March 1, 2014
By Maria Minsker, contributing writer

Influencing Customers in the Age of Information

In mathematics, the absolute value of a negative number is always positive, but when it comes to customer satisfaction, a negative review is, well, just that. Price comparison apps, online reviews, and feedback from social media empower consumers and enable them to make decisions based on a wealth of information, leaving marketers with a much more demanding customer base. In the book Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information, coauthors Itamar Simonson and Emanuel Rosen explain how businesses can approach the challenges presented by the Age of Information and evolve alongside consumers. Simonson, a professor of marketing at Stanford's Graduate School of Business, shared the pair's insights with Associate Editor Maria Minsker.

CRM: How has the Age of Information transformed the way consumers make decisions?

Itamar Simonson: In the past, consumers had to rely on quality proxies, such as brand names and prior experiences, or succumb to the compromise effect. The compromise effect suggests that when given a set of options, such as three cameras that have different sets of features and are priced differently, consumers tend to choose the "middle-priced" one. In other words, if you wanted to shift their choices and preference, you could play with the set, knowing that many would go to the middle one no matter what they see. Now this effect is gone, and consumers rely on absolute value. With the Internet and social media, it's easy to get access to expert reviews as well as the opinions of regular users. There's so much information out there--and a lot of it is reliable--that consumers are less susceptible to irrational decisions.

CRM: How do you see companies responding to this change?

Simonson: For a long time, brand names were important indicators of the quality of the product, but they are much less important now. Sure, there are some folks out there that have, for example, an emotional attachment to Apple, but most consumers now evaluate purchases on a case-by-case basis. This creates an opportunity for lesser-known companies that understand this shift to get noticed for delivering better products. One example is Asus, a computer company that came out of nowhere. They used to just be an equipment manufacturer for other brands, but eventually they said, "You know what? We know how to do this," and quickly became one of the leaders in laptops and tablets, all because they made good products at reasonable prices and received great reviews.

CRM: When it comes to negative versus positive product reviews, which carry more weight?

Simonson: By and large, we believe that negative reviews matter more. Before the Age of Information, all the information received by the consumer was dominated by content from the marketer, and it was hard to find someone who said anything negative. As a result, today, when consumers go on Amazon or anywhere else, those negative reviews hold more value. But consumers are also very well aware that even the most negative reviews need to be taken with a grain of salt. If the majority of reviews for a product are positive, consumers won't pay as much attention to the one or two negative outliers.

CRM: Is there a right and wrong way for brands to address scathing reviews?

Simonson: It depends. If it's one or two negative reviews, then it's best to address those issues on an individual customer level. If the feedback is overwhelmingly negative, however, then the company has to fix the product. This might seem a little obvious, but many brands continue to rely on their name to get by, even while delivering mediocre products. Some companies will even try to plant fake positive reviews, but luckily Amazon and others are getting much better at catching those. The truth is [that] just because someone was satisfied with your service in the past doesn't mean [they always will be]. Bad products will get bad reviews, in spite of a good reputation.

CRM: Though it has empowered consumers, is there a downside to the Age of Information?

Simonson: There have been concerns about information and choice overload. We believe this problem has been exaggerated because the choice facing consumers is not getting zero information versus processing all the information out there. No one is going to do that. Still, consumers can very quickly see the average score or average review, and this doesn't take a lot of extra effort or extra information intake. There is a happy medium out there--there are ways for consumers to get information very quickly and form an educated opinion without having to process all of the information.