Honesty In Relationships: Part II

Absolute Truth

If there is such a thing as absolute truth, it exists outside of this world. As much as we regard honesty, integrity and trust as roadmaps for relationships, they are relative terms. This represents a risk to business continuity. Any decision you make could compromise your business relationships because of the external impression created by your actions. This occurs even at the most basic level: to choose with whom you want to have a relationship. It is a practical need, yet it is also confining. Since “you can’t be all things to all people” your representation of your well-intentioned relationship is exclusive to these choices. When those whom you exclude put you on the wrong side of their loyalty values we call it pigeon-holing. Marketers are often confounded by typecast restrictions that have been molded around a business by customers with whom it has never had a relationship. And most customers depend on pigeon-holing to sort through their decisions.

Theory of Relativity in Business Relationships

There is a relativity formula to relationships:

THE BENEFIT DERIVED FROM A RELATIONSHIP IS COEFFICIENT TO THE PERCEIVED VALUE OF THE RELATIONSHIP.

From this we learn that the perceived value of the relationship will increase or decrease depending on the value of the benefits gained. Also that the desire to establish a relationship is based on the expectation of its rewards.

Value-Add

The critical idea is that, whenever the benefits gained exceed the perceived value of the relationship, then the perceived value will increase to match the benefits. This is how ‘value-add’ expands loyalty and frequency into business continuity. Adding value makes the difference between a performer and a super-performer in business relationships. It is the ingredient that can break a business out of the mold of typecasting e.g. to enable a volume discount producer to enter a luxury market (Toyota/Lexus). It is also the most challenging component of sustaining a relationship, as the constantly rising of the bar of expectations represents greater consequences to underperformance. You can never go back to ‘ordinary’, because that would be a reduction in value. But, that issue aside. everyone can live with thought that continually adding value creates a consensus in relative truth.

Pull the Wrong Lever And You Fall

Perceived value and benefit rewards are so closely linked that misguided use of any levers in the relationship can create schism and distrust.

Take, for example, wholesale price discounting: once the customer has experienced a price discount, this benefit reward can easily become a defining aspect of the relationship. The customer expects the lower cost. In counterpoint, the retailer gets reduced benefit from the transaction, so its sense of value decreases. We now have relativity divergence in truth and trust: the customer’s benefits have increased and the retailers value of the relationship has decreased. Consequently, the retailer may compromise the value of the relationship to the customer, by merchandising lower quality goods, reducing customer service, reducing product selection etc. Retailer’s view of truth: my customer is a price chiseller.

Customer’s view of truth: my retailer is a price chiseller.

Neither position might be true. The reason for the contradiction is that the retailer used a market lever that was counter-productive to increasing the value of the relationship.

The 365-Day Sale

Price in retail has become the most common lever used by retailers to lure customers, and in juxtaposition, customer service and satisfaction has dropped. It has been replaced by refunds, warranties, and call centres. Recall our formula for relativity: the customer expects more from the relationship relative to price, but experiences the negative impact on other important components of the relationship such as service, quality or choice. When relative truths are in conflict, each party will withdraw to its corner, exploit for its own interests and abdicates loyalty when these are not served.

Addiction Vs. Loyalty

It is the predicament of our market mentality that the most successful business is the bottom-feeder in the cost/price matrix. I would argue that customers are not loyal to Wal-Mart – they are addicted to Wal-Mart. Wal-Mart has built its customer relationship on the price lever, and expands the benefit rewards it brings to its customer by expanding its range of merchandise with the same promise. By focusing on this one lever, Wal-Mart has worked this relativity formula consistently into tremendous profitability. How does the formula work for Wal-Mart? The benefit its customer gains from shopping at Wal-Mart (price) is maximized by consistently shopping at Wal-Mart for all its needs, and so the perceived value of the relationship to the customer has matured into a dependency. The consequences to the retail sector are widespread. Everyone is chipping away at price and we live with a discount mentality. There is no consumer segment that Wal-Mart will shirk from if it can consistently achieve its goals. PRICE is now the relative truth that has redefined many marketing relationships and reduced them to just this one lever.

But price-sensitivity is not the only lever for the sustainability of a relationship. As long as it is built on honesty and trust as defined by the customer’s needs within the relationship there are other levers that influence purchase decisions.

Segue

I had planned to spend more time in this entry discussing these other levers. Let’s say for now that the purpose of this entry – to demonstrate how truth is relative to the customer and that a practical business action could have a correspondingly unfavourable customer reaction – is served. Every action a business takes has consequences that are broader and deeper than it usually prepares for. This is because it rarely focuses on truth relative to its customer’s perspective.