Enron… WorldCom… Arthur Andersen… Merrill Lynch… Global Crossing… Martha Stewart… is this tawdry parade of corporate malfeasance having a chilling effect on customer loyalty?
Straws in the wind would have you think so. In early June Moody’s Investors Service opined that gas and power traders may deserve no better than ‘junk’ credit status, remarking ‘Currently, we see increased litigation risk from disgruntled shareholders and end-users… due to an ongoing series of revelations regarding industry disclosures and practices.’
‘I think that with all these scandals going on, most customers are inclined to trust corporations less,’ says Chris Selland, managing partner of Boston-based consultancy Reservoir Partners. ‘Distrust is becoming more pervasive.’
Of course there had to be some level of trust in the first place, you can’t kick down what’s not there, and some would argue that was the real problem. ‘From a consumer’s point of view, the general “man in the street” response is “why all the fuss? Everyone knows they’re all crooks anyway,”’ says London-based CRM consultant and author Dan Murphy. ‘This is just as prevalent in the U.K. as in the U.S., although not as big.’
It’s Murphy’s contention, cynical wretch that he is, that ‘consumers know they are usually lied to and taken advantage of.’ Don’t believe him? Read McCarthy’s Bar, in which Pete McCarthy tries to capture the essence of what makes the Irish such nice people. His conclusion? They’re about the only folks in the world who aren’t after your money.
‘The media and banks and business writers seem perturbed at all the recent accounting scandals,’ Murphy says, ‘but the average consumer is not. I don’t know about the U.S., but here in the U.K. we have had such scandals going right back to the South Sea bubble. It is in the very fabric of our national psyche that the people who run our businesses; our banks, and our government are pretty much a bunch of light-fingered crooks.’
In the U.S., although we’ve had our share of corporate rogues and Bill Clinton, such a despondent view has not (yet) taken root among customers – dammit, we still expect the people we do business with to be honest for the most part, and we’re still miffed when they aren’t. Yet ‘consumers have declining confidence, it’s one thing after another, and it’s had a dramatic impact in the stock market,’ says Dr. Art Weinstein, professor of marketing at Florida’s Nova Southeastern University. ‘If you see funny accounting or questionable perks you start wondering if you’re paying the bottom line on this, if it’s reflected in the price.’
The current distrustful climate is actually a boon to certain firms, Selland maintains: ‘It’s probably an opportunity for companies to demonstrate that they are ethical, and committed to being good corporate citizens.’ It’s a chance for companies who already have a reputation for honesty and ethics, the Wal-Marts and Charles Schwabs of the world, to garner more customers.
Not that these firms have St. Peter sign off on all business practices; a year ago my coffee shop, Ashland Coffee & Tea (see ‘Perfect CRM’) anchored the protest against Wal-Mart’s expansion into Ashland. I saw first-hand their dirty, underhanded tactics and hypocrisy in action. But they do have a reputation for fiscal integrity, as does Schwab, who’s made subtle hay off Merrill Lynch’s well-publicised scandals. And with some firms it doesn’t matter – my sister will buy Martha Stewart products if she has to get them during Connecticut State Prison for Women’s visiting hours.
Yet malfeasance impacts entire industries: ‘If there are only five companies dominating an industry and one of them’s shown to be doing something wrong, the assumption is they all do it,’ Weinstein says.
It’s a fine line to walk, however, as Selland notes claiming ethical behaviour is a double-edged sword. On the one hand people know the world’s crawling with sleazy stockbrokers and like to deal with Schwab to avoid such reptiles, but on the other hand if it should come to light that Schwab has a snake or two, ‘they’d be almost immediately put out of business since their image of being ethical is so tied into who they are,’ Selland says. ‘Schwab’s been taking advantage of the sleaze affecting Merrill Lynch, but they can’t overplay it, they can’t look like a politician slinging mud.’
End consumers probably don’t have much choice or say in Enron’s business practices or Martha Stewart’s stock trading anyway, which is why the real fallout from the current spate of scandals will probably be on B2B customers:
B2B customers always have more at risk. Switching costs are higher for businesses, businesses have more invested and tend to have stronger relationships with manufacturers than consumers do. Businesses have more invested in their relationships than consumers do. ‘You might see more contract clauses added addressing fraud,’ Selland says, ‘like if the company’s found to engage in unethical business practices all contracts are off, something like that. Companies haven’t protected themselves against fraud, it’s been mostly implied up until now.’ At the least companies will be more cautions and wary – especially where anything locks them into a relationship.
For a case in point look no further than our very own CRM industry, in particular the CRM vendors pushing this ‘100% referencability’ crap. As Selland says, it’s one thing if the company doesn’t tout that, but if they have been it’s worse when everyone finds out it’s crap, when they ask for references and aren’t allowed them, or do get them and find out no, the customer isn’t happy. So many major names in the CRM industry promise this that customers simply tune it out, much as they do with any statement Hillary Clinton, a liar of Nixonian proportion happens to make.
But Selland and Weinstein agree that it’s still possible for companies to be perceived as ethical, and in America that still counts for a lot among customers. There’s still an ROI for honesty.
David Sims [www.davidsimswriting.com] is a professional business and corporate writer, and is therefore morally, intellectually and physically incapable of dishonesty.