They say history repeats itself: 60‘s funk rifts in Daft Punk’s newest album, 70’s fashion of bright, fun patterns, “vintage” filters for photographs, and the return to locally sourced produce. The business world is experiencing this as well. Social media and smart phones have allowed consumers to share their experiences faster than ever. Buying decisions are no longer based on just price or quality, but on the buying experience and word-of-mouth recommendations. Welcome to the return of the Relationship Economy.
The Fall and Rise of the Relationship Economy
The Relationship Economy could last be seen in the age of our grandparents, the Silent Generation (born between 1924-1942). As Gary Vaynerchuk discusses in his book, “The Thank You Economy”, business then was done based on relationships. You went to the same store every day because the shop owner knew your name, knew what you wanted, and made you feel like family. The buying decisions then were made partly on price, partly on quality, but most importantly the relationship you had. Business owners took immense pride in their work and their success hinged on their reputation. In these days, you knew your neighbors and communities were tightly knit groups, making word of mouth the main form of news. A bad experience could cost a business owner not just a single customer, but the entire community.
The end of WWII also signaled the decline of the Relationship Economy. From the turn of the century, advances in technology had paved the way for rapid industrialization. The wars required factories to create products cheaper and faster than ever before and once expensive products like cars became affordable. Boomers and their families began to live further outside cities and the growth of suburbs resulted in the gradual decline of community. Family run businesses were replaced by strip malls and chain stores. Consumer buying decisions became more focused on getting the cheapest or newest item. Business owners began to focus more on their bottom line than the customer experience.
The 80’s and 90’s could arguably be the lowest point for customer service as businesses cut the perks, like bag boys and gas attendants, to increase the bottom line. As Gen-X’s battled the recession of the 90‘s, price and convenience became increasingly important in consumer’s buying decisions and the Internet made buying even easier. People could now find the cheapest price before even leaving their homes and organizations focused exclusively on offering the lowest price possible. If someone had a bad experience, there was no one to complain to and companies had no need to provide a better experience as long as they had the best price available.
Then, in the early 2000’s, began Web 2.0: social media. Online communities began to form and people, especially Gen-Y’s, began to share their experiences. Beyond simple comments, people could share pictures and videos and post comments or questions and get responses in real time. Suddenly a bad experience did not lead to losing one customer, but hundreds or thousands. The classic example of the power of social media occurred in 2008 when the lead singer of Canadian band Sons of Maxwell had his guitar broken on a United Airlines flight. After 9 months of attempting to be compensated for the damage, he wrote the parody song “United Breaks Guitar”, which has since been viewed over 13 million times. United Airline’s stock dropped 10% in the 4 days following the release of the video and they have since revamped their customer service policy.
In their 2012 Retail Outlook, Deloitte emphasized how the Internet and social media have impacted consumer buying decisions in what they call Store 3.0. The Internet has not only made finding the best price easier, but it has also allowed consumers to become better educated on products. Consumers go to a retail location merely to pick up a product they have already researched and reviewed online through consumer reports and feedback from social media. You can read a more detailed synopsis here.
Once again, consumers are discussing their experiences and thoughts regarding an organization’s product or service, influencing each other’s buying decisions. Clearly we are back in the Relationship Economy, but what does this mean for your business?
Selling in the Relationship Economy
Read the rest of the article and learn how to sell in the Relationship Economy at Witz Education.