The Situationist

Breaking Up Is Easy to Do: When Corporations Dump Consumers

Posted by Adam Benforado on September 16, 2010

As Jon Hanson and a number of other Situationist contributors (including yours truly) have profiled over the years, corporations go to great lengths to convince us that we are rational market actors, exercising free choice.  By using advertizing, marketing, and other means to encourage consumers to believe that they are in control, corporate entities can effectively evade liability and regulation.  When someone becomes obese from eating too much fast food or develops cancer from smoking too many cigarettes, the “choice myth” acts as a great shield.  How can the corporation be deemed blameworthy when individuals exercised free choice to buy the problematic products in copious quantities?

The great injustice, of course, is that at the same time that corporations are selling the narrative that the American public is in the driver’s seat, navigating an open market, they are actively working to ensure that that is not the case.

Take a recent article by Detlef Schoder and Alex Talalayevsky in the Wall Street Journal’s Executive Adviser on how companies can regain control of pricing power on the Internet.  What is fascinating about the piece is that Schoder and Talalayevsky portray consumers seeking to become well informed and exercising free choice as “taking advantage”—that is, not playing fair.  And the authors offer specific tactics to limit choice and confuse or reduce the knowledge of potential buyers.

For example, Schoder and Talalayevsky provide advice on decreasing “price transparency.”  As they explain, “Packaging, or bundling, a product with other products and/or services, makes it difficult for buyers to ascertain the specific cost of each single item within the bundle.”  Likewise, they recommend tracking online customers by delivery address and credit-card number and then banning “customers who repeatedly eat into [the] profit margin.”

Do companies actually do these things?

You bet.  Indeed, I have a friend who was banned from Bluefly.com after she was deemed to be too savvy and not profitable enough.  Bluefly broke the news in a letter canceling her most recent order: “While we understand that you may be upset by this situation, please understand that, by choosing not to accept your order, we are not saying that you have done anything wrong.  We are simply recognizing that based on our mutual past transaction history, we are not a good match to continue to do business together.”

When my friend forwarded me the “it’s not you, it’s me” email, my first instinct was to laugh, but as I thought more about it, it all seemed pretty underhanded.  There is something seemingly unjust about corporations celebrating the autonomous, rational consumer, while actively working to undermine autonomy and rationality, and to cull the most autonomous and rational individuals from the herd.

What do you think?

* * *

For a sample of related Situationist posts, see “Taking the Situation of Consumers Seriously,” Hey Dove! Talk to YOUR parent!,” The Changing Face of Marketing?,” “The Situation of Credit Card Regulation,” The Financial Squeeze: Bad Choices or Bad Situations?” “The Situation of the American Middle Class,” “Are Debtors Rational Actors or Situational Characters?,” and “The Situation of College Debt” – Part I, Part II, Part III, and Part IV.

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10 Responses to “Breaking Up Is Easy to Do: When Corporations Dump Consumers”

  1. Anon said

    The interesting thing about this is that “breaking up” is consistent with the autonomous/rational actor model. I can choose to stop doing business with bluefly; they can choose to stop doing business with me. The weird thing is that the latter almost never happens. And when people *are* banned, it’s usually prospectively. What I find interesting about all of this is that the decision as to who cuts into profit is done at the *individual* level. I could imagine data being aggregated and bluefly deciding that it would no longer market to some particular (profit-reducing) demographic. I would not have guessed that it would filter all the way down to the individual.

  2. Tamara Piety said

    Adam – I agree that this is a really infuriating “heads I win; tails you lose” sort of construction of “choice.” The most casual glance at the literature aimed at marketing and business audiences illustrates that most marketing is intended to act as what Cass Sunstein and Richard Thaler would call “choice architecture – except that instead of channeling choices in a direction that is (at least arguably) consistent with the public welfare it is designed to be consistent with the welfare of the companies’ bottom line. At one level there is nothing wrong with a for-profit company trying to make a buck. That is what they are set up to do. But when they use extensive marketing research into the psychology of choice to build that architecture in a way that systematically (even if not invariably or inevitably in every individual case) channels consumer decision-making in a particular way, it offensive to then disclaim responsibility for the not only predictable, but often hoped-for, consequences.
    To me, one of most offensive examples of this type of channeling is the price discrimination practice involved in rebate/coupon schemes. Rebates and coupons are used as a way to expand the customer base by attracting a few more customers by virtue of the illusion (for most) of a lower price point. We see it in electronics all the time – “Laptop $999 [with $250 rebate]” There are several things at work here at once. One is that the seller ( or whoever actually pays the rebate) has your money for some period of time ranging from 30 days to 6 months as an interest free loan. Second is the anchoring effect that makes $999 seem some how much less than $1,000. But the principle objection for me is that they are actually creating a staggered pricing program. Again, this might not be a problem if it simply involved selling to as many customers as possible on the basis of the price that they will want to buy. The problem is that in order to do this companies make the process of obtaining the lower price (i.e. the with the rebate price), much more onerous than it appears to be through a variety of devices that are intended to take advantage of the psychological effect of the lower price and then relying on consumer inertia, lack of attention, recalculation of the efforts and so forth to avoid actually making good on that promise. Getting the rebate usually involves fair amount of time and effort(filling out the rebate form, mailing it back, waiting for the check, etc.) and uncertainty (if you fail to observe deadline, miss a requirement in the fine print, fail to send in the original, etc.) you lose. None of these difficulties are simply bureaucratic obstacles which have the ancillary effect of depressing the number of rebates redeemed. They are intended to have this effect. And sometimes the rebate is “paid” in the form of a “gift card” rather than in a cash or check which further draws out the redemption process by providing an expiration date for the card, limitations on where it can be used, or even a restriction limiting its use to other products from the same seller. Every single step in this process is calculated to generate some failures to complete the redemption process so that the customer doesn’t actually receive the advertised price. And this is seen as a perfectly legitimate set of strategies to maximize the sales of the same good across a range of consumers – from those who don’t care about the rebate, to those who do and intend to redeem and then fail to do so, to those who intend to try redeem and try to do so but fail to successfully jump through all of the hoops of the conditions imposed, to those, finally, who intend to redeem and successfully do so. Some percentage of the last three groups are consumers who presumably wouldn’t have brought the product but for the promised (but in at least two instances) undelivered rebate. And the difference between groups 2 and 3 and group 4 are explained by the seller as being entirely attributable to some character “flaw” (lack of attention, lack of diligence, etc.) or a “choice” not to redeem when that “choice” has been structured to take advantage of consumers’ psychological vulnerabilities (or their dawning realization that the time and effort required to pursue the rebate is not really “free” and thus it might be more rational to abandon the effort.) It is disingenuous and unfair to describe these consumer “choices” as unmediated.
    This “choice” trope parallels the attempt to describe advertising and promotional efforts as “information” even when there the informational value is tenuous at best. The classic example is, to my mind, the one used by behavioral economist Dan Ariely in a couple of videos (and I think it appears in his book “Predictably Irrational”) of The Economist’s subscription offer which includes a (theoretically) irrational third option. The offer is for an “on-line only” subscription for $59 dollars, a “print only” subscription for $125 or a “print and on-line” subscription for $125. (I don’t remember if these values are exactly right but that doesn’t affect the point). Theoretically, the “print only for $125″ is an inferior choice. No one should choose “print only” if they could get “print and on-line” for the same price, the thinking goes. (There is actually a flaw in this reasoning because some people don’t have computers or want to minimize their email or prefer to read in print versus on-line, etc. – so price is not the only consideration. But we have to approach the problem as one in which, all things being equal, price is the only consideration thus, for any consumer who wants the print version should prefer the option that offers both print and on-line.) Turns out that most people do indeed choose the combo deal which in turns suggests that most people do want the print option. However, Ariely ran the experiment again and took out the “irrelevant” option of “print only,” and it turned out in that condition, more people opted for the “on-line only,” the cheaper option. The “irrelevant” option wasn’t irrelevant at all from the point of view of the seller because the framing drove more traffic to the more expensive option. It is possible that, as Ariely describes it, this framing gave people more “information” about their own choices that they didn’t know before – i.e., that when properly presented they really did want to read the Economist in hard copy. But I think an alternative, better explanation is not that it gave them more “information” per se. It simply helped frame the option in a way that made the print option seem more desirable and aligned what was most profitable for the seller. (Of course it is possible that the magazine itself has non-price reasons for wanting to push its print publication and that because of the costs of producing the print version that the combo deal actually results in a thinner profit margin but some other long term benefits. But I doubt it.)
    Bottom line all these tropes – “control,” “choice,” “information,” as they are currently used and understood by many, operate to absolve the seller of any responsibility for their role in driving these choices even as several full-blown, mature industries’ very existence (advertising, marketing, PR)is predicated on the proposition that it is possible to manipulate and channel consumer choices. It is a feat of sleight-of-hand to argue (in essence) that entire industries’ efforts are of no consequence whatsoever even as billions of dollars are spent in plain sight on those efforts.

  3. Adam Benforado said

    Thanks for the comments! And, Tamara, I really enjoyed the rebate example – it’s one that hits home for me and I suspect many other readers as well.

  4. […] Breaking Up Is Easy to Do: When Corporations Dump Consumers […]

  5. […] Breaking Up Is Easy to Do: When Corporations Dump Consumers – via Situationist – Take a recent article by Detlef Schoder and Alex Talalayevsky in the Wall Street Journal’s Executive Adviser on how companies can regain control of pricing power on the Internet. What is fascinating about the piece is that Schoder and Talalayevsky portray consumers seeking to become well informed and exercising free choice as “taking advantage”—that is, not playing fair. And the authors offer specific tactics to limit choice and confuse or reduce the knowledge of potential buyers. For example, Schoder and Talalayevsky provide advice on decreasing “price transparency.” As they explain, “Packaging, or bundling, a product with other products and/or services, makes it difficult for buyers to ascertain the specific cost of each single item within the bundle.” Likewise, they recommend tracking online customers by delivery address and credit-card number and then banning “customers who repeatedly eat into [the] profit margin.” […]

  6. G said

    This idea of “choice myth” can be taken only so far. If someone is (a) eating fast food several times per week and (b) is overweight, I can see little scope for a convincing argument that the fast food industry is to blame.

    On the other hand, in the case of the behaviours described in the Wall Street Journal, there is a very large degree of intent to deceive on the part of the corporations, and so it is easier for me to accept that some measure of “blame” might be apportioned to these business.

    Nonetheless, I see no value or justice in portraying the customers of any business acting in such ways as victims of clever deceit. Unfortunately, it suits most people far better to allow themselves to be cast in this role if it permits them to continue as little more than mere automatons within a larger economic machine, stimulated and motivated by the fleeting and never quite satisfactory pleasures of consumerism.

    Choice doesn’t begin and end at the point of purchase. The whole situation is the sum of our collective will, or lack thereof. Still, the terms of our relationship with corporations can be changed if we choose, and that’s why I think it’s so important that we don’t allow the idea of choice to be demoted to a mere illusion.

  7. […] by Adam Benforado on October 9, 2010 A couple of weeks ago, I wrote a post in which I questioned the practice of corporations (1) selling a narrative that the American public […]

  8. […] “Breaking Up Is Easy to Do: When Corporations Dump Consumers,” […]

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