Four - The Price of Progress
The chapter opens with a consideration of Groupon, the social media site in which people could indicate interest in an offer that would not be effective unless a sufficient number of other people also showed interest in the same deal. It was a great scheme for businesses to get one-time customers to visit their stores for a deep discount - but in terms of gaining long term customers, it was an utter failure.
The site operators showed an astounding level of greed in their business model. A participating business would have to offer a discount of at least 50% on the offer it made, and would then be required to make a fifty-fifty split of all revenue with Groupon. In essence, the merchant would receive only 25% of the revenue (at most) on every sale that they got from the deal..
The allure of Groupon to business owners who were hammered by the recession was clear: a restaurant full of empty tables and idle staff would be willing to take the loss in order to make use of resources (staff and product) that would be completely wasted if they were not sold. So it didn't matter that the offer would pack the joint with cheapskates and freeloaders if the firm was going to take a loss anyway.
It was believed (with some encouragement) that some of the people drawn by Groupon offers might later return as regular customers who would pay full fare, but that was not the case. The kinds of customers who used Groupon had no loyalty, and many would not have purchased if it wasn't for the spectacular deals they were getting. The author also presents anecdotal evidence from business owners who found that the Groupon customers were terrible clientele, who attempted to exploit the program (stacking multiple Groupon offers or attempting to redeem invalid or expired ones), demanded additional accommodations, shorted staff of tips, and otherwise behaved abominably. One is quoted as publicly stating that using Groupon to drum up business was a "terrible decision."
The author speculates that customers who visit an establishment have unworthy intentions - they do not value the product, do not respect the retailer, and have the attitude that they are "getting one over" on the business by taking as much while giving as little as possible. These are the kinds of customers no business wants, as serving their demands leads to taking a loss on every single sale.
It's also speculated that deep discounting turns even normal people, who are accustomed to giving fair value for the products and services they get, into bad customers because the low price causes them to see the merchant as being desperate for business and unworthy of respect. In essence, they were parasites upon the business rather than partners in a commercial relationship.
A further complaint is that the onslaught of Groupon grubbers was offensive to the regular patrons of an establishment. Not only were they unable to get the level of attention and service they valued because the shop was overrun with grubbers, but they also felt cheated for paying full fare while others were getting a significant discount. The former sentiment may have been temporary, but the latter has a more permanent damaging effect on their loyalty and the esteem of the brand.
(EN: My sense is that the same is true of any promotional offer to some degree. Any time a deal is offered to get someone in the door, there's a high chance they have only come for the deal, and a similar likelihood any regular patron will feel less appreciated.)
The Loyalty Disconnect
The author suggests that it may be unfair to single out Groupon, as the problems described above are inherent to any form of sales promotion that offers a special discount. For years, retailers have been packed with discount seekers when they placed a newspaper ad, and it's well known that there are customers who only purchase an item when they have a coupon that gives them a deep discount.
(EN: A couple of my high-school jobs reflect this. I worked at a drug store where the place was packed on weekends we sent out a sales flier, and for a pizza joint where the majority of orders were placed with coupons. The owners bewailed the fact that people only bought when there was a deal, and felt the need to continue advertising and couponing to maintain the volume of business and make aggressive sales quotas. And that is the ultimate reward for retailers who count on discounting to drive business - customers only come when there's a discount and have no loyalty to the brand.)
The author looks to the example of online travel agencies that promote deep discounts for hotels, which has been miserable for hotel owners. They first saw it as a good way to book unsold rooms, but as the size of online agencies increased (they are now alleged to account for 70% of bookings) their revenues plummeted because of the deep discounts demanded by the agencies. Customers noticed this, and would be foolish to contact a hotel directly because they would pay significantly more for the same room that discount-seekers get. Being loyal to a hotel or hotel chain profits them nothing, and costs them much - so they simply stopped being loyal.
Unfortunately, the effect of this has been a decrease in quality of service. It was once cost-effective to fully staff a hotel with warm and competent employees and cater to the needs of guests. But in order to meet the demand for discount pricing, most hotels have cut back on amenities and extras and offer a nearly bare-bones service to their guests, who simply do not pay enough for the hotel to have the margin necessary to make sacrifices.
The author suggests that similar changes have occurred in the airline and rental car industries, largely thanks to online travel agencies: service is streamlined to cut cost and consumers are getting less for their money (EN: more aptly, they are getting less for less money, though they grumble about the loss of quality that they are unwilling to pay to receive).
The Internet and Its Uses
It's noted that companies that have highly loyal customer refuse to offer discounts or engage in "reward card" programs because they wish to be valued for the service they provide. One quote from a popular supermarket is: "Publiz does not have a loyalty card program because we don't think you should need a card to save money ... we value all of our customers and want them all to have a pleasant shopping experience." Lululemon is another company whose customers are fiercely loyal, and which doesn't use sales promotion at all.
These companies have websites, but use them to build the esteem of the brand and foster interactive relationships - it is not an attempt to attract the business of customers who are simply looking for the cheapest price and will have no loyalty to the brand.
The author claims "a number of academic studies" have been done that consider the way in which people interact with companies in digital channels. While they do not think that the web site is operated by artificial intelligence and has a will of its own, they recognize web sites were created by people, and they hold those people responsible for the quality of the experience they have online.
The notion that "the web site is wrong" or "the server malfunctioned" will no longer mitigate the disappointment people feel. If a company really cares about them, they will take the necessary steps to ensure that the information on their web site is accurate and that there are backup systems to ensure that the experience is free of bugs, errors, and technical difficulties.
The tone of the web site is also reflective of the company that operates it. While people will refer to the website or mobile application as if it were a thing unto itself, describing it as accurate, competency friendly, or warm, they attribute these qualities to the brand. However, it is shown that people will often reciprocate when engaging with a site - to the degree to which they feel their experience online has been warm, respectful, and friendly they will be more amenable to interacting, as reflected in the difference of participation rates on after-sale surveys on various sites.
That is to say that while customers realize web sites are not people, they behave as if they were "social actors" - much in the way that they would be kind or brusque with a sales clerk due to the halo effect of the retail brand.
Warmth and the Physical Store
A survey of customer's assessment of warmth and competence of familiar retail brands demonstrated that they rank many national brands as being more competent than warm, and this is more pronounced in evaluations of online retail brands. This supports the general notion that online stores are seen as efficient and convenient, but uncomfortable and cold. However, this is not universal. Some online brands (such as Zappos and Amazon) were rated "surprisingly high" on warmth.
For both brick-and-mortar and online retailers, customer perception of warmth was more strongly correlated to loyalty than the competence dimension.
It's also suggested that one of the greatest benefits of having both physical and virtual stores is to enable customers to develop a positive impression of a brand through the physical store experience that carries over to the more impersonal virtual one. It's implied that without the physical experience, few customers would visit the web sites of traditional retail brands - and it is likely a mistake for major retailers to close down their physical stores and assume they will still get the same level of business online.
The Zappos Advantage
Zappos has often been singled out as an online retailer to whom customers have enormous effection, to the degree that it is the only online retailer rated higher for warmth than competence (though it still rates high in both qualities).
One major difference between Zappos and other online retailers is that Zappos encourages customer to call, email, or chat with employees (whereas most brands want their online store to be self-service and a method of reducing calls to live staff). Their phone reps are told to deliver a "wow" experience and are not measured by calls per hour, ales closed, or other volume metrics. It's perfectly acceptable for a phone rep to "just chat" with a caller, to send a gift if the caller mentions a birthday or anniversary, or take other opportunities to give the customer a sense of personal connection.
The Amazon Challenge
Amazon won a great deal of affection from the Internet community by being one of the first online retailers, but has grown to huge proportions. Fully 98% of online consumers have at some time purchased something from this site, and report that they value the reliability, selection, and prices that the retailer offers - all of which related to competence, not warmth. Amazon promoted deals heavily to generate traffic and revenue, even to the point that they will sometimes sell merchandise below cost.
The author finds it somewhat "amazing" that the firm has high ratings for warmth, without offering customers any direct human contact: there is no "chat" feature on their site, and no phone number to call. The only thing the author can figure is that their web site is designed for ease of use, and has a friendly tone that leads shoppers to assume that they are dealing with a company that has worthy intentions.
It's mentioned that Amazon had a concern about Zappos, and opened its own site (endless.com) as a separate branded subsidiary to compete with sites that sold shoes and handbags. This experiment failed, and Amazon ended up buying Zappos (but allows it to operate as an autonomous subsidiary). The author reckons that this shows the value of customer loyalty - that customers will pay "a few dollars" more to deal with a company they find warm and friendly, even when the same items can be had for cheaper elsewhere - and online there is no cost to switch as competitors are a click away.
This should be an area of great concern for Amazon, and give hope to smaller retailers that if they can carve out a niche market and provide excellent customer service, they can win customers away from the mass retailers whose loyalty is based on offering rock-bottom prices.
The Digital Channel
In the early days of the Internet, there was the perception that customers would never buy certain products or services online because they could not be certain who they were dealing with and whether they would actually get what they paid for. However, customers' suspicions have faded over time and individuals have become rather savvy in judging the warmth and competence of a seller just by their online presence - and routinely interact with people and products they cannot see or touch.
Given social networks and mobile devices, the Internet is becoming a less impersonal place, and both buyers and sellers are becoming identifiable as individuals in a reliable way: they have faces and names, and more importantly other people vouch for them by being associated to them online.
Social networking also gives brands the ability to interact with their customer - though many fumbled this opportunity in treating social media as a broadcast network, others have learned to interact in a more warm and competent way.
Reconnecting with Customers
As a reminder, sellers had a more intimate connection with buyers prior to industrialization: a buyer's visit to a shop had a certain social aspect to it - while purchasing a product was the reason for paying a visit on a shopkeeper, the encounter was more casual in nature. It was the industrial revolution, with its relentless inefficiency, that dehumanized seller-buyer interactions and reduced them to "strictly business."
It is somewhat ironic, then, that the soulless machinery of computer technology is responsible for reconnecting the people involved in a commercial transaction and returning some modicum of humanity to relationships between buyers and sellers.
The author repeats that many advertisers are getting it wrong, and desperately trying to get the Internet to match the television model of advertising - they seem to be entirely missing the point. The same can be said of brands who regard the digital channel as a substitute for human beings rather than a means of connecting human beings. The companies that get it right, that win loyalty, recognize that social networks are not a substitute for relationships, but a means by which they may be supported.
The author suggests that the social networks are partly responsible because they make it too difficult for companies to maintain dialogues with their customers. That is, the company has a single public voice, and is not recognizable as an individual. Very often, a company's social media profile is not even maintained by employees, but relegated to an outside agency.
She muses that "it would be great if customers could ask a question of an employee who is known to us by name and face." (EN: I don't see why this is not possible. Employees could create separate accounts using their work email address, and use those accounts to interact with customers as a recognizable individual.)