17 Sep 2001  Research & Ideas

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.
—Luc Wathieu

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.

Empowering Consumers

In the following excerpt from their new research paper, Wathieu and Zoglio explain some key principles of consumer empowerment.

Introduction

Conventionally, firms advertise and distribute products that they believe stand a good chance of fitting into the habitual lifestyle of large target consumer segments. Today, thanks to information technologies, there is an opportunity to do marketing differently, in a way that can potentially reduce marketing waste while giving consumers better access to what they really want. This opportunity, called consumer empowerment, requires firms to give up some control over key marketing variables (product definition, point of access, promotions, and/or price), in exchange for an increased degree of consumer responsiveness.

New intermediaries have emerged that are asking consumers to specify what they want, when they want it, and at what price. This process takes a number of different forms, such as opt-in advertising, interactive television services, group buying, and "name your own price" systems. These intermediaries signal the beginning of a new negotiation between firms and consumers, centered on each consumer's private knowledge of what she wants.

This paper starts from the experiences of three such intermediaries that have viewed the process of consumer empowerment as a business opportunity. Somewhat surprisingly, they have faced reserved consumer reaction. However, couch potatoes and other consumer-kings can derive no power from their passive manners and overly predictable preferences. For the system to work, consumers have to not only become more active in the marketing process, they also have to become more involved in the determination of their own desires. A key managerial challenge, it seems, is to get consumers to give up the comfort of those self-sustaining habits that years of mass marketing have carefully ingrained in them. We call this the art of empowering consumers.

The Right Touch: Making Empowerment Attractive

In this section, we share some of the most promising tactics used by the three companies we have investigated to tackle the above problems. Many of these tactics run counter to conventional marketing wisdom.

Understate the value proposition
YesMail has been successful at tempering issues of complexity and feasibility. They have understated their value proposition to consumers: they avoided claims of revolutionary change for consumers, instead simply promising a slow-paced flow of interesting promotional emails. Consumers felt that clicking on a very small number of categories of interest was not much of a risk, and that they could greatly benefit from slightly better targeted offers. The underlying preference model was perceived as simple and transparent, and was easy to communicate.

On the other hand, TiVo's claims to revolutionize television viewing and its bundling of a number of amazing new controls was a source of added perceived complexity. Clust, who also made grand claims of reversing the conversation between consumers and firms, created an energetic atmosphere that blurred the transparent explanations that were needed to manage consumer expectations correctly.

Understating the value proposition also fits the shortsightedness and conservatism of consumers: it is important to give consumers a simple entry point that has immediate appeal.

This approach has further implications on the marketing of consumer empowerment. As the value proposition is simplified, communication campaigns face two handicaps: (1) they cannot make very potent claims, and (2) it quickly becomes apparent that you are not telling the whole story. Indeed, simplification hinders transparency.

Consequently, attracting new customers is best realized through bundling (TiVo as an add-on to satellite dishes) or parasitism (YesMail inserting its opt-in form within larger registration forms). These low-key tactics, however, are preventing the intermediaries from loudly committing to being on the side of consumers' interests.

Focus on filtering or access
YesMail is primarily a filter, a solution to the problem of "spam." Clust, on the other hand, is unambiguously in the business of providing access to deals on otherwise unaffordable goods. Depending on the product category, consumers are likely to be in search of one or the other benefit. Low involvement, frequently consumed goods lend themselves well to the filtering service, while unique, high intensity or occasion-dependent demands are best met by an access service.

Empowering consumers in the context of their television viewing makes this strategic choice difficult, simply because of the heterogeneity of television consumption patterns. This is undoubtedly a handicap for TiVo, whose all encompassing advertising and bundle of features does not allow each individual to decide whether his own problem is solvable by TiVo's features. As a result, complexity remains an issue, and the relationships between TiVo and its collaborators (satellite television, networks, advertisers) remain unclear to the public, which can hurt trust.

Loosen the relationship
There will be issues with trust as long as consumers do not understand the process by which their preference information leads to additional benefits from suppliers. This process is generally quite counterintuitive.

Clust, in order to approach suppliers with its members' demands in a credible way that can generate an appreciable discount, should be able to walk away from an unsatisfactory arrangement. For this to occur, a low probability of fulfillment is essential. Otherwise, it would prove to both members and suppliers that the power is in the suppliers' camp. Consumers make a mistake when they view Clust's "low performance" and small buying team as a setback.

The same counter-intuitive rule applies to YesMail: consumers should accept a certain level of spam. Indeed, consumers need to be able to demonstrate that they do need substantial deals in order to be responsive, despite the fact that they have signaled their overall receptivity by opting in. This basic rule of consumer empowerment can and should be made explicit to manage everybody's expectations.

Another essential component, necessary to address the problem of trust about how information is used outside the system, is to give consumers an easy outside option. To become a YesMail member, you need to opt-in, but then you are locked in such a way that to withdraw you have to unsubscribe actively. It is not a big exaggeration to say that after a while, YesMail becomes, de facto, an opt-out system. The same is true of TiVo, as consumers are locked into an automatically renewed monthly subscription. This explains why Clust's claim that a transactional approach, dealing with singular demands only, is a strong source of trust, and, paradoxically, of loyalty.

Finally, as we already pointed out, consumers lose ownership of their preferences as soon as they become predictable. To remain credible as consumer agents, empowering intermediaries should not only allow, but also encourage consumers to modify their profile and cultivate versatility. This may sound like a hindrance, but on the other hand, allowing consumers to be versatile is precisely what conventional marketers can't offer at a low cost; thus, this flexibility proves to be the indispensable advantage for the empowering agent.

Excerpted with permission from "Empowering Consumers," HBS Working Paper. Copyright © 2001 Luc Wathieu and Michael Zoglio. All rights reserved.

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.