Trust is an important component of a functioning economy… and for your business. It might seem like a loosely-related concept given that in business we talk about transactions rather than favours from friends, but creating a brand and a business that your customers trust is critical to their loyalty.
At the heart of the matter is what we call an information asymmetry. We as customers don’t have time to become experts in being able to spot top quality in all the products we buy. I don’t have time to get a degree in dentistry to make sure my dentist is doing a stellar job, I have to trust that when he or she is rooting around back there that they are doing it right. Your customers need to trust that you are delivering on what you claim to do – and that you’ll do it every time.
This is even more critical now with the rising of the sharing economy. Technically defined as an economy where assets and services (i.e., like, say, a house, or a car) are shared between private individuals, for a fee, usually orchestrated over the internet. Examples include AirBnB and Uber. Think about the level of trust you need to let a stranger stay at your house! Yes, there are reputation systems built in here – one bad review and you might never get an Uber passenger ever again – but that’s a consequence and it might not be severe enough to stop that one super creepy Uber driver from doing something I’d rather not speak about. If your business hovers around the sharing economy, and even if it doesn’t, you need to find some way to deliver on trust.
Why is trust important? Traditional perspectives in Economics have an answer. As consumers we don’t necessarily know the true quality of the good or service we are spending our money on. The famous example is Akerlof’s (1970) Market for Lemons, which explains how markets can breakdown when consumers can’t trust that the product offerings in a market are of a minimum acceptable quality. Akerlof visits the used car world for this seminal paper, where, because most of us are not mechanics, and only the previous car owners truly know the quality of the used car, we see an information asymmetry about the true quality of the car between buyer and seller. Because the sellers want to get top dollar for their cars, there is nothing stopping a seller of a poor-quality car from charging the same price as a top quality used car because buyers don’t know the difference. This creates a disincentive for sellers of top-quality used cars to sell them, because they know their car should really be fetching a higher price than the lemons. Akerlof suggests that sellers of top-quality cars take them out of the market, putting the quality of the cars on the used car market in a downward spin until only the lemons are left. Without trust we see market breakdown. Thank goodness for warranties! (Warranties are trust mechanisms, they show the seller is so confident in the quality of their product, they are willing to foot the bill for repairs should anything fail).
Here’s a further complication related to trust from behaviour economics: trust can decline over time. Specifically, if a transaction with a company showed them to be trustworthy in January, by November, your customer might not necessarily be able to say for certain you’ll be able to deliver again. A study by Gneezy and List (2006) on gift exchange showed the warm glow and good feeling of a generous and trustworthy act begins to disappear after even a few hours. If your business involves interaction with customers over long intervals, this might be an issue for you. Address this by keeping in contact in the meantime, sharing success stories from other customers, and working towards creating a sense of community among your client base. Even though you might not be working with a certain client right now, they can see you are doing a great job with others in the community.
Trust has also been shown to decrease with declined social proximity. People are more likely to trust and cooperate when they share ties with the person on the other side of the counter. If you are operating an e-business, this might be a challenge. But here’s the thing, if you have lots of face-to-face interaction with your customer and break trust it might sting them even more than anonymous interactions with an e-business. In the case of broken trust in a face-to-face business transaction, be quick to acknowledge the transgression, apologize, and offer some kind of compensation to signal you appreciate their business and will work to rebuild trust. If you were thinking of streamlining a business to reduce costs (i.e., switching to uniquely electronic checkouts), maybe think again. That interaction with the smiley cashier might be paying you dividends in terms of building trust with your customer base.
The last thing about trust is that it can be very hard to get back. This is very true if you are operating in a market that has lots of equally competent competitors. Putting in the time and investment into delivering in a trustworthy way now might actually get ahead of your competitors in the future. One thing you are up against is the availability bias. The ease at which things come to mind make us assume that they are more common in occurrence – and we tend to remember the beginning, end, and peak experiences the most. The cute example of this is when we think about going to the amusement park we don’t remember the annoying hours waiting in line, but we think of the rollercoaster. Don’t let the memory your consumers associate with your brand be the time you really ruined their day by breaking your trust. Work hard to maintain, or improve, the status quo. Don’t give your customers a reason to leave. This is an important point to consider not just for your customers but employees as well. Make sure every change you make signals that you care about your stakeholders and appreciate their involvement – after all, you might not have a business without them.