Let Customers Call the Shots
Opt-in advertising, interactive TV, group buying clubs—these are all examples of cutting-edge intermediaries that are changing the rules for both marketers and consumers. HBS professor Luc Wathieu and research associate Michael Zoglio explain what they mean for you.
Editor's Note— What is consumer empowerment and what does it mean for you as an executive? HBS professor Luc Wathieu outlined his views in the following e-mail interview with HBS Working Knowledge senior editor Martha Lagace.
Lagace: In your paper you use the term "consumer empowerment." What's a quick definition of that for the layman? How long has the concept been around in marketing?
Wathieu: The idea involves letting consumers take control of variables that are conventionally pre-determined by marketers: product characteristics, place of access, exposure to advertisements or product information, and even price. Consumers can shape the marketing interaction, making it more relevant for themselves, and this should lead to greater involvement and responsiveness.
The hope is an improvement in marketing efficiency; while at the same time consumers can use their private knowledge of what they want as a resource to negotiate better deals and to clean up their personal marketing environment. Empowerment is sometimes captured in the slogan "get what you want, when you want it, where you want it, on your own terms."
Elements of consumer empowerment have been around for some time: "name your own price" devices, permission marketing, group buying, price comparison engines, car purchase Web sites, mass customization, etc. It is still largely a new way of thinking whose domain and modalities remain to be defined. For a while the dominant belief has been that information technologies could be used to create a captive one-to-one relationship between firms and consumers, so that customers could literally be viewed as assets.
We should start to realize that things are not that simple. Ultimately, a consumer's information about what she wants remains private knowledge, and successful systems will make sure that customers benefit from marketing relationships as much as firms do.
Competition and brand reputations have traditionally been the market's way of providing consumers with a valuable marketing environment. However, the increasing fragmentation of both market offerings and consumer needs has been challenging the effectiveness of both mechanisms.
Q: What kinds of consumer habits does consumer empowerment work against?
A: Consumers typically tend to adopt ritual lifestyles, and to develop dependencies towards the same drinks, foods, TV programs, etc. This is the bread and butter of conventional marketing, which profits from demand predictability within market segments.
But there is really no room for consumer empowerment when consumers make themselves too predictable. Think of the failure of Priceline to extend its "name your own price" concept to well-behaved consumption markets such as soft drinks. Consumer empowerment won't work there; empowering systems are most needed in situations where demands are fragmented and versatile. As these systems improve and succeed, they will also encourage consumers to break the mold of old habits.
Q: Your working paper uses the stories of three different companies—YesMail, TiVo and Clust.com—as a lens for examining consumer empowerment. YesMail is based on opt-in advertising, TiVo offers interactive TV services, and Clust, until it recently changed its business model, was a group buying service. What kinds of resistance have these companies experienced? Has the resistance surprised you?
A: Like many recent newborn companies, the ones we have studied have made bold claims such as: "Let's change the balance of power between firms and consumers," as if a big revolution was about to take place.
Consumers have been put off by these bold claims, and their attitudes betray a great deal of conservatism. After all, even if things can clearly be improved, there is little perceived dissatisfaction with conventional marketing. For instance, even if you could imagine better TV programs, your satisfaction with existing networks is not so low that you are crying for a revolution.
The same is true of advertising: of course, we would prefer not to be bombarded by irrelevant messages, but on the other hand we have adapted well to the surrounding cacophony. Online group buying suffered from the same problem: it is unclear that we need an across-the-board revolution in retailing.
Moreover, empowering systems appear to be opaque and suffer from complexity: It is hard to envision the costs and benefits of empowerment in a nutshell, especially without directly, personally experiencing them.
There is also an issue of skepticism. Clust has about 175 buying cycles (products actually on sale) at any point in time, compared with about 4,000 aggregated demands. YesMail's emails have a response rate of 15%, which is much higher than any direct marketing alternative, but still reveals that "filtering" is limited. At this point, TiVo has a few real limitations: for instance, you can't watch whatever you want to watch, simply because you can't watch/record two shows that are broadcast simultaneously.
Last but not least, there is the issue of trust: Consumers need to know and control what is done with their information.
Q: Do these services do better by focusing on the higher-end market, or is the resistance you describe pretty universal for all users?
A: The high-end/low-end distinction seems pretty irrelevant here. Instead of searching for a particular segment that would directly welcome empowerment, companies whose value proposition evolves around consumer control should expect a slow start and work on consumer education and reassurance.
You could argue that adoption is more likely when the value chain is broken, so that consumer control will undo a complex situation instead of adding to the complexity. This is the case for permission marketing that seems to undo the marketing clutter, and also for personal television services that undo the confusing system of TV channels and schedules.
Q: You mention in your paper how hard it is to change the habits of consumers. How about the habits of marketers? How open are marketers to trying these new methods of attracting customers?
A: Marketers have a number of beliefs and habits that are becoming dysfunctional: for instance, the belief that more exposure to a message increases the likelihood of response. Too much exposure hurts the expected relevance of marketing messages, and consumers could stop paying attention.
Another typical belief is the notion that you want the consumer to be captive. But captivity hurts trust. For instance, a conventional marketer would think that facilitating the opportunity to opt out of the relationship is foolish. In the context of consumer empowerment, making it easy for the consumer to opt out gives a consumer a useful outside option that is an additional mark of control and negotiation power. Firms should make opt-out opportunities extremely easy, and continuously advertise them.
There is really no room for consumer empowerment when consumers make themselves too predictable.
In a time of recession, the waste of marketing dollars will become an issue again. We can expect marketers to be increasingly interested in refining those tools that enhance consumer responsiveness and make it more measurable.
Q: Given the dot.com fallout, are you seeing a leveling off or retreat in the proliferation of such services now? Are they just ahead of their time?
A: The revolutionary pitch and all the fantasies that surrounded the world of interactive marketing during the dot.com bubble are gone, and that's a good thing. The basic idea of incorporating more consumer control in your value proposition for better responsiveness is quite independent from the Internet, actually. This is a good time to come up with creative and realistic ways to get consumer empowerment to deliver on its promise.
Luc Wathieu is an assistant professor in the Marketing Unit at Harvard Business School. He teaches the Customer Behavior Lab with Professor Gerald Zaltman.
Michael Zoglio is a research associate at Harvard Business School.