Consumer Mistrust: Profits, Market Share and Pricing

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“Which of these industries do you think are generally honest and trustworthy – so that you normally believe a statement by a company in that industry?”

HALF of all consumers responding to a Harris Poll responded, “none!” Supermarkets received the highest ranking for trust with only 40% of those surveyed feeling their grocery store was trustworthy. You can see the whole industry breakdown here.

Below, I’ve singled out the list of industries that the overwhelming majority of Americans don’t trust. It’s a telling indictment:

Industry % Trust
Banks 20
Electric and gas utilities 19
Computer 16
Airlines 12
Pharmaceutical and drug 11
Health insurance 10
Telephone/Telecommunications 7
Oil 4

When only 10 or 20% view an industry or company as trustworthy, there are plenty of business ramifications:

Lower Profit Margins. Surveys consistently show that loyal customers are also the most profitable customers. Price discounting is the flip side of a lack of loyalty where a business has to “buy” a repeat customer-transaction by offering price discounts and promotions like frequent flyer miles. At the level of distrust revealed by the Harris Poll, the impacts are “perpetually-eroded” profit margins as mistrusted companies are forced into buying repeat customers through price discounting.

High Customer Acquisition Costs. Winning a new customer is always expensive and hard to achieve. Imagine the cost associated with winning customers when the overwhelming majority of Americans view you and your industry as mistrustful. With this scale of consumer mistrust the expenditure in advertising and stakeholder outreach has to be huge in order to maintain consumer attention upon your company and products. In this environment, the marketing path of a highly mistrusted company is to substitute consumer messaging with consumer-awareness branding campaigns executed through very expensive multi-media advertising.

Social Media Dilemma. Social media (Facebook, twitter, and blogs) and new media (mobile apps on smart phones) are enabling consumers to be price savvier and better informed on the quality differences across products and companies. Today a consumer can stand before an array of products, whether they are flat panel TVs, toilets or food products, and comparatively shop a product for both price and performance. This is a revolution in consumer buying behavior that will crush poor performing industries and products that have traditionally won market share through price discounting and mass marketing. The winning companies and products will be those that sell products offering Cost Less, Mean More benefits that are successfully positioned with the consumer through social and new media. The social media dilemma confronting America’s industries is that they have approached social media just like they have approached the retail shelf by offering product price discount coupons in order to buy customers. Their fan base is an illusion that will be revealed at Internet speeds when a competitor offers a superior price. It will be revealed as patently false when a competitor succeeds in offering a product that is superior in price and performance.

Market/Government Manipulation. Is big bad? Economics offer two answers to this question. If we assume larger sized companies produce economies of scale, the answer is no. Cost reductions should flow onto consumers in the form of lower prices. The answer is “yes” if a business or industry uses its size to create barriers of entry to products and companies that offer increased value to consumers. The Harris Poll suggests that the American economy is suffering from market and government manipulation that is enabling large company after large company to create barriers that allow them to survive even when the overwhelming majority of their customers hold them in such low trust. Confronted by businesses that they don’t trust, American consumers are confused about what to buy and who to buy from. The good news is that America is still a free market economy and eventually a superior product and company will win the hearts and wallets of the consumer. However, until this free market transformative change is realized, the cost to our economy is reflected in our unemployment levels and the wellness of individuals and the environment.

What Does This Means?

The history of America’s economy is littered with industry-trusts and company monopolies that have failed to survive our free economy and American entrepreneurship. IBM is still a large and successful company but it no longer has the market share monopoly it once held in computing. Pan Am has been displaced by a global air transportation industry created by entrepreneur-led companies like Southwest, FedEx and Virgin. The bottom line is that no industry or company has been able to stop the economic freedom that defines America. And there-in lies the huge opportunity revealed by the Harris Poll on consumer trust for the green entrepreneur.

The American consumer represents $10 trillion of annual buying power. To put this in perspective, that is larger than China’s entire $8.8 billion estimated 2010 Gross Domestic Production. That size of buying power holds the potential of reshaping America’s economy toward Cost Less, Mean More solutions that will restore our competitiveness, jobs and environment.

One mega-trend that is emerging from consumer mistrust of American industries is the consumer’s pursuit of “in me, on me and around me” product and services solutions. Enabled by social and new media the American consumer is on the hunt for price competitive products that will improve their wellness. I have labeled this emerging mega-consumer the Awareness Customer that includes Sustainable CEOs, the Millennial Generation and their mom’s, the Concerned Caregiver. Their $10 trillion of annual buying power is being felt across product segments. Rainforest Certified coffees are experiencing 100% annual revenue growth. Green cleaning products have grown their revenues over 250% during the last four years. Organic cotton clothing has realized 35% annual revenue growth last year.

A second mega-trend is that Americans do trust local businesses. From farmers’ markets to solar installers to the local doctor, Americans still trust the business people in their community. It is for this reason that BUY LOCAL is emerging into a mega-trend. Part of this buy-local trend is being realized through the supply chains of larger companies who are seeking local suppliers that align with the wellness and sustainability expectations of customers. The other part of this trend is the growth of companies like Clif Bar and Seventh Generation that have matured from local start-ups into national brands.

What does this unprecedented business opportunity mean to green entrepreneurs? My economic analysis using survey projections like the Harris Poll on trust is pointing to a global $10 trillion economy for sustainable goods and services by 2017!

About Bill Roth

Bill Roth is the founder of Earth 2017, author of The Secret Green Sauce and a nationally-followed contributor to, Triple Pundit, The Green Economy Post and Media Post on best business practices emerging from the smart, healthy and green global economy. He coaches entrepreneurs, business and community leaders on how to grow revenues, profits and jobs by going smart and green.
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