The cost of relationships: March 16, 1998 issue of New Thinking

March 16, 1998 New Thinking:
The cost of relationships

Website content management

Home I About I Services I Clients I Contact

New Thinking Home

Subject Classification
Reader Feedback
Subscribing
Unsubscribing
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996

Books by
Gerry McGovern

Content Critical

Gaining competitive advantage through high-quality web content

The Web Content
Style Guide

The essential guide
for online writers, editors and managers

March 16, 1998

The cost of relationships

By Gerry McGovern

Let’s say that you’re a bank. Let’s say that if somebody comes into your bank and transacts with you the cost is 1 pound. Let’s say that if you can carry out that transaction over the phone the cost is 50 pence, and if it’s done over the Internet the cost is 10 pence.

To the bean counter in a bank or other institution such scenarios are eminently pleasing. Saving 90 pence sounds absolutely wonderful. The Internet is a great thing surely.

The world is never that simple. Hidden in the 1 pound is a substantial ‘relationship cost.’ The bricks and mortar, the lovely tiles, the desks, the pleasant and friendly people who chat about the weather to the customer, are all part of a relationship cost.

Once a bank, or other institution, begins to look at a customer purely from a transactional point of view, customers will begin to look at banks and other institutions purely from a transactional point of view. Loyalty will go out the virtual window.

So, you cannot just move from 1 pound down to 10 pence and not incur a penalty. Because you have stopped investing in relationships, your customers will become less loyal.

Customer churn will rapidly increase. You will find yourself having to spend more and more marketing pounds to attract new customers. Very quickly you will discover that it is cheaper to keep a customer than to get a new one. The vaunted cost reduction promise will prove illusory; costs will merely have been displaced.

So, let us look at that 1 pound face-to-face cost again. Let’s just say that of that pound, 50 pence relates to pure transactional costs and 50 pence relates to relationship costs. For the 50 pence phone cost, let’s say that 25 pence is transactional and 25 pence is relationship. For the Internet, let’s say that entire 10 pence is transactional.

Following the above scenario, we could say that because the relationship cost has been halved in the phone to phone, brand loyalty has also been halved (certainly in a long-term perspective). In the Internet scenario, there is no relationship budget at all, therefore no relationship, therefore no loyalty.

The central point I’m making here is that an organization needs to isolate how much of the transactional cost is purely mechanical transactional and how much is a relationship cost.

The organization that reduces its relationship budgets, reduces its relationships and thus weakens its brand loyalty. Relationship costs are hidden in all sorts of budgets, whether they be marketing, advertising, public relations or transactions.

If you agree with the above, then the ‘correct’ cost for a phone transaction is in fact 75 pence per transaction and for the Internet is 60 pence. How the additional 25 pence for phone and 50 pence for Internet is actually spent is another matter.

On the website, for example, the customer may be actively encouraged to send emails with any questions they have. It may become company policy that every customer is contacted by email at least once a month. Physical get-togethers may be organized. Experts may be paid to host regular chat forums.

Whatever the approach, that relationship 50 pence budget needs to be spent. Otherwise, you’ll spend your relationships.

Those who feel that they can get away will smaller relationship budgets online are fooling themselves. Online may give a superficial impression of ‘community’ and friendliness, however, it is in reality a very impersonal medium. Websites viewed from computer monitors lean towards being cold, lifeless environments. Email is informal but can as easily be impersonal. When you have to deal with 100 emails a day it’s easy to become automatic in how you respond to practically everything.

What organizations need to build online are ‘brand communities.’ Brand communities are as much an attitude as a structure. Brand communities are the environment within which the company and the customer carry out an online relationship.

Remember, relationships are between people, not between people and auto responders or other ‘intelligent’ agents. The best measure of the strength of a relationship is the amount of time spent by both parties in that relationship. The less time invested, the weaker the relationship and vice versa.

If a company wants to build a brand community, its own people must firstly be ready and willing to communicate and spend time developing and nurturing relationships. The company must be willing to listen and interact, to give information willingly and to treat people with genuine respect. The ideal should be to create a partnership, to create, ah, what’s the word, a community.

But don’t fool yourself, building communities – just as in the physical world - is hard work requiring long term vision.

Gerry McGovern

Next issue: Open language
Previous issue: First name terms
New Thinking homepage

New Thinking Newsletter
Subscribe to this free weekly newsletter covering the role and function of content on the Web.
More info | Privacy policy
Read the current issue

Email Address:

 Subscribe  Unsubscribe

Content management seminar feedback
"Gerry's presentation was very well received by the more than 400 higher education delegates. I've chaired this meeting since 1994 and very few speakers have generated the same level of enthusiasm. Wit and wisdom is always an unbeatable combination."
Bob Johnson, American Marketing Association

“Excellent presenter ... thought-provoking and relevant. I hope we can persuade him to visit us again one day.”
Malcolm Davison
The British Association of Communicators in Business

"Hearing Gerry McGovern speaking, one can feel that he truly masters the subject of content management. He was voted ‘best speaker of the conference’ by delegates."
Toon Lowette
European Association of Directory Publishers

Find out more about Gerry McGovern's seminars

Online may give a superficial impression of ‘community’ and friendliness, however, it is in reality a very impersonal medium.