[This post relates to the third factor of a series on 6 Factors that are transforming B2B Sales in 2012. This factor deals with Social – and I have broken that down into four separate posts. This is the third of these posts.]
Social Business Phases
All commercial transactions go through three phases; Contact, Contract and Control. In the Contact phase, the seller is trying to find a buyer in his market where he can first create awareness in the mind of the potential buyer of the existence of his product, hopefully to be followed by interest from the buyer to learn more, with the ultimate goal of creating preference in the mind of the buyer for his (the seller’s) product. In a potentially parallel activity, the buyer seeks out information about potential suppliers and their products. Price, quality, fitness-for-purpose, reliability and reputation are each a consideration to be weighed when making the final purchase decision in the Contract phase, where terms of purchase are agreed before the parties enter the Control phase when the seller is expected to deliver on the promise of the contract.
Interactions in the Social Universe impact each of these transaction phases, and in many instances represent the fulcrum of trust on which a business rises or falls. This is immediately obvious in the Contact phase of a transaction, is less apparent in the Contract phase, and once more assumes critical importance in the Control phase.
Today, many sales and marketing social media activists focus their efforts in the Contact phase of the commercial transaction. The Contact phase is where initial impressions are made. But it is important to consider that because of rapid adoption of social media by customers, either individually or in communities, suppliers will always have fewer resources to apply to these interactions than the customers have. Simply put, there are more customers than internal employees, and targeted efforts supported by technology for automation is a requirement. When approached strategically, practitioners realize that interactions have replaced transactions, and resources are applied in listening first, and then engagement followed by a rhythm of considered contribution. The Contact phase is the opportunity for suppliers to become part of the buyer’s conversation even before the buyer is in a buying cycle, remembering that interaction between buyer and seller in the traditional buying cycles have changed in the Social Universe. Where before buyers would engage with sellers early in the cycle to learn about their products and services, and get ideas about the potential solutions on offer, now buyers go to their social network for input in these areas and only engage with the seller once they have a clear picture of how they plan to buy. If the seller is not part of that early conversation thread, the only conversation he is likely to have is one about price.
During the Contract phase, social has less of a role to play. Here the buyer and seller get together to agree the terms and conditions of the sale and the action are played out less in a social context than in a one-to-one environment. Impressions formed during the Contact phase impact the mindset buyers bring to the negotiation table. Buyers will likely be more inclined to gravitate towards the optimum outcome of a negotiation, i.e. one that is good for both parties, and being less inclined to negotiate the maximum outcome for themselves, if the negotiation table is set with mutual respect, trust and credibility, each of which are factors that can be shaped in the Social Universe in the Contact phase.
In traditional business, the Control phase was primarily concerned with the monitoring and enforcement of the contract, and both involved high transaction costs, especially at large distance. Monitoring means that the business partners check whether the other party is doing what he promised to do, and if shortcomings emerged, the next step was enforcement of contract. The most common solution to this has been legal enforcement, an expensive and arduous process, and not adoption for most individuals when dealing with large corporations. Over recent times, in many, but not all cases, suppliers have become more conscious of their obligations to their customers and the better, and more successful companies have become proactive about how they serve their customers and deliver on the promises made in the commercial transaction.
The big change in the Social Universe is that through social networks and online communities, customers have found a platform through which they can wield a very powerful weapon – customer sentiment – to persuade, embarrass, or indeed enforce large corporations to come clean, to be more transparent, and in the end to deliver on or to deliver, not just on the promises made in the contract, but also on what their customer deem to be fair.
Altimeter’s Jeremiah Owyang, in an early assessment of the business case for what was termed Social CRM in 2012, developed a model of 18 Use Cases for Social CRM that illuminates well some of the possibilities for activity in the Social Universe across the Control, Contract and Control phases of the commercial transaction – as I have described then here.
As I said earlier, the ubiquity of social networks, has made the need for honesty, integrity and authenticity more stringent and it is increasingly transparent when these elements are absent.
Not only is it anecdotally evident that commercial transactions can be more profitable when built on a foundation of trust, but studies have shown this to be empirically true at micro-and macro-economic levels.
In Umair Haque’s words:
“Good businesses are more trusted by all stakeholders. Trust is a potent weapon, because it slashes transaction costs tremendously. In turn, good businesses enjoy stronger, thicker, richer relationships that fuel a higher volume and velocity of trade with less churn. Mobile operators, for example, are as obsessed with churn (the ratio of customer retention to customer loss) as teenage girls are with vampires. Why? Because, thanks to an arsenal of unfair tactics like hidden charges, they enjoy no trust economies to begin with.”
In some ways the rise of social media was inevitable against a background of declining social capital. If we can’t trust business leaders, governments or other figures of authority, then whom can we trust? The answer of course is that we trust our peers more than any other. ‘Someone like me’ is the most highly trusted persona.
During the recent economic turmoil, what happened was not so much a recession as a fundamental restructuring of the economic order. It has forced us once more to focus on true difference versus positioned differentiation. It re-aligned a focus on values and ethics, and it has underlined the value of the asset that is trust. But, trust in business, between customers and suppliers, is at an all time low. A study from the Pew Research Center shows that the percentage of people who trust business dropped from 58% in 2008 to 38% in 2009, and we’ve not managed to turn the corner on this one.
Only 29% of people trust what the CEO of a company says! Customers are almost twice are likely to take a recommendation about a product from ‘someone like them’ than from a company representative.
The transaction costs in contact, contract and control phases are closely linked to the trust issue. Who you trust is at the core of finding reliable information about business opportunities, potential business partners, suppliers or customers, and, evidentially, about their trustworthiness. It is important also when negotiating terms of the deal and trust – based on proven delivery of the promise made – is the dominant factor of how likely the customer is to recommend her supplier to her social network.
In the Social Universe, this suggests a progression from considering the value of a customer in terms of their lifetime value to the business – the Customer Lifetime Value – to an evaluation instead of value of the other potential buyers that customer will influence. I refer to that as the Customer Network Value.
The topic of Customer Network Value will be discussed in the next post