Do Consumers Expect too Much?

A while back I signed up for a KODAK Gallery Account to view a friends photos.  Otherwise though, I’ve never used it.  Then the other day there was an email in my inbox entitled “Important: From the Gallery’s General Manager‏”. Curious, I opened it. In part, it read (bolding is my emphasis):

Let’s put the issue right on the table: nobody likes paying for something that they thought was free.

I recently received some strong responses from Gallery customers after we asked them to make a small purchase in order to continue enjoying photo storage benefits. This may be a non-issue for you. However, if you’re not feeling good about it, please read on.

The fact is, we store billions of photos for our 75 million members. The quality storage service the Gallery provides is significant in terms of our business costs.

To help offset storage costs, it’s long been our policy that Gallery customers make an annual purchase (of as little as 15¢) in exchange for unlimited photo storage and sharing. Even so, our customers who regularly buy Prints, Photo Books, and other products have essentially been subsidizing those who don’t shop the Gallery.

So that we can provide the highest level of service, we’re now asking all Gallery customers to make an annual nominal purchase in exchange for photo storage. We’ve modified our Terms of Service policy accordingly: if your Gallery photo storage equals 2 gigabytes or less, we’re asking you to spend $4.99 annually; if more than 2 gigabytes, $19.99 annually.

In return, you’re able to enjoy unlimited access to your photos while continuing to benefit from our efforts to make our service even better, including these latest feature enhancements

At the Gallery, we believe in choice—including your right to unlimited access to your photos—and fairness: the benefits of photo storage enjoyed by all come at a cost that should be shared by all.

I often remark to my partners how shocked I am at some of the customer inquires we get.  Detailed Image is hitting a size where we start to see everything.  Customers seem perfectly fine with trying to manipulate our system to squeeze every last penny from us.  This especially happens when we’re running a huge sale.  Nothing is good enough – the 20% off or the free shipping or the 25% back in gift certificates (which have no minimum spend and can be used towards tax/shipping).  They want us to honor old specials, they want us to give them our “highest discount available” (as if the promos we have out there aren’t), they complain that we’re profiting from shipping when we clearly pull quotes directly from FedEx and USPS (with our free shipping promos we definitely took a loss on shipping last year), and of course if all else fails and they don’t get what they want we (somewhat routinely) have customers blackmail us by threatening to issue a chargeback if we don’t meet their demands.

I think we do what any good business tries to do in these situations.  We are constantly improving our policies and terms, particularly how we explain short-term sales to customers.  We have discussed a strategy with our lawyer to handle the blackmail customers.  When we do get inquiries, we stick to our policies but still treat the customer with respect and generally try to be fair and go above and beyond to come to an amicable solution.

Sometimes I wonder if we’ve done something to encourage this behavior.  When I read this email from KODAK though, I realize it’s not just us, it’s everyone.  Kodak did a great job with this email. It’s one of the better emails of this type I’ve ever read.

Consumer expectations need to change.  In the offline world, but especially in the online post-web2.0, post-recession economy.  If an organization wants to give something away for free because it’s open source or ad supported (or they’re Google), than great.  By all means take it while it’s there.  But 99.99% of online businesses can’t operate by giving  everything away for free, and I suspect that the number of web services that are wholly free will drop significantly in the next few years and consumers will have to adjust their expectations to meet reality.

What KODAK requested is beyond reasonable.  $20/year in photos for unlimited storage?  Flickr charges $25 and you don’t get to have the prints from your $20 purchase. Yet people still bitch and moan and scream at the big corporation.  Do they not understand how much providing free image hosting costs?  Do they not understand that KODAK is a business and has employees to support?  No one likes our current economic situation, but demanding everything for free just makes it worse in my opinion.

I brought this up to my partners the other day and they seem to think it happens in the offline world too.  I don’t shop all that much offline, and when I do I’m in-and-out in as fast as possible, so maybe I’m naive.   I don’t know if it’s a lack of understanding that a business is run by other humans who need money to survive, or a lack of respect for people in general, or just consumers who get off trying to take companies for every penny they can get regardless of the headaches caused.  Whatever causes it, this behavior comes across as childish, overly selfish, and unnecessarily increases the expenses of the business.  The customer service expenses for dealing with people like this are astronomical.  Which in turn just raises the costs of the product/service for the majority of end users who are civil human beings.

We have made it almost impossible for people to call us, not because we don’t want to offer phone lines, but because we’d get several absurd 1-2 hour calls/day.  People who call over and over again until they get what they want.  As a four person company we’d be eating 1/4 of our work time on servicing a few bad customers.  It didn’t make business sense.  Let them email us and we’ll do the best we can to help in the manner we see fit.

I don’t know about you, but I’m happy to pay for and support the things I enjoy, whether it’s buying legit music or buying food from a local farmer or shopping at a local store instead of the national chain that’s 10% cheaper.  If I can’t afford something, I don’t buy it.  If I don’t read the terms of service before buying something, that’s my fault and I’ll pay the penalty.  I value other people’s time and only get involved with customer service if absolutely necessary.  When I do, I understand that the customer service rep is not the one who caused my problem, so no matter how bad the situation I try to be overly polite to them.  It just seems like these things are common courtesies.  Things people would do in any other situation, so why do they suddenly act different as consumers?

18 comments on Do Consumers Expect too Much?

  1. nethy says:

    Adam, I see you have some venting to do. No issues with that from me.

    The topic(s) you bring up, especially child-like consumer expectations are real issues. I think you have the makings of five or ten blog posts in there. Some of them I might disagree with you (perhaps en route).

    Is the whole 2.0 = free phenomenon sustainable?

    Good question. I think it’s probably here to stay, but it’ll settle down to some quite equilibrium at some point. I don’t think email accounts will be mostly paid for & I don’t think car wax will be free.

    What about the charge-back blackmail? I’m very interested to see where this goes. I suspect it’s unsustainable long the. Every day there are more consumers that realise they have all the power here. I suspect there are individuals seriously cashing in. It may get ugly. But I suspect it would have gotten out of control faster had there been ultimate power in the hands of merchants.

    How about customers happy enough to treat you like dirt, ruin half your day & destroy good faith for a free scoop of shine & polish? That’s one for the sociologists I’m afraid it’s not my area. I suspect that it’s a combination of large market capitalism & the anonymity of the internet. I don’t know exactly how to approach the topic but here are two things I think are related:

    – It’s not that different to how large companies treat each-other. This has examples (in a long podcast) from the hospitals-insurers dynamic: http://www.econtalk.org/archives/2008/12/lipstein_on_hos.html

    – Some ‘how to save money guru housewife secret books’ advise just that. There are also small business varieties of that book. They generally frame it in terms of ‘negotiate a discount’. But the ones that get into it are often just talking about negotiating hardcore & leveraging any scrap you can find (The packaging was crumpled at the ends).

    Framed a certain way, it can seem like haggling at a market. In a context that’s a little more personal & a little more fixed price, it’s not nice.

    You also managed to hit copyright infringement, misplaced feelings of deserving (a product or a price or a certain type of service).

    Overall, I think you might be hitting the point in your business where policies get more defined, less flexible. When you’re 5 years old in a play group you are told you need to share, be polite & play nice with the other kids. It’s very discretionary but it works in little groups. In bigger schools that becomes policy on how respect should be specifically defined & what exactly constitutes a violation of that respect.

  2. nethy says:

    PS, I recently discovered betterworldbooks.com http://en.wikipedia.org/wiki/Better_World_Books.

    I thought you (or your readers) might be interested. Very interesting company.

  3. Dale says:

    I agree that people should be willing to pay for value. Someone has to pay for the costs of providing the value. This is a bad epidemic of companies willing to give stuff away and worry about making money later… it hurts businesses who are trying to make a sustainable profit because it’s hard to sell something when someone else is just giving it away.

    I think the issue can be summed up with a conversation I had with a friend… I asked him what Yelp’s business model was, i.e. how did they make money. He said business model? Their business model is to give everything away for free, build up a ton of hype, and hope Google buys them for a billion dollars. This has got to be a lose lose… investors are losing their money and competitors with potentially sustainable models can’t get in.

    Something’s wrong when a company is more interested in burn rate than profit growth.

  4. nethy says:

    Dale,

    I want to jump in on this. While I agree that many, many of the hyped up 2.0s like the dotcoms before them are made-for-Aquisition (formerly IPOs) & unsustainable. But I think we need to be careful with telling them to get out of the way. Remember that these are (sustainably or not) offering huge benefits to consumers, creating competition-based innovation & generally spreading around a lot of good.

    Let’s go back to why these exist.
    The idea is that, to hit a home run (like Google search) in a winner-take-all area (like Google search) the idea is that you need to have something massively popular, get the network affects, dominate the market (remember it’s winner take all. Second place is no good.), & then find a way to make money.

    The the last step is something that diminishes your chances

    The returns on a home run like this are disproportional to the input. Apparently anyway. This is becasue they are very top-heavy the risk/return scale. The “cost” is shared between all participants winners & losers (yahoo, msn, altavista, dogpile…….) While the “winners” (like Google search), well, they take all the benefits (currently about 20bn per year).

    You can think of the whole Web 2.0 cluster as one big company doing thousands of multimillion dollar experiments to find the next Google search). It doesn’t matter so much if it costs you $10m giving Yelp a chance, if one of the other $10m dollar experiments could return $10bn.

    There are a lot of wacky ideas getting money poured in to that don’t make sense. But part of that is because $10bn ideas have a tendency to look stupid before the fact. It’s hard to account for that sort of thing.

    Anyway, while the environment they are creating is certainly weird & I will grant that it kills a lot of potentially viable businesses (particularly paid hosted software), it is still competition. Fierce competition. With associated benefits.

    Look at all the innovation in the space the Web 2.0 kids have been playing. Look at all the value created. Look at all the free-bees. These are all wealth.

    This time around, a lot more of it is real wealth.

  5. Rob says:

    I think I see what you’re getting at Adam – and as much as the others have talked about app development and web 2.0 stuff, I don’t think that’s so much of a factor here for you personally, although I do think of it as a major issue too.

    I think your problems are two-fold. Firstly, that some people just want free shit and they don’t care who gets hurt. They see it as their “right” because they don’t understand business is a two-sided deal, they have got what they wanted in the past (and thus been conditioned) and they’ve had all these money-saving gurus, blogs and columns telling them that they should pinch the pennies wherever possible. Secondly, that by selling via a website you’re far more impersonal than selling over the phone, or face to face, or as an individual and thus they don’t see the individual on the other side of the deal, they just see a big-bad company. By being impersonal you don’t discourage people from acting like douchebags in the same way you would if you were a friendly street-vendor, or had a more visible personal presence. People always assume businesses are making a ton of money and don’t fret about taking them for a ride. Most people have also had bad business experiences in their life (company not delivering / bait & switch / slow delivery / broken product etc.) and thus see getting things discounted (or free!) from you as “sticking it to the man” and somehow making up for them being the loser in other business transactions. I think as a company this is something you’ll face more and more as you grow – it may be interesting to note percentages of douchebags and see how that changed / changes over time when you grow or introduce new methods.

    As I see it, the only thing you can do is deal with the customers, build the costs of dealing with them into your structure, define procedures properly to handle with situations like this, and try not to take it personally.

  6. Anthony says:

    Adam —

    This is one of my favorite blog posts, of yours, ever. It’s dead on in so many different areas. I completely agree that consumers expect far too much.

    I see that your partners think this happens in the offline world too. While I agree with that, I think it’s markedly worse in the online world. In the offline world, many customers bargain hunt to a sick degree and generally try to take businesses for all they can get out of them. I guess in that respect, the online world is no different. Customers are simply trying to get all they can out of a business. The difference is that in the online world, customers have been repeatedly conditioned to expect much more than they deserve, at almost every stop. In the real world, things cost money, and while competition is fierce, it’s limited by reality — costs of goods, labor, transport, etc. In the web world, your competitors are constantly undercutting you by 25-50% on products, and giving services away 100% free.

    WHILE I DO AGREE with some opinions above that web 2.0 business models can, in certain circumstances, be viable, the problem is that customers have been conditioned to think that this is true of every single web service. What works for Facebook and Google may not work for KODAK. That doesn’t mean KODAK is failing; it means that consumers are failing to understand that some *types* of services are more costly to operate, and require more than ads & hope. It would be ridiculous to expect, in the real world, that just because Radio Shack is having a 25% off sale for a weekend, then so too, should the Home Depot. They’re two different businesses with much different margins. They only share a couple traits in common – they conduct retail and are bricks & mortar. Any average consumer understands this. But for some reason, that same consumer, after repeated conditioning, expects every single product & service on the web to be cheap, if not free — just because it’s on the web.

    Consumers are screwing themselves over and they don’t even know it yet. The idea is that severely cheap/free services only survive with massive scale. And the smaller guys — they’re operating at a loss in hopes that they can get there. This worked for a really long time – you know, when there was a ton of venture capital firms, bank loans, and hope to survive on. Now that reality has set in for a majority of the world, it will be very interesting to see how many services follow in KODAK’s service. My guess is most services will begin introducing reasonable paid models. It’s how things work in the real world. It’s time for the web to catch up.

  7. Adam McFarland says:

    Wow guys, great conversation. Thanks for the long comments! Probably the best ever on my blog.

    As Rob said, there are sort of two different issues at hand – the web 2.0 “free” business model and how our particular company handles our customers.

    While Nethy makes some good points about the innovation that comes from some of the overly-funded, non-revenue-model companies in question, for the most part I agree with everything that Anthony and Dale said and hope that the online world will “correct” itself in the coming years.

    From our side of things, we’re working much stricter policies into our new site (which is about 2 weeks away from going live). We re-wrote the policies and whatnot, but also did a better job of cleaning things up on the website that would have previously allowed for people to do things in a way that wasn’t exactly what they were intended for. Ultimately, we’ll just keep working on stricter and more enforceable policies, while also using technology to help us as much as possible. And in drastic circumstances like the chargeback blackmail, involve our lawyer.

    Again, we still are very flexible when we make a mistake or FedEx/USPS makes a mistake. We’re happy to go out of our way to make up for an error. But, per the post, this stuff is different.

    Adam

  8. Brandon says:

    Good Post, Adam.

    One thing I’ve noticed time and again, is the apparent disconnect between price and value in many customers. If we offer a product at 20% cheaper than anywhere else, customers will purchase because of the lower price, but will still expect fullprice service. (We’ve ran cutprice stores with incredible pricing with the listed caveat that we would only be able to assist via e-mail and that shipping times would be slower than normal – it did sell more product than our regular store, but a huge percentage of these customers pitched fits about not receiving phone support and the extra 3 day shipping window, despite the fact that these were listed up front and the customers were getting a huge discount to make up for it.)

    I’ve also noticed that many discounting promotions tend to bring in the wrong customers. A customer who’s decision to purchase comes down to receiving a $2.00 off the original price, also tends to be more likely to complain when shipping takes 3 days instead of 2, is more time consuming to deal with on matters of customer service, and is only likely to be a repeat purchaser during times while your product is cheapest-in-market.

    For us, a lot of it comes down to figuring out which parts of the market are most efficient for us to serve. And many times this requires avoiding the low-end of the market or promotions that tend to bring in these ‘high-maintenance’ clients.

    Brandon

  9. Tim says:

    Interesting dialog! This is a sticky subject because I can easily see both sides of it and am unsure what the right answer is. I really like the point Brandon brought up, the Pareto Principle is alive and well in modern business, though with e-commerce I think you are seeing a slight shift from the 80/20 to more like 85/15 or even 90/10. What’s more curious is how that minority can rain on your day! I have never run an e-commerce company, my businesses have all been brick and mortar and the abuse I’ve witnessed coming our direction from clients was often unbelievable.

    I believe, ultimately, it will boil down to supply and demand, this applies to both products and service. If there is a healthy supply of free options it will be nearly impossible for fee based sites to make it, if demand remains high and the free options vanish I think the fee based sites will flourish. A few specific examples come to mind, forums, some forums offer a premium membership that include an annual fee to the user for extra features, I have never found this to be worth the money, there are far too many quality free forums out there. In regards to Adam’s example, I think KODAK will end up losing this, there are far too many options to host photo’s for free. I think there is a large opportunity for KODAK here, but think they are missing it. They have a portion of it, creating different size accounts based on usage, but I think they should tie it with a more conventional site selling KODAK products; film, batteries, camera’s, high quality printing paper, etc…. It is much easier to sell a competitive product online then a service. Purchasing pictures that they don’t own the rights to is a product, but a boutique product, and their prices reflect this and a clear inefficiency in their operation.

    Great responses everyone, I enjoyed reading this!

  10. Adam,

    Great Post. We must be on the same wavelength, I wrote a similar entry in my blog on March 25th. You can view it here: http://ptcareertree.com/blog/?p=18

    In general, I believe that consumers are very price sensitive. They want to pay as little as possible and don’t care about the effect on the business. (ie: Day after Thanksgiving Sales)

    Back in the days BI (Before Internet) people had to shop in person and needed to work with a live person to use coupons and barter to reduce the price. This takes courage.

    With the Internet, it’s easier to find coupon codes and people can show their nasty side without getting face-to-face contact with the company representative.

    This doesn’t explain your long customer phone calls…I guess some people have too much time on their hands.

    Brian

  11. Adam McFarland says:

    Some more great comments over on Brazen Careerist.

    @Tim/Brandon – funny, I just responded on the Brazen Careerist thread about the Pareto Principle 🙂

    @Brian – Good post on your blog, we’re definitely on the same wavelength.

    By the way, our long customer service phone calls are somewhat unique to automotive detailing. People call to complain but then start asking a million questions about the best wax for their car, and then ask a million questions about how to apply it. Then they move on to another step in the detailing process and pretty soon George or Greg is explaining everything detailing related to them. We have a guide on the site, soon to be much improved, that answers 99% of these questions so it’s just more effective to answer an email with a link to the guide and an “email me back if you have any questions the guide doesn’t answer”.

  12. Dale says:

    @nethy:

    I totally agree with you… I’m actually for companies with disruptive business models where the customer wins. I love how Napster brought down the recording industry and now we don’t hafta spend $14 on a CD when you only want 1 song. I think I’m still jaded by the dot com bust in 2000, and companies able to recklessly spend money because some VC’s irrational exuberance without caring about making a (gasp!) profit.

    There needs to be a good balance. Are VCs betting $1 million on a 1 in 1000 chance to make $1 billion? Or are they betting $1 million on a 1 in 100,000 chance of making $1 billion?

    Plus, Google isn’t going to buy you unless you have something of value to them. What’s more valuable (and sustainable) then a company that’s making money?

  13. Adam McFarland says:

    Good point Dale. We all root for the disruptive companies, but if investors are skipping over less-disruptive, more-profitable companies in favor of only investing in businesses that will probably fail (but could hit it big), I think it’s a detriment to everyone else. Those other profitable businesses that could create jobs and help build back our economy won’t ever have an opportunity to thrive.

  14. Rob says:

    Adam,

    regarding the long detailing queries, why not have a premium rate number set up for that purpose? Eg. “Call our detailing hotline on…..” then if you do get the calls, you’ll not worry so much about it taking up a chunk of your time because you’ll be being paid extra for it. Alternatively, just make all your lines premium rate so that people will be reluctant to call and might try harder to find what they need on your FAQ or using email support.

  15. Adam McFarland says:

    Rob –

    That’s an interesting concept. It could work, but we’d have to tread carefully not to turn people off. Definitely worth thinking about though…

    Adam

  16. Rob says:

    Adam,

    Definitley have to get the right balance – it’s perhaps not fair on people who have real customer services issues to have to call a premium rate number, so maybe have a normal rate number for that – equally you don’t want the timewasters calling on the cheap number when they should be calling on the premium rate. One option is to have some kind of switchboard, or an offer to call back those with customer service issues.

    Either way, there’s extra value you have here that you’re either not monetizing or not sure how to monetize. If it’s part of your service and you see it as good customer service (because they’ll buy lots of product and tell all their friends what nice people you are) then you’ve gotta suck it up and accept the long phonecalls. However, if you don’t think the time spent on these calls converts well into leads and ultimately sales, you shouldn’t be giving the information away for free. Clearly there’s a desire for the information, so the premium rate number or some other type of system might be a good way to offset the time spent dealing with these customers.

    Remember from business 101 that it’s the tire-kickers and cheapskates who are the most difficult customers, and if you’re aligning with them and letting them know it’s OK for them to call you for hours on end don’t expect them to suddenly become dream customers overnight. Would you rather use the 80/20 rule and nix these customers entirely, or find some way of making them less frustrating and more worth your time?

  17. Rob says:

    Oh – one more idea.. (you can have this one for free!) Why not make a DVD or something of you actually detailing, showcasing the products and mehods and sell that? You could just host the video on your site as part of the detail university of course, but some people may prefer (and pay for) a physical DVD.

  18. Adam McFarland says:

    Thanks Rob 🙂

    Yea, we’re working on videos and better tutorials. The biggest problem with detailing is you need super high quality videos/pics to show the process and results correctly (and someone very very skilled doing the work). We’ve made several videos on our own using a hi-def camcorder and still decided not to move ahead with them because they didn’t come out good enough. We’re in discussions with a few of the best detailers in the world about exclusive deals with us where we provide them with free products and promotion (and some money) in exchange for them documenting their work as tutorials, articles, videos, etc. Hopefully we’ll have something in the next few months.

    Adam

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