11.17.2016

Changing the Telemetry of Trust (by Point Blank Economics)

Buyers demand trials and tests.  They want to meet the Head of Sales, the President too.  Operations has to get involved.  The time spent on pre-sales is enormous and costly.   The company may not know it, but there is a problem of trust.  The company is facing a trust hurdle.  

For a vibrant marketplace to flourish, both the buyer and seller must believe they have access to all relevant information.  When the buyer feels information is missing, fears of being ripped off or making a bad decision spike. Trying to avoid a mistake, buyers hesitate to transact. The business stalls and the market falters.

Whenever a counterparty has an incentive to conceal information, the market is susceptible to information failure.  The result of asymmetrical information flows is that the buyer is put at an information disadvantage and knows it.

When it’s a matter of trust, it is time to open new information flows about your marketplace. Streaming feedback mechanisms, reputational badges, and trending data can shift the telemetry of trust.  Not only is the act of sharing data about your marketplace a sign of open and trusted intentions, but the shared insights can save a faltering market and attract business from less transparent suppliers.

A host of research has measured the effectiveness of feedback mechanisms and reputational badges to build trusted transactions between counterparties [See  footnotes below: 1, 2, 3, 4, 5, 6]. Frequently cited by this research is eBay’s invention of the Reputational Mechanism.  By addressing asymmetric information flows, eBay protects buyers from adverse selection.  The mechanism brings real-time transparency to the seller’s track record, inventory and interest levels.

This is not just an approach for B-2-C businesses.   B-2-B has much to gain as well.  Even when confidentiality is of concern, aggregated data can be used with overlays for client-by-client analysis. Even simple views of interest trends and rate of change analysis can unleash value in commercial markets.  In addition, the use of a reputational mechanism minimizes fraud and eliminates opportunistic bad actors.    With the right industry-wide approach to provide collective transparency and visible feedback, the need for onerous rules and regulations can be minimized or avoided.

What real-time market characteristics are you sharing with your customers?

Point Blank:

It’s not just product information that buyers want during the sales cycle.  When buyers hesitate to transact, there is a lack of trust.  In these situations knowledge of the seller’s motives and the characteristics of the seller’s marketplace become critical inputs to the decision process.

Opening direct or indirect information flows about your marketplace can alter the telemetry of trust.    Trending data, reputational badges and feedback mechanisms can facilitate business and overcome the obstacles to trust.   

TAKE ACTION:  Establish Real-time Feedback Loops

Bring a new conversation to this year’s plan:  Overcome the trust hurdle and accelerate business with real-time feedback loops.

  • What market characteristics minimize your buyers’ perceived risks?
  • Are trending and aggregated statistics about your marketplace valuable?
  • Who has access to this information?

 

 

Footnotes:

[1]Steven Tadelis  ‘The Economics of Reputation and Feedback Systems in E-Commerce Marketplaces’ IEEE Internet Computing, 2016

[2]Maryam Saeedi, Zeqian Shen, Neel Sundaresan ‘ The Value of Feedback: An Analysis of Reputation System’ October 2014   Available at SSRN: https://ssrn.com/abstract=2510090

[3] Gary E. Bolton, Elena Katok, Axel Ockenfels ‘How Effective Are Electronic Reputation Mechanisms?’ Management Science, 2004

[4] Chrysanthos Dellarocas ‘The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback Mechanisms’ Management Science, 2003

 

[5] S BaPA Pavlou ‘Evidence of the effect of trust building technology in electronic markets’ MIS Quarterly, 2002

[6] Paul Resnick, Richard Zeckhauser ‘Trust Among Strangers in Internet Transactions’ National Science Foundation Grant IIS-9977999, 2001

 

 

 

 

 

Related articles