The idea of hundreds of individuals clubbing together and buying products and services is a powerful idea. It is also a worrying one if, as a manufacturer, you have always capitalised on consumer fragmentation.
Developments in recent months suggest that the balance of power is tipping towards the consumer. The Government’s position as the consumer’s champion and a scourge on the British “rip-off” culture has had an effect. But more dramatically, opportunities thrown up by the Internet are giving greater power than ever to buyers.
Apart from access to accurate product information, consumers are now in a position to influence companies through collective bargaining. And new virtual organisations such as Accompany and Mercata give consumers power to affect pricing on goods from minute to minute.
“Consumers have always had power but the landscape is changing dramatically. The Internet gives consumers more power than before,” says the Consumers’ Association director of communications Nick Gammage.
Individuals’ increasing autonomy from the State may be another reason why consumers are becoming more active in the buying-selling relationship. Unable to rely solely on the Government for pension provision and healthcare, and with a wider choice than ever, consumers are having to do their own research into what the best purchases are.
Gammage says: “The State is rolling back pensions, for example, and consumers now have to make big decisions. Buying decisions are more important and risky than ever before. If you buy an apple then you know within seconds whether you have a good buy or not. But if you buy a pension or change your telecoms or gas supplier you may not know for years whether you’ve made a good choice.”
Gammage believes that consumers now have to be “at the heart of everything” if they are to make the right decisions. And the Government, ever aware of a good election issue, has made it its business to take this on board with the launch in July of the consumer White Paper.
Particular sectors have come under its scrutiny this year, including the financial services, supermarkets and car manufacturing industries. At the time of the launch of the White Paper, trade secretary Stephen Byers announced swingeing new powers. Any business indulging in price rigging or anticompetitive practices can be fined between 10 and 30 per cent of its annual turnover under new curbs, which will take effect next March.
In theory, this means that the OFT could fine Tesco, for example, some &£5bn if it was found guilty of abusing its position. While this sounds like a huge sum, American companies have for some time been living with the risk of huge fines if they breach antitrust laws, and many believe it is actually good for competition.
An investigation will also look into differential pricing across various markets: “We can all understand why rice costs less in China than Chingford,” Byers said at the time of the launch, “but why do trainers cost less in New York than Newcastle, or a CD less in Birmingham, Alabama than Birmingham in the West Midlands. Our survey of international prices will reveal these differences and action will be taken.”
Whether in practice new Labour will have the stomach to carry out these threats remains to be seen. But it is smart enough to realise that the consumer crusade is a vote winner.
The Consumers’ Association has also jumped into the fray. It has named and shamed the top ten “worst” mortgage lenders and last week launched a new service to source cheaper cars from abroad.
The rationale behind the Consumers’ Association move is to use consumer spending power to force changes in the structure of the car market which it believes is stacked against the consumer. According to some sources, car prices are up to 52 per cent higher in the UK than elsewhere in Europe, largely as a result of a so-called block exemption which allows motor companies to restrict supplies to registered dealers.
While the Consumers’ Association is doing its bit to bring pressure to bear on car manufacturers, electronic commerce appears to be making car manufacturers’ current position even less tenable. Already individuals can get a cheaper car online through Internet traders Auto Trader Interactive and Autobytel than they can through dealerships.
“Consumers can now get together to apply pressure and campaigns can be started on the Net,” says Gammage. While the Government is making all the right noises, it looks like the Internet is going to be the white knight of the consumer.
The Internet appears to be the consumer’s friend and the bigger it gets, the more friendly it becomes. The Internet makes it easier than ever for individuals to switch from one supplier to another. Individually, consumers had little bargaining power, but collectively, they are a powerful force.
“Manufacturers previously played on people’s ignorance,” says David Atter, sales and marketing director for Beeb.com, the BBC’s commercial Internet arm. “Now you can find out how much an item costs in the US or elsewhere, and that gives the consumer power. It also means that companies are going to have be more honest about their products than they have ever been before.”
Atter believes that while individuals could access information about products and services before, the Internet will give them the opportunity to shop around quickly without leaving the house.
But current developments on the Net could have far more serious implications for manufacturers. Auction sites such as eBay allow consumers to name their price for certain items. Consumers can also compare a shopping basket of items at one retailer with another.
More significantly, new sites such as Accompany and Mercata, which launched this year, can aggregate demand to give individuals the kind of discounts previously only enjoyed by players of scale. Individual consumers will now effectively be able to move markets and have a real-time effect on pricing. The greater the number of people signing up, the cheaper the price.
Mercata, a US site funded by Microsoft co-founder Paul Allen’s Vulcan Ventures, is capitalising on this new feeling of consumer power and sports a logo featuring fistfuls of cash with the catchline “Buying power to the people”.
Co-founder of Internet service provider Netscape, Marc Andreessen is a backer of Accompany, which negotiates discounts with US companies and invites buyers to pool their purchasing power online.
New start-ups such as Adabra and Justbuyit will bring similar ventures to the UK.
As if that wasn’t enough for manufacturers to wrestle with, their whole supply chain is disrupted by the Internet. In the music industry the Internet model involves a music provider or band and the end user. This gets rid of a raft of middle men, including the talent scout, the record company and the retailer.
Which? Online editor Alan Stevens says: “There are a number of opportunities opening up. Ironically people are starting to use the high street now as a browsing mechanism and may eventually buy their goods on the Net. There’s no way some of the traditional retailers can compete.”
However, some observers believe the culture of consumer power is in part driven by existing retailers.
Geoffrey Randall, author of The Grocers says: “I think there is a change in culture, people are more willing to complain than before. Ironically this may well be a result of companies asking them what they think.”
Randall is unsure of the effect the Internet will have. “I am very sceptical about the impact of the Internet, except in a very narrow segment of society. However, that segment is very interesting in that it is cash rich and time poor.”
Randall also questions whether models such as Accompany and Mercata will necessarily be as successful in the UK as they are in the US. “America is different. You have to ask yourself how many people in Britain would [sign up to an organisation such as Accompany]. It may well have an impact in some areas, but a lot of people like the experience of going to a shop and not just getting goods and services from a screen.”
And unlike traditional forms of shopping Accompany and Mercata depend on delayed gratification. It is questionable how many customers would be willing to delay receiving their purchases – even if they do make savings.
Whether the Government is able to make a substantial impact on big business, particularly while it is trying to be its best friend, is debatable. But the rise of the Internet and the opportunities it creates is likely to have the biggest impact on the early-21st century consumer.
Marketers have always said that in order to survive they need to listen to their customers. Now as a result of growing consumer power they will need to do more than just pay lip service to the idea.