Businesses looking for new ideas might do well to ask their customers first
Dr Omar Merlo, Assistant Professor at Imperial College Business School and Academic Director of the MSc Strategic Marketing programme, explains how participation and transparency can engage customers and transform decision-making.
What is customer participation?
We know in principle the idea of listening to your customers makes sense, but organisations still struggle with implementing it. I remember interviewing a senior manager within a big, established, traditional airline, and talking about the idea of customer participation. He said it wasn’t viable. Without knowing the constraints or the complexity of the industry, customers would come up with things that are unreasonable or make no sense.
But this is not always the case. For example, Konstantin Theile, the first marketing director of Swatch in the 80s and a frequent speaker at Imperial College, tells the story behind the massive Swatch watch hanging on the side of a skyscraper in Frankfurt. Arguably an example of guerrilla marketing before we called it that. He was in a parking lot at the end of a busy workday, and there was this child leaning on the bonnet of his car. The child said: “You're the marketing director of Swatch? I’ve got an idea for you, a giant watch on the side of a building.” He said OK, went and made a few calls, and made it happen.
You never know where good ideas can come from, so we were interested to see whether this actually translates into value for organisations, or if it’s just a nice theoretical concept.
How does participation translate to value?
We tend to assume that a satisfied customer is a loyal customer, but that is not necessarily the case. Imagine you go out to a restaurant and have an amazing meal. Next time you go out for dinner again, will you necessarily go back to the same restaurant? Maybe you just want to try something different. You may be satisfied, but you're not necessarily loyal.
But we found that a customer that is satisfied and participates might actually become more loyal, because of the psychological bond that participation creates. It makes sense. If I ask you to be a consultant to my business, wouldn’t you be more vested in buying from me in the future? The fundamental principle is the same.
And that's exactly what we found. When you encourage customers to participate and actually make recommendations or even complaints, there is a strong boost to the customer satisfaction that is already there, which may lead to positive outcomes for both the customer and the business.
How have companies implemented this?
The practical implication is to make it easy for customers to be heard, because customer voluntary participation is quite rare. For example, UK data shows that less than five per cent of customers complain before leaving a company. Most defect without saying a word. When you change your internet provider, you may not tell them why, you just leave. So, they have no chance to fix the problem and prevent you from leaving. We found that if you give customers a voice, elicit that participation and foster it, you can create a really strong psychological bond.
Since our original study published a few years ago, we saw several companies starting to use customer participation more strategically, and we witnessed its positive effects in practice. However, we also noticed some negative effects. Suddenly, for example, some companies were collecting all this data from customers, and becoming very customer-centric, even using that data to evaluate, reward and even punish employees.
Employees started saying managers were valuing people they don't know more than the people who work for them. We investigated the effect of customer participation on employees and started to develop a set of managerial guidelines to balance customer participation with internal participation. It was a necessary response to how industry was applying these concepts.
How does this link to transparency?
Customer participation initiatives can generate a lot of information. Besides using that information to improve products, develop more effective value propositions, and so on, you can also use that information strategically by making it available to other current or perspective customers.
Nowadays you go online and find companies that are good at being completely objective in how they share information. For example, they encourage customers to go to their website and share whatever they want about their products, good or bad, and leave that content pretty much unedited for everyone to see. Then other customers who see that content can make up their own mind. In contrast, other companies are a bit cagier, and if they do share anything at all, it may just be things like positive testimonials and complimentary feedback. They actively weed out the bad news.
If you give customers a voice, elicit that participation and foster it, you can create a really strong psychological bond
We started noticing the companies that share both the good and the bad were getting more attention. For example, brands that made it easy for consumers to find objective information about the brand online were getting more clicks than those that didn’t.
At the heart of this is a rather curious and counter-intuitive psychological mechanism: if we don't give customers something to worry about, they will worry about it. But the moment we give them something to worry about, they stop worrying. A small dose of negative information can be helpful in reducing perceived uncertainty in the customer decision-making process.
We also found that it's the often the companies that feel they have the most to hide that ultimately have less to lose by being transparent. If you're already an amazing brand with a strong reputation, transparency is going to help you a little bit less than if you are less well-regarded. So, it’s the ones with reputational issues that benefit the most from transparency.