Buyers Aware

http://www.homelifecityhill.com/ghl/content/i/slide56.jpgI’ve been thinking for a while about retail and information flows.  If sellers were performing their task in a socially efficient way, they would be conveying the best information they could to their customers.  Of course retailers and marketers don’t do that. They try to spin things to get customers to buy what it is in the interests of the seller for them to buy.  So called ‘financial advisors’ generally restrict their advice to buying products which pay them a commission, fridge salespeople want to get a sale.  And advertisers want to get you buying what they want to get you buying. And even at the cost of annoying you, they want to get in front of your face and sell to you, whether you want their product or not. 

Yet this isn’t all there is to it.  Even salespeople try to appear honest – that’s the best way they can influence you to buy.  And salespeople are also keen on selling stuff that sells because it’s good value – because it makes their job that much easier. So the problem is this? How can we strengthen these incentives that get salespeople telling you the truth – and actually providing you with a service that has social value – which is good information about relative product quality to help you make the best decision you can.  That needn’t be against their interest.

One lead is provided by the regulation of financial advisors.  It’s pretty useless, I’d argue it’s possibly worse than useless (because it legitimates the process of selling in the guise of providing advice).  But we’re just thinking things through at this stage. Regulation of financial advisors tries to police advisors so that they’re taking the interests of their customers into account. So it makes them go through all sorts of hoops – like risk analyses for customers and so on.  In other words it at least goes through the motions of the financial advisor doing things that add social and individual value.  And if it’s done well, people should value, and could arguably educated to value such services.

So let’s look at retail. One thing I’m thinking about is the alleged financial myopia of customers underestimating running costs and plumping for the cheapest capital cost even where it’s not in their longer term interests. I’m sold a $88 bubble jet printer so enthralled by how cheap it is that I don’t consider the $50 I’ll be up for each time I renew the cartridge.  I’m sold a cheaper airconditioner or dishwasher or fridge the inefficiency of which ends up costing me more. A car which is less fuel efficient.

Now in some areas we have produced some regulation to try to push information towards consumers.  Cars’ fuel efficiency is mandatorily and simply reported on stickers on cars as is energy efficiency on white goods. But that often doesn’t answer the more complicated question in your own case.  Because the less fuel efficient car or energy efficient washing machine might be best for you financially for instance if you don’t use it much or if you beat it about and so will dispose of it quickly.  So we need more. Retailers are the obvious people to provide this service. And the service need not be very complex.  

After I’d blegged in search of a good printer, I ended up having a long conversation with a salesperson from Laserfast which is (in my experience) an excellent firm which sells photocopies and photocopy supplies to your door at very good prices.  And I figured that just out of curiosity, a business dedicated to doing this would have a few tables worked out so that they could read off captial cost and the price of catridges per page and then tell you at what point it made sense for you to spend more.  Now the guy wasn’t trying particularly hard to sell me anthing, but the conversation never really got beyond such insights that “at the end of the day, you get what you pay for” (expressions like “at the end of the day” set off my bullshit metre I”m afraid and in this case it turned out to be well aimed). Another line was “obviously if you spend more on the unit, you’ll pay less on the cartridges”.  Now I can see why this might be true of some things (if you pay more for irrigation infrastructure – drip irrigation for instance – you’ll have to use less water), but I asked him to explain why it was necessarily physically true of photocopiers.  

Anyway things didn’t work out and I just ended up guessing what might be best, rather than trying to construct the table for myself.  I’m also happy with the Kyocera printer I got, but have no idea whether it was the best choice.  Of course if one were to take it seriously one might want to set up a small program into which one could put a few extra tings – your discount rate being an obvious one.  But no-one thought of making this easily constructed product available to me (no doubt someone can point me to some calculator on the net where it has been done.  In any event my purpose in this post is to argue that this kind of thing should be being made available by retailers.  

Now while we can all see the advantages to a retailer in participating in the fast sell tactics – not only might they get more sales, they can steer people towards specials and so earn higher profits per unit – an alternative strategy is to head ‘up market’ and to add value to cusomers purchases – because if you do that, and customers come to understand it, then they’ve got an incentive to shop with you.  In place of the odd surge of profit you make with co-ordinated campaigns to shift lines on special you make higher more stable profits with more loyal customer.  People want to at least get your advice, and that gives you a better look in than your competition for their custom.

So how might one try to encourage this kind of retailing? Here’s a quick suggestion.  Some interested party – a government agency or a philanthropist tries to interest retailers in a “Buyers Aware” campaign that would establish a logo which would identify retailers who conform to a certain code of conduct.  The minimal requirement of the code of conduct is that the signatories to it would undertake to train their staff and develop or accept centrally produced material to do the equivalent of the risk analyses that financial advisors are supposed to do, that is, in as bona fide way as possible to help the customer work out what purchase suits them best considering their circumstances.  In addition to current schemes which provide information in a passive way and then leave consumers pretty much on their own, this would be more active, and the salesperson would be expected to engage any consumer and take them through a sales process which invite them to consider the relevant issues and assists them in assessing them for their own circumstances.  

Just as some financial advisors and mortgage brokers find it appropriate to advertise that their salespeople (sorry their advisors/brokers) are not incentivised to sell any given products ahead of any others one might also add to the code of conduct that the business does not have different profit margins for different products – or if, as I expect, that’s too hard, they satisfy some protocol to keep such details from salespeople’s knowledge or incentives.

Of course you can say all this is just blowing bubbles. That salespeople will always be the way they are.  That’s the nature of the game and the incentives.  But as the world becomes more complex, a demand does arise for information.  And the world, not least the market for information is getting increasinly competitive.  Thus Google has made more money than pretty much any advertiser in the world, explicitly trying not to annoy their way into the customer’s attention, but rather assiduously seeking to be useful.

Page and Brin [Google’s founders] . . . believed that ads should be useful and welcomenot annoying intrusions. Kamangar and another early Googler, Eric Veach, set out to implement that ideal.  

So the world is changing.  In those circumstances some leadership could be quite a powerful force.

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jesky
jesky
12 years ago

Not sure if you’ve seen it. Another approach which is just a Net extension of personal recommendations is this:
http://www.womow.com.au/

Don’t know how they’d go in a libel case, but I’ve used them a couple of times and have been happy.

Michael S.
Michael S.
12 years ago

I can offer a few observations from ‘the street’ in this area, as I sold Electrical appliances for a few years in a department store. I have had a range of thoughts pop into my head and my current insomnia has caused me to share them

1. The biggest problem with the ‘buyer’s aware’ logo scheme is that a customer can walk out of the branded store with the information, but not the product. Even with price matching and such, many people are happy to take the info and move on.

2. As your salesperson showed, most Salespeople offering multiple products don’t really have all that much idea about how different products truly compare. This is in part from the fact that their employers don’t see the value in training them with product knowledge but much more to do with how incredibly difficult it is to draw up comparisons between products. Manufacturers very rarely give measurements that can be easily compared – and when they are they are often gamed or exaggerated. I could write two thousand words on how difficult it is to meaningfully compare vacuum cleaners.

3. The comparison with financial advisers is off base because a retail sales person is quite clearly representing their own store – and no store as far as I know is going to offer every single product in the market. Nor do most people expect to hear about every single product in the market from a particular store’s staff. The equivalent comparison of what a financial advisor should be is with the consumer’s groups and publications who provide testing and comparisons.

This brings me to my final point though – Sales people also quite consciously stress other biases in recommending products other than how easy they are to sell or the direct financial incentives on offer. Often it’s a good relationship with the relative brand rep, direct experience with the product or simply just understanding and being able to promote the product better.

However there was another important way in which Sales people (but not the business) indirectly passed on useful information to customers. One of, if not the biggest hassle in the job of an electrical Salesperson is processing returns. Brands that generate large amounts of returns through being rubbish or that insist on repair instead of return warranties were often steered away from customers by the Sales people who knew the consequences of moving too much of that product.

There is one particular large home entertainment company whose Australian division is (or was at least in my time) notorious for taking months to get goods back to customers when they were sent in for repair. your normal turnaround for most electrical goods in for repair was 3-6 weeks. This company you could readily expect 3-6 months. As a consequence they didn’t get recommended a lot by the people who were always receiving calls from irate customers wondering when their goods were coming back. This sort of data might be hard to gather, but very valuable to customers if it was collated somehow.

FDB
FDB
12 years ago

A (possibly intractible) problem with this Nick is that the retailer very often has a stake in the running expenses.

Unless something happened to the way the capital cost is calculated, you’d be asking retailers to voluntarily minimise their profits (in many cases).

FDB
FDB
12 years ago

Why would a retailer encourage someone to make a one-off purchase that would see them rarely return for service or consumables? Unless it were reflected in a high enough initial retail price, of course.

Tel_
Tel_
12 years ago

FDB, there’s no particular reason to buy the consumables at the same shop you bought the original device, and I’d guess that most shoppers understand this.

Nick, some of what you suggest is happening. CD-Baby (online music shop) take album reviews from their customers and put the reviews alongside the products (I can’t vouch whether they display ALL the reviews, but they do at least host some negative reviews). Some other well-known online retailers also support a review feature. If you think about how an online retailer like CD-Baby works, they don’t make much on each CD and they offer a very broad range, so it doesn’t even slightly make sense for the retailer to get a vested interest in any particular artist or product. They do have a very strong vested interest in encouraging repeat business, so their customers are actually more valuable than their suppliers.

For a typical shopfront retailer, their product range is by necessity narrower, and they have to make more money on each sale (just to cover the rent on the shop), depending on the convenience factor of someone passing by who just gets what they need and goes (online retailers are unable to deliver instant gratification). Repeat business is not as common, so they concentrate on keeping their suppliers happy and working the best margins (in effect, One-off Prisoner’s Dilemma vs Iterated Prisoner’s Dilemma).

Now the guy wasnt trying particularly hard to sell me anthing, but the conversation never really got beyond such insights that at the end of the day, you get what you pay for (expressions like at the end of the day set off my bullshit metre Im afraid and in this case it turned out to be well aimed).

Don’t believe in markets reaching an efficient equilibrium then? What are ya? Bit pinko or summit? :-)

pedro
pedro
12 years ago

Perhaps retailers have tried your idea and decided it was a negative. Maybe people who buy $80 printers would not buy a more expensive one anyway and so will simply leave the shop when it is pointed out that they can’t afford to run what they can barely afford to buy.