Trust and Efficiency: A Tale of Two Suppliers

My brother recently recounted a fascinating experience he had while remodeling his newly purchased, well-lived-in home. This narrative shed light on how trust and efficiency can impact the negotiation, customer experience and overall satisfaction.

As part of the remodeling process, he bought a new kitchen from a large, public manufacturer with thousands of employees and a wood stove from a small local family-owned business with less than ten employees. These two suppliers couldn't be more different.

The large kitchen supplier demanded 100% upfront payment at order, even though the components weren't in stock, and the delivery time exceeded ten weeks. They also required my brother to be present during a four-hour window for delivery. The entire process was lengthy, complicated, and the contract involved had reminiscent of the Treaty of Versailles.

In contrast, the small family-owned wood stove supplier didn't ask for any upfront payment, had the stove in stock, and was flexible with delivery and installation. My brother simply texted the preferred date, and the supplier responded by asking for access to the house and instructions on where to install the stove. My brother didn't even need to be present for the delivery and installation.

On the agreed delivery date, my brother and his wife left for work and later received a text form the supplier, simply stating “Wood stow installed”.??When my brother came back home later that day, he found the wood stove supplier had installed the stove perfectly and left a handwritten invoice kindly requesting payment within a few days. Meanwhile, the kitchen supplier managed to deliver the wrong parts, despite their superior warehouse and logistical systems, resulting in additional delays and costs.

Takeaways:

This story highlights the concept of transactional cost. When trust is high, transactional costs are low, and profits increase. When trust is low, transactional costs rise, and profits decrease.

The wood stove supplier had low transactional costs: no contract, no advanced computer system, and no bureaucratic hurdles. The process was smooth and frictionless, as trust between the parties was high.

On the other hand, the kitchen supplier had high transactional costs due to paperwork, long delivery times, upfront payments, and lengthy delivery windows. Trust was low, which led to additional complications and expenses. My friend and author Roger Dooley calls this Frictions.?

So, when evaluating your business practices, ask yourself: are you the wood stove supplier or the kitchen manufacturer? Prioritizing trust and efficiency will not only enhance the customer experience but also contribute to the overall success of your business.

This tale took place in the Kingdom of Denmark, a nation known for its exceptional societal trust. In this country, my brother had no qualms about leaving the key for an unfamiliar supplier, and the supplier, in turn, had no concerns about delivering and installing without receiving payment upfront. The transactional cost was minimal, and the saved time proved to be quite valuable for all parties involved.

Consider if this scenario could be replicated in your own country?

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