Consumer Behavior
Can Unethical Customer Behavior Benefit Others?
Yes it can and handsomely, as our study of a Swiss retailer's customers found.
Posted October 8, 2017
Not all unethical customer behavior is equal. An interesting question then arises of how to distinguish between different types of unethical customer behavior, consider its consequences, and responses to it if you are a manager. In this post, I want to provide an example from my recent research, conducted with Zhao Yang and Rene Algesheimer of University of Zurich. We found a type of unethical customer behavior that had beneficial effects for the company and other customers.
Lawful vs. unlawful unethical behavior
Some unethical customer behavior is clearly illegal. When a person shoplifts, steals someone’s identity, or defrauds a retailer by writing a bad check, they are breaking the law. In such cases, it doesn’t matter what collateral good they may do. They must be prosecuted.
In our research, however, we studied lawful unethical customer behavior (and no, this is not an oxymoron). This type of unethical behavior violates widely held moral principles and disobeys the retailer’s rules or policies, but stays firmly within the bounds of the law. The most common type of lawful unethical behavior is violating a company’s policies (which can be arbitrary and vary from one company to another).
How we defined lawful unethical customer behavior in our study
We conducted our study in cooperation with a Swiss online retailer. This company had an interesting business model. It used a combination of social gaming, heavy discounts, and limited time offers to generate sales and engage customers. Its model worked like this.
When a product offer (e.g., an Apple iPad) was listed on its site, a set of ten virtual cards (numbered from 1 to 10) was generated concurrently. Each card corresponded to one discount voucher, and gave a 10% discount on the offer’s listed price. Customers had the option to purchase the offer at full price or collect virtual cards to bring down the price they would have to pay. The more cards they collected, the deeper was their discount. If they collected all ten cards (a difficult thing to do), they got the item free.
Customers could collect cards in four ways. First, new users received three random cards when they registered. Second, each day that they logged in to the site, they were given two random cards from all available active offers. Third, they could buy (randomly chosen) cards for 2 Swiss Francs apiece. Fourth and most importantly, they could trade cards with other customers by finding those who had a card they needed, and offering them other cards in exchange.
Important for our study, this company also had a strict one customer, one account policy. It prohibited multiple accounts based on the logic that it may give an unfair advantage by allowing customers to get more cards in total and engage in questionable card trading practices within one’s own accounts or with others.
The Positive Effects of Customers Behaving Unethically but Lawfully
When we studied the behavior of 48,000 customer accounts covering seventy weeks, we discovered that some 11.5% of the total accounts belonged to customers who violated the company’s policy and had opened multiple accounts on the site. What is more, these unethical customers had positive longer-term consequences for the retailer and its other customers.
The specific positive effects of these unethical but lawful customers was as follows:
- Although they were only 11.5% of the accounts, they generated more than 27.6% of the company’s revenues. They spent more money on the site than the average customer.
- Ethical customers or those who had a single account logged into the site 12.9% more frequently because of the unethical accounts. They also traded cards approximately 20% more than they would have without multiple-account partners (likely because there were overall more cards to trade).
- Perhaps most importantly of all, the single-account customers purchased more from the site. The company earned 40% more revenue from these customers because of the multiple-account customers.
Because of the unethical customers, the ethical customers benefited -- by having more cards as a whole to trade from, logging more often and buying more. The company also benefited from the increased engagement of all its customers and from earning higher revenue.
The Implications of These Findings
In today’s digital, information-dense, privacy-conscious, and customer relationship-oriented environment, many companies have adopted conservative, tradition-based policies of what is allowed and not allowed by customers. Not surprisingly, when a customer violates this policy, the company comes down hard. Many retailers treat all unethical customer behavior as if it were unlawful and harmful to the bottom line. They fail to realize that some customer behaviors are unethical not because of the customer’s fault but simply because of the way they have designed their policies. If the policy is simply modified, an action that was previously a violation (and unethical) would become acceptable. In my next post, I will consider the issue of how retailers can respond to such complicated customer behaviors in more detail.
My latest book is How to Price Effectively: A Guide for Managers & Entrepreneurs. I teach marketing and pricing to MBA students at Rice University. You can find more information about me on my website or follow me on LinkedIn, Facebook, or Twitter @ud.
