Since a relationship involves two members...

investing in it, its value increases twice as fast as one's investment.

The cost of switching relationships is high. Leaving, you surrender twice. You give up all that the other has put into the relationship, and you give up your own investment. In other words, the cost of loyalty is low. Thus we see the huge success of frequent flyer and frequent buyer programs, made possible by the coinvestment that airlines and supermarkets put into them. Affiliation cards are another example of the relationship extension; the costs of tracking purchases are so low compared to the value of belonging--for both sides--that it pays to invent other ways to spread the idea. And the phone companies' attempts at "friends of friends" calling circles are likewise clever experiments in exploiting networked relationships.

Smarter relationship technology, or "R-tech" as economist Albert Bressand calls it, will bind the connections between customers and firms more tightly still. An emerging standard called P3P offers a uniform way to store an individual's profile containing name, address, and so forth as well as preferences, including preferences of what they will reveal. If you shop a lot you will carry a "passport profile" based on the P3P protocol (or one similar) encased in your smart card or online in a browser. You exchange it with the vendor during a commercial transaction. The passport technology will help firms remember you as you teach them how to serve you and earn your favor.

The portability of preferences is a big deal. As the net creeps into yet more aspects of commerce, the ability to track identities and desires across different systems will be key. The Ritz-Carlton Hotel is justifiably proud of its ability to customize rooms for you anywhere in its thirty-one-hotel chain, without having to ask you. Some airlines can do the same. That still leaves a lot of room for success in creating relationships in the network economy as a whole.



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This is a blog version of a book of mine first published in 1998. I am re-issuing it (two posts per week) unaltered on its 10th anniversary. Comments welcomed. More details here.
-- KK