22 Nov 2016 18:21 IST

Consumer collusion is a great free-market leveller

Websites such as Foursquare and Yelp have changed customer buying habits like no other.

In the internet age, freely shared information makes a customer the king

One of the first things we learn in a course on financial markets is that markets are considered “perfect” because everyone participating in it has the same information. In an environment built on the principle that one man’s food is another man’s poison, any other situation would create havoc. This is why market regulators take such a dim view of insider trading and send perpetrators to prison. Insiders have information that the public does not, and trading on such information is injurious to the proper functioning of markets.

In the olden days

The same principle applies to retail transactions too. Before the advent of social media tools, companies operating in the retail sector could do just about anything they wanted with little consequence.

Word of mouth against a company charging too much for the same product or offering bad customer service would still take too much time to get around. And these companies could survive indefinitely — prosper even — in the cracks around poor and insufficient communication among their customers. Or even just plain lack of information.

Consider a relatively simple task such as planning a trip to a distant place and booking a hotel room there. In the not too distant past, this involved nearly blindly booking a place on the phone praying that everything would be fine, or worse, relying on street agents to take you to a “good hotel that is reasonably priced” on arrival. Making a purchase without sufficient information switches the pendulum so much away from the consumer that it is not a fair transaction at all.

New Age

Websites such as Foursquare and Yelp have changed customer buying habits like no other. Today, if one is planning to book a hotel room far away or across town, one would be foolish not to look up a TripAdvisor review of the place prior. Because reviews are by people just like us, they can be an invaluable source of information before the buying decision. Some of the reviews could be tainted — for example, they could be promoted by the hotel owner himself. But TripAdvisor uses automated algorithms to catch such posts and take them out quickly.

Such consumer collusion is the beauty of the internet because people who don’t know one another in the physical world share details about their activities, largely anonymously, but with the potential to alter buying decisions of complete strangers. Reviews by professional organisations pale in comparison to the real-world experiences of people just like us.

Another example where consumer-submitted data can make or break transactions is in the world of e-commerce. All the major websites — Amazon, Flipkart and Snapdeal — thrive on the review machine to weed unscrupulous merchants out. A merchant who consistently gets bad consumer press can never survive and is left with two options: change behaviour or leave the marketplace forever.

Global scene

In the US, some apps which rely on user-submitted data are a boon to ordinary citizens every day. Contrary to more involved reviews about a restaurant on Foursquare, these are quick updates about more objective attributes of a consumer decision such as price.

Because petrol pumps are independently owned and operated in the US (unlike in India, where the government controls the price of unbranded fuel), prices at different “gas” stations are different for what is largely a commodity. An app called Gasbuddy reports the price of petrol at every gas station nationwide, relying on users to update this information when they stop by at the pump. Each day, millions of updates are reported to Gasbuddy, allowing Americans to discover the cheapest price of petrol in their area, sometimes reported as recently as ten minutes earlier.

Last week, the difference in prices was nearly $0.35 a gallon across about 40 petrol pumps over a radius of just three miles. The driver of a petrol-guzzling SUV could save nearly $7 on a 20-gallon fill-up simply by driving a couple of extra miles to a lower priced gas station. This kind of consumer information is powerful and forces the more expensive pumps to lower their prices or run the risk of losing traffic.

Consumer collusion

In India, smaller groups exchange information, on WhatsApp, to benefit all in the group. On a recent trip to Maharashtra, I was made aware of a WhatsApp group among students at a local college. On a tight budget, these students are constantly looking for deals which lower the cost of data for their smartphones. Some told me that they were unimpressed by Jio’s plans of offering 300 MB of data for ₹149 a month, insisting that they often do a lot better.

When a student uncovers an unbelievable deal (for example, IDEA cellular was recently offering a 1GB data plan for just ₹50 for new signers), this information is shared on the Whatsapp group. The students are fully brand agnostic and switch their data SIM cards to the lowest provider, even if it means they have to sign up anew (with Aadhaar card information, passport photos, and the like). They all have dual SIM cards on their mobiles, so their main voice number doesn’t change, it is only the data SIM card that changes.

Community-based apps

User-submitted data is extremely valuable, even when no companies or industries are involved. Waze is the world's largest community-based traffic and navigation app. This app shares real-time traffic and road information, reported by drivers already on the road, thereby saving everyone time and fuel money on their daily commute. There are other community-based apps that report the location of police cars lurking by the side of the street to issue speeding tickets. A driver who passes such a cop car simply taps his phone and the app captures the GPS location of the point to alert everyone that danger awaits those who are speeding in the area.

In the knowledge economy, information is vital at all levels, whether it is buying or selling shares, or slowing your vehicle down so you don’t get pulled over. Easy-to-use technology and the easy interconnection of devices via the internet make it possible for each of us to collaborate, mostly for free. As they say, unity really is strength.