In the last article I mentioned this idea of Psychological Contracts. If you are like me, then you’d probably never heard of them before. Despite this, you participate in them every…single…day.
THE PSYCHOLOGICAL CONTRACT
We live according to rules. Some are implied, while others are more explicit. Sometimes they can be situational, other times constant. The Psychological Contract (PC) is a really good example of these “rules” we abide by. First coined by Denise Rousseau (1989), she defined the PC as:
“an individual’s beliefs regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party. Key issues here include the belief that a promise has been made and a consideration offered in exchange for it, binding the parties to some set of reciprocal obligations” (p. 123).
While Rousseau’s research dealt with employee-employer PCs, the applications are so much broader. The PC really revolves around shared values and shared expectations. For example, in an employee-employer PC the employee expects to be compensated for his/her work. Meanwhile the employer expects the employee to produce work that contributes to the growth of the company. If the employee performs, then he/she will be compensated.
And that’s a rudimentary example of a PC! But immediately, it is easy to see that the PC has no real boundaries. As time passes this particular PC will evolve, expand, and in some cases contract.
Recent studies have taken this employee-employer PC and applied it to the consumer-enterprise (buyer-seller) relationship. The prevailing theory is that expectations and values are shared among the consumer and the enterprise, thus resulting in a new kind of PC.
Consider this, when a consumer is satisfied with your business’ performance, they will then become confident in your business’ future performance and through this ongoing satisfaction, consumers develop a trust and commitment towards your organization (Chih, Chiu, Lan, & Fang, 2017). As a business you might simply recognize prosperity and growth, but remember the PC is the vehicle for which that success arrives on. We generally refer to this as customer loyalty.
When a relationship is nurtured, you create a positive feedback loop which perpetuates this continued success. If you are an ethical and trustworthy business, then you are already forming these powerful and constructive PCs. But if you’re not, well…consider this quote:
“Trust, once you get it. It’s priceless. But once you lose it, you are useless.”-Unknown
A BRIEF LIT. REVIEW
The research of Pavlou & Gefen (2005) shows that violation, or breach of the PC can occur in the marketplace in a number of ways. Originally conceived for the online marketplace, it’s pretty obvious that these determinants for PC breach are relevant to all businesses, irrespective of operational medium:
- Fraud: Failure to deliver the product purchased (e.g., actual quality deception, selling counterfeit products).
- Product Misrepresentation: Delivery of an item that is different from the one described in the product advertisement.
- Contract Default: Refusal to accept payment and to send the product.
- Product Delivery Delay: Failure to use the shipping method promised and to send the product in a timely manner.
- Product Guarantees: Offering a return or a refund policy and then failing to acknowledge product guarantees.
- Payment Policy: Refusal to follow the payment policy and accept certain forms of payment.
The research underscores what we already know to be true; that consumers rely on both trust and perceived risk when forming transaction intentions (Pavlou and Gefen, 2004). To be clear, these six proposed sources are not exhaustive, nor are they mutually exclusive. But they are representative of what commonly causes PC breach for the consumer.
Previously I introduced this marketing mailer that I’d received in the mail. It came from a local auto dealership. Actually, it was cleverly disguised as a handwritten envelope. Although later, I realized it was likely produced by a computer-aided device used for mass-addressing letters to prospective customers. Normally something like that would give me a chuckle, but I’ve been experiencing more of this lately, across many mediums. And it’s really got me thinking about illusion and deception. In many ways they are two sides of the same coin, but it’s situationally-dependent and the lines blur sometimes.
Let’s consider this marketing mailer, from the sender’s perspective I’m sure it seemed like a great idea at the time. But if we consider it from the recipient’s perspective this illusion slowly reveals itself to be more deceptive, fraudulent.
Think back to that magic show scene in The Prestige. I think we can all agree that magic tricks are inherently deceptive. At their very core they are fraudulent, fake, falsifications of reality. But bear with me here, let’s build a connection between the Chung Ling Soo character and the concept of PCs. Now, recall what Rousseau said about psychological contracts. She said that it was the individual’s beliefs and the reciprocal exchange agreement between two parties that are most important to forming the contract.
So let’s say you attend a magic show; you expect there to be deception and illusion. This is probably one of the few areas in life where you actually welcome it, you anticipate it! You want to be duped, that’s part of the fun. But it only works because of who the audience is, and because of the setting that it is taking place in. This is important for the magician to understand, and its equally important for a business to understand as well. In business, your audience isn’t expecting illusion. You can’t subvert the consumer’s expectations for the sake of marketing a product. You can’t deceive the consumer into their call to action. It’s cheap, lazy, damaging to all businesses, and undignified.
WHY SHOULD YOU CARE?
Because it matters to the consumer. PC breach can actually make consumers more vigilant because they will subsequently perceive higher risks with their purchase decisions. The consumer now has to factor in the risks associated with transacting with certain businesses (Pavlou and Gefen, 2005) and as a result, they rely less on trust, and search for higher-quality businesses (perceived or actual). Now, if you are a higher quality business with a sound reputation, then no worries. But if you are an up-start the cards may already be stacked against you, and that’s not a great position to be in.
So in the short-term while a PC breach caused by another company will certainly hurt that company, it can actually make your job more difficult in the long-term. Consumers withhold trust in all enterprises and everybody ends up losing. So if you are concerned about things such as Net Promoter Score, Brand Reputation, or Customer Loyalty maybe it’s time you took an honest look at your existing marketing strategies. Are you the problem?
In his book Antifragile, Nassim Taleb wrote, “a corporation does not have natural ethics; it just obeys the balance sheet” (p. 404). I don’t think that has to be true though. In the third post of this series I’ll finally show you the infamous mailer I received and discuss some ways on how we could improve the design so that it doesn’t:
- Appear deceptive
- Violate PC’s
- Favor revenue over consumer experience
I’m big into taking on the perspective of the consumer, because in today’s market that’s all that really matters. Our services and products are all so similar, that it becomes difficult to really differentiate yourself. Engaging the consumer in a truly personal and relevant way is one of the few ways to differentiate. Check back in a few days and we’ll do a walk-through of the mailer and discuss some ways that we can improve the design so that it might enhance the end-user’s experience.
Chih, W., Chiu, T., Lan, L., & Fang, W. (2017). Psychological contract violation. International Journal of Conflict Management, 28(1), 103–121. doi:10.1108/ijcma-02–2016–0010
Pavlou, P. A., & Gefen, D. (2004). Building Effective Online Marketplaces with Institution-Based Trust. Information Systems Research, 15(1), 37–59. doi:10.1287/isre.1040.0015
Pavlou, P. A., & Gefen, D. (2005). Psychological Contract Violation in Online Marketplaces: Antecedents, Consequences, and Moderating Role. Information Systems Research, 16(4), 372–399. doi:10.1287/isre.1050.0065
Rousseau, D. M. (1989). Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal, 2, 121−139.
Taleb, N. N. (2012). Antifragile: Things that gain from disorder. London: Penguin Books.