InformationWeek

December 11, 2000

Are Customers Kings?

Businesses: Listen up! Widespread use of the Net is creating a new breed of customers, better-informed and more demanding.

By Jeff Sweat

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ameron and Tonia Fuller had almost resigned themselves to spending more than six hours of their Christmas vacation in Phoenix. In the airport, that is.

That's because the only available flight for their trip from New York to Salt Lake City involved a six-hour-plus layover in Phoenix--longer than the flight itself. But while husband and wife were on the phone with the travel agent, they logged on to America West Airlines' Web site and found a flight with a 40-minute layover that the travel agent hadn't seen on her reservation system. They told the agent, who called the airline to confirm that the flight did exist--and booked it. "I felt that we knew more than the agent did, since we had the Web site there and she didn't," Tonia Fuller says. "There was a feeling of power, to be able to find information that helped us."

But the Fullers couldn't act on their newfound information on their own. America West wouldn't let them buy the tickets over the Web because they were traveling on vouchers from a previously delayed flight, so they had to depend on an agent to set it up. The whole thing could have ended badly. Says Tonia Fuller, "Without the Internet, we felt like we'd still be sitting there in Phoenix."

Ahh. The feeling of empowerment. Rather than letting businesses call all the shots, customers may finally be gaining some leverage. "There's a customer revolution going on, and it's been triggered by the Internet," says Patricia Seybold, head of the Patricia Seybold Group, an IT consulting firm, and author of the forthcoming book The Customer Revolution: How To Thrive When Your Customers Are In Control (Random House, 2001).

That customer revolution is exemplified by several factors: Customers have become smarter, or at least more educated, because of the Web. They get information about companies, products, and prices and make decisions based on that information. They also benefit from strength in numbers. Online marketplaces, for instance, give small companies deals once reserved for the largest ones; online communities and discussion groups help customers share experiences about retailers or suppliers, good and bad.

But there's a flip side: Many companies are using the Internet to their advantage. They're gathering more information about customers than ever before and placing a value on each customer. The more money a customer spends, the quicker businesses will respond to a problem.

Photo by Andre Ramjoue As a result, there's a power struggle between consumers and businesses. Customers are demanding more consistent, higher-quality service across all channels, and the ones that ignore the demand face a fickle consumer culture used to immediate gratification and almost unlimited choice. The adage "the customer is king" is starting to ring true. JetBlue Airways launched in January with that as a major theme. "JetBlue evolved because we knew the customer was king," says Frankie Littleford, the airline's VP of reservations.

Truth be told, most companies have a long way to go; customer service in many cases still stinks (see "Customer Disservice," June 21, 1999, p. 65; informationweek.com/739/service.htm). Asked if she thinks customers are gaining control, one disgruntled consumer grimaces. "No way. They're absolutely victimized and helpless," says Sharon Simonson, an agent for Nel, a Netherlands photography agency. When Simonson helped Nel establish a New York office in June, Nel ordered digital subscriber line service from Verizon Communications, which promised delivery within six weeks. That time passed, no DSL, so Simonson started calling.

The problem quickly became apparent. "Every time I called a customer-service representative, he'd pull up a new file and start over," she says. It wasn't until Simonson serendipitously dialed a different contact number that she came across an "account detective," someone who could trace the order's history. That person had to start over as well, but this time saw the installation through to completion--four months late. Simonson can go home, but she says she won't forget the helpless feeling: "I felt like I was sitting on my fingers and dialing with my tongue."

That feeling of helplessness is at the root of the customer power grab. The first thing customers are doing is gathering information. A savvy customer is less likely to settle for a bad deal. They increasingly know what a product is worth and who has it. It's a simple matter of access. Before the Internet, a cross-shopping customer had to really want a lower price because finding it involved working the phones or driving all over town.

The Web offers relatively simple product comparisons. Even when customers plan to buy a product in a retail store, they can find the best price within minutes by visiting competing sites. That's true for everything from CDs to cars. Comparison sites such as MySimon.com track inventories and prices of thousands of retail sites so that customers can find the best deal in one place.

Perhaps just as important, consumers know more about products and services. Customers can research drugs or medical treatment and tell physicians how they think they should be treated (see story, p. 60). Or they can buy a car armed with a printout from Edmunds.com containing details about a car's safety, quality, and price. That gives salespeople much less wiggle room to set prices, says one car salesman at a Saab dealership in Bayside, N.Y.

One of the biggest factors that gives customers power is the variety of options; scores of businesses are vying for their attention. The Internet has brought virtual options to every brick-and-mortar business--Amazon.com in books, eToys in toys, Carpoint.com in automotive. There are new selling models, too, from eBay's auctions to Priceline.com's name-your-own-price airfare.

The result may be a growing lack of customer loyalty, analysts say. If customers aren't pleased with prices or service, it's relatively easy to switch to another vendor.

That choice may be deceptive, though, partly because the day of rock-bottom Internet prices may be over, and partly because the Web may be moving toward uniformity. Look for a product on MySimon.com, say an elliptical exercise machine, and it becomes clear that not only do competing vendors such as Sports Authority and Fogdog Sports stock the same product, they charge almost the same price when shipping costs are factored in.

Some IT executives argue that consumer freedom of choice is illusory, even if there are differences in price. Not that customers can't shop around; it's just likely that they won't. It doesn't always make sense for buyers to form relationships with several suppliers, says Larry Blazevich, CIO of chemical manufacturer and distributor Sigma-Aldrich Corp. "If you have 10 different vendors, you have 10 different FedEx charges. That's not too efficient," he says.

Blazevich is referring not only to the St. Louis company's relationships with its customers and suppliers, but to the business-to-consumer world as well. For example, if an Amazon customer wants to check prices plus shipping at Amazon's rivals, he or she must initiate an order on each site, which includes registering and filling out shipping and credit-card information. After going through that hassle once or twice, most customers probably won't hesitate to pay another buck or two for shipping.

The Internet may help customers feel more powerful in areas such as comparison shopping, but it's not always going to help the consumer in a head-to-head interaction with a customer-service representative concerning a broken or undelivered product. The anonymity of the Web, in fact, can end up being less effective than yelling at a store manager in front of a line of sympathetic shoppers. "When I really want something done, the Web's the least-effective way to do it," says Adam Wilcox, a research scientist for Columbia University in New York and a frequent online shopper who prefers to deal with problems in person.

But as a group, customers do wield power, and the Net can help the disenfranchised come together. Exchanges, marketplaces, and other E-commerce sites aggregate businesses and individuals to increase their buying power. Dollardex.com, a Hong Kong E-commerce site, lets customers band together to negotiate lower mortgage rates. A group of potential home-buyers can put out a request for proposals for mortgages and negotiate group deals so that everyone gets the same lower rate. Opus360 Corp., a maker of workforce-management software, operates a staffing site for professional freelancers, called Freeagent.com, that uses the cumulative buying power of its members to offer them benefits such as health insurance and 401(k) plans.

What's more, the Internet can help consumers' voices be heard. Instead of mailing letters, customers can send E-mails or initiate Web chat sessions, which are more convenient and usually more immediate. Lands' End Inc. lets its customers chat with service reps. If they have a problem finding an item on the Web site, the representative can guide the browser to that Web page.

Getting word out on the Web has further implications. Feedback sites such as Gomez.com let consumers rate E-commerce sites where they've had good or bad experiences. To the displeasure of many big companies, Web sites with names like SuchAndSuchCompanySucks.com or IHateThisBank.com pop up online and flourish for weeks with complaints from disgruntled customers.

Eiland Photo by Marc Longwood The Motley Fool, an online investment community that offers news and investing strategies, has helped change the way the financial industry works. For years, the Securities and Exchange Commission let companies feed financial information to Wall Street analysts a day before the public had access to it. When the SEC chairman asked for a review of that policy earlier this year, thousands of E-mails poured in from Motley Fool alone. As a result, the SEC changed the rule in October; Regulation FD now gives the public information at the same time analysts receive it.

Internet communities have affected other industries, as well. The retail music and recording industry is still reeling from the effect of MP3 technology and the Napster community that exploited it. And car salespeople can't lie about the invoice price of a car; they're all listed online.

Instead of fighting these new online communities, smart companies are trying to capitalize on them. Borders Group Inc., for example, doesn't focus only on a customer's relationship with the book and music store chain; it also focuses on that customer's relationship with other customers--the community. Making customers feel as if they're part of a community is a powerful way to keep them tied to the business. And Borders isn't just using the Web for community building, it also brings local musicians to play in its stores and authors to give readings. Its online newsletters keep consumers in touch with their communities.