Introducing the "new handshake" to expand remedies and revive responsibility in eCommerce.

Author:Schmitz, Amy J.
Position:Symposium on Contracts
 
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  1. INTRODUCTION

    There was a time when individuals would meet in person to make purchases and do deals. They would discuss the terms, assess the trustworthiness and character of their contracting partners, and conclude the deal with a handshake. The handshake was more than a kind gesture. It helped ensure the enforcement of the deal without need for the rule of law or legal power. Reputations and respect were at stake because individuals worked in the same community and knew each other's friends and business partners. That handshake was one's bond--it was a personal trust mark.

    Those days are gone. We do not do deals on a handshake any more. We seem to have lost interest in face-to-face meetings in our digitized society. We text; we Skype; we FaceTime; we send e-mails. We do not connect in person because we conclude contracts in virtual spaces. The physical handshake is dying, especially in business-to-consumer ("B2C") contexts. "Buying local" may be in vogue for farmers' markets and limited purchases, but it makes little economic sense for a growing body of consumer commerce. Instead, consumers increasingly turn to the internet for buying needs and make any in-person purchases at big box stores where they rarely have any personal connections.

    Along with this growth of eCommerce have come both connections and disconnections. The internet empowers companies and consumers. It gives companies access to multitudes of customers and connects consumers with companies they would never otherwise encounter in the physical world. The internet has become a gateway to an ever-expanding and globalized eMarketplace for consumer goods and services. Nonetheless, the internet has created disconnections in B2C exchanges by allowing companies to easily hide from responsibility behind the anonymity and depth of the internet. Customer service representatives operating wholly online do not have to look online customers in the eye when denying remedies, and feel less beholden to customers that are replaceable by a seemingly bottomless barrel of consumers who shop online.

    These disconnections also fuel the inequities of the "squeaky wheel system" ("SWS") in B2C exchanges. (1) This conception of the SWS builds on the notion that the "squeaky wheels"--who are proactive in pursuing their needs and complaints--are most likely to get the assistance, remedies, and other benefits they seek. (2) Meanwhile, those who remain silent because they lack the knowledge, experience, and/or resources to artfully and actively pursue their interests usually do not receive the same benefits. This means that the individuals who already enjoy disproportionate power due to social or economic status are usually the "squeaky wheels" that receive the disproportionate benefits--thus perpetuating the divide between the consumer "haves" and "have-nots."

    The SWS in B2C contracts has allowed merchants to cut costs by rationing remedies for purchase complaints. (3) Merchants know that the bulk of consumers are unaware of available remedies and only a very small handful have the requisite confidence and resources to become squeaky wheels. (4) Merchants may therefore maximize their profits by providing remedies to only those very few who are sufficiently persistent in pursing their complaints. Furthermore, the especially pushy consumers may manipulate the SWS to essentially "bully" companies into providing them with special benefits that they may not deserve.

    Meanwhile, companies avoid legitimate complaints of the less vocal customers who tend to be those with the least power and resources. This perpetuates a system of status-based treatment. (5) It also allows companies to impose fees and one-sided contract terms on the consumer masses that remain uninformed about their rights or the availability of benefits. (6) The one-sided contract terms often limit or disclaim remedies, thus diminishing consumers' remedies.

    This SWS also prevents economists' proposed "informed minority" from policing the fairness of contract terms and business practices. (7) Economists posit that regardless of whether most consumers ignore contract terms, a minority of consumers will police fairness for the good of all consumers by informing the majority of unfair practices and threatening to go elsewhere if companies do not make appropriate changes. (8) In reality, however, it is doubtful that there are enough "informed" consumers who read or shop for purchase terms beyond price and a few other provisions particular to their needs. (9) Furthermore, the informed minority often lack the resources or savvy necessary to obtain remedies in the SWS. Moreover, those who obtain the remedies may be unaware that others have not received the same benefits, and have little to no incentive to share information about rationed benefits with the uninformed masses who subsidize the SWS through their inaction. (10) This is especially problematic when it involves health and safety information regarding merchants' products. (11)

    In sum, the SWS in B2C exchanges allows businesses to relinquish responsibility to consumers, ration remedies, and thwart consumer protection enforcement to the detriment of those with the least resources and information. (12) This creates a need for expanded and equalized access to remedies in order to address the broken market and revive companies' sense of responsibility underlying the "handshake" of yore. (13) Furthermore, consumers must be aware of remedy systems for them to be meaningful. (14) Here is where the internet's connection potential shines. It opens doors to online dispute resolution ("ODR") systems that utilize cost-effective negotiation, mediation, and arbitration processes for resolving complaints--and thus creates a "New Handshake."

    ODR can be especially effective and satisfying for low dollar claims such as those in most B2C contexts because of its efficiencies. ODR systems help address the SWS by lowering the costs and burdens of pursing purchase complaints so that all consumers, regardless of power and resources, feel comfortable and able to seek assistance. Online complaint systems also create transparency around seller behavior and give voice to common consumers who may then police market fairness and empower others to "vote with their feet." This could help address power imbalances that have hindered market regulation in B2C commerce.

    Accordingly, this essay discusses how use of ODR systems may help address the problematic results of the SWS in B2C exchanges. Part II of the essay discusses possible reasons why the SWS has flourished in the consumer marketplace and provides some of the applicable behavioral, social, and empirical research. (15) Part III then uncovers problematic consequences of the SWS in B2C exchanges, (16) and Part IV proposes the "New Handshake" through tailored ODR systems that offer consumers efficient and fair means for accessing remedies with respect to their purchases. (17) Part V concludes with an invitation to continue the development of such ODR systems in an effort to foster revived corporate responsibility and bridge the growing gap between the consumer "haves" and "have-nots." (18)

  2. WHY THE SWS THRIVES IN B2C EXCHANGES

    Individuals who persistently pursue their needs are usually those most likely to get what they want. This may be fair when it rewards individuals for exerting time and resources to pursue their needs. (19) It is problematic, however, when it perpetuates contract discrimination, curbs consumer rights, and allows companies to hide contract and product improprieties from the majority.

    1. BUSINESS BENEFITS OF APPEASING COMPLAINERS

      Businesses benefit from using the SWS to curb costs by rationing remedies and limiting customer assistance. Merchants therefore tend to provide assistance only for the few squeaky wheel consumers who are persistent in pursuing their needs. (20) Businesses also have cut costs by shrinking or eliminating telephone assistance, causing consumers to give up on seeking assistance after long hold times on the telephone. (21) Consumers also have become frustrated with companies' lack of replies to their e-mails.

      This rationing of remedies and assistance also allows businesses to monopolize complaint resolution to their benefit, knowing that consumers very rarely take complaints to the courts, federal regulators, or third parties such as their local chamber of commerce or the Better Business Bureau ("BBB"). (22) Studies show that buyers never voice two-thirds of the problems they perceive, and very few of the remaining one-third go further to report their complaints to third parties. (23) Furthermore, reported complaints are only the "tip-of-the-iceberg" to the extent that many consumers--especially those of lower socioeconomic status--do not even realize their rights to complain. (24) Consumers have come to expect poor products and services. Nonetheless, they also have become savvier in seeking out trustworthy merchants, which ultimately disadvantages the shortsighted poor performing companies.

      It also is economically wise for businesses to appease squeaky wheels because their loyalty boosts bottom lines. (25) It pays to appease complainers in order to retain their loyalty, especially considering the additional costs of seeking to attract new customers. For example, marketing analysis indicates that it is roughly five times harder to attract new customers than to retain current ones, which translates into 25 to 85 percent higher profits merely by retaining 5 percent more current customers. (26) Furthermore, appeased complainers are even more loyal than customers who never had complaints regarding their purchases. (27) Appeased complainers also are more likely than others to recommend a business to friends and family. (28)

      However, dissatisfied complainers may significantly damage companies' reputations and goodwill. This is because they are usually the type of proactive individuals prone to...

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