(our contribution to the annual PIM (Platform Innovation in Marketing) trendreport 2011, www.pimonline.nl)
In 2007 the Nobel prize for Economics was awarded to three Americans who challenged an assumption that has underpinned economic theory ever since Adam Smith introduced the theory of the "invisible hand“. This theory states that markets operate efficiently by nature. The three Nobel prize winners have long argued that markets don't always operate efficiently because buyers and sellers don't always have access to the information they need to make optimal choices.
The new transparency rule will make information available to everyone at an unprecedented level, enabling Smiths’s invisible hand to do its job. The exposure of hundreds of thousands of secret documents by WikiLeaks is a mere sign of what is coming. Information that was once considered nobody’s business is now available to everyone. This makes it easier for buyers to make comparisons and do research, giving them a more powerful position. Just think of how easy it is nowadays to compare prices when buying anything. Transparency makes it harder or even impossible for brands to make profits in any deceitful or dishonest way.
The right-wing Dutch political party PVV thought they could get away with not carefully selecting their newly elected members of parliament. Evidence gathered by a surprisingly simple investigation carried out by a TV channel showed that a number of MPs had a criminal record. One of the PVV MPs thought he could avoid being investigated by not participating in the investigations. Within 24 hours evidence of his conviction obtained by several media organisations forced him to admit he had been convicted of drunk driving 9 years previously. The commotion caused the rating to drop by 17%.
Transparency not only applies to facts and figures, but also to opinions. During the past few years we have seen a growing number of places on the web where people can review whatever they want to review. Check out www.recensiekoning.nl for a taste of what is coming. This is a site dedicated to the reviewing of anything, including review sites.
Successful companies ask their satisfied customers to share their satisfaction and unhappy customers to share their unhappiness. They then act to solve the causes of their customers’ unhappiness.
What is needed is trusted advice and recommendations which enable consumers to feel in control, to know the facts, to avoid mistakes and disappointments so that they can make that perfect purchase. This has become even more pressing as choice-overload continues: never before has there been so much to choose from in mature consumer societies, and thus such a need for reviews. (www.trendwatching.com)
The end of advertising?
This form of transparency allows consumers to make purchase decisions based on what other people say. Where marketers have tried for decades to have a greater influence on those purchase decisions, consumers now rely on each other and the experiences of their peers.
According to American philosopher Noam Chomsky, the purpose of advertising is to undermine the free market. Where free markets exist, there are informed consumers making rational decisions. In Chomsky’s view, the advertising industry thrives on misleading consumers into making decisions based on emotions and illusions. The new transparency will make it harder to create illusions by advertising, because consumers will see through this.
"Recommendations by personal acquaintances and opinions posted by consumers online are the most trusted forms of advertising globally. The Nielsen survey shows that 90% of online consumers worldwide trust recommendations from people they know, while 70% trust consumer opinions posted online.“ (Nielsen Global Online Consumer Survey 2009).
The only correct reply: total openness
A natural reaction by people and organisations to transparency is to become more closed than before. This strategy will not do any good in the long run. If you cannot be open, you must have something to hide. Complete openness will reveal the true reasons why many companies exist (and expose those who cannot justify their existence). If a company is good at something, it should tell the world. If a company has weaknesses and is aware of them, exposing these weaknesses can help in finding solutions to them.
If organisations behave unethically in any way, they will be exposed sooner or later. Being completely open about everything from production processes to ingredients and labour conditions will be rewarded. Consumers will increasingly choose their products not only taking into account price and quality, but also eco, health, social and ethical concerns. If something goes wrong, like an oil spill or a product recall, consumers will be more likely to forgive companies that are open and honest about these events and might even help them solve their problems.
An example of what transparency will do for all markets in which there is an uneven access to information is the Dutch real estate market. In the past consumers were forced to use the overpriced services of real estate agents. Only they had access to supply (the houses on the market) and demand (the consumers looking for a new house). Both consumers that bought a house and consumers that sold a house were paying real estate agents in order to have access to the market. Internet changed this. Several websites now offer a full overview of all houses on sale. Consumers pay on average half of what they paid a few years ago to sell their house. Real estate agents focus on their real added value, which is selling houses at the best price in the least amount of time. The effects: in 2009 20% of all Dutch real estate agents went out of business and 30% operated at a loss.
What can you do if your product or service is given bad reviews on a review site?
I was asked this question a while ago at a meeting of local restaurant owners. They could not find a solution to this problem, which was bothering all of them. Many Dutch consumers base their decisions about where to eat on reviews on the popular website IENS.nl. Negative reviews there will immediately lead to a decline in the number of guests. One of the things the restaurant owners considered was establishing a task force to communicate with the owners of these websites, asking them to withdraw unfair negative reviews. It took them a while to draw the conclusion that the best way to deal with this issue was to improve their products and service, as indicated by the consumers that shared their (negative) opinions on the review sites. In reality the number of real and honest reviews by far outnumbers the number of fake reviews.
“May we humbly remind you that bad reviews are not the problem, but a symptom? Not listening to (dissatisfied) customers is often at the root of the problem. Consumers don’t post their bad experiences straightaway. Most will notify you or one of your colleagues first. It’s the mismanagement of complaints and conflicts that invokes postings. Whether it’s someone at your helpdesk, someone in your stores, or an account manager; there’s virtually always an opportunity to settle an issue before it goes public. And if you really screw up, beat customers to the punch by being the first to report failures. Let customers know how you fix problems. Eventually, this will free up resources and energy to actively focus on enabling happy customers to post positive reviews. Now that's TRANSPARENCY TRIUMPH”. (www.trendwatching.com).
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