, coupling the Internet with enormous low-cost databases enables producers to develop a two-way, interactive, personalized, direct relationship with each customer.

Amazon.com Inc. is the most aggressive pioneer in this realm. A customer buys books online because it's cheap and easy to do. He can look up all books by topic or author. He can request a bestseller list in a particular category or ask for a book's daily sales status.

Virtually every online retailer is now offering similar services. But Amazon goes further, developing a one-to-one relationship with each customer that fundamentally redefines the nature of the interaction. It used to be that sellers sold and buyers bought. Simple. But no more. Amazon can now get to know each customer, educate him, inform him proactively and deliver value-added services on a personal basis. For example, the company e-mails him when a new book fits his personal profile.

And the relationship goes further. The buyer creates value for Amazon and other customers by contributing his views on books he's read. Tens of thousands of Amazon customers grade books on a scale of 1 through 5 and write commentaries to justify their ratings. Other customers then vote on whether they find the reviews useful. Together, they dramatically enhance the value of the Amazon customer experience. In contrast, has Wal-Mart ever given its customers podiums in its stores so they could suggest to other customers what they should or shouldn't buy?

The Amazon.com customer also establishes a personal profile (or makes a "relationship investment") that includes registering gifts he would like to receive. The more time and effort he invests, the more personal the bookstore becomes. He builds loyalty to the company, not just because of the services it provides but because of the effort required to re-educate another company about his preferences. For both buyer and seller, this networked relationship constitutes capital. It has value. This value was amply illustrated when Amazon decided to start selling CDs in addition to books. Within months, Amazon became the world's biggest online seller of music.

Amazon's methods show why companies need a much more sophisticated approach to their customers. Customers aren't simply buyers of products. With the Net's arrival, they're an asset that can be developed. The deeper the relationship, the more valuable the asset. And unlike most other assets, relationship capital doesn't depreciate with use but actually grows in value.

Don Tapscott is president of New Paradigm Learning Corp. and co-author of Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000). Contact him at dtapscott@digital4sight.com.

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