Ebay - the Caveat Emptor or the Tylenol Defence?

Ebay - the Caveat Emptor or the Tylenol Defence?
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November 8, 2004 After years of building up one of the most successful internet-based businesses ebay is under attack and under threat. Ebay is becoming a victim of its own success. Despite stringent codes of conduct, a few unscrupulous users are finding ways of bypassing the rules, resulting in the availability of prohibited items and in fraudulent transactions. This is exacerbated when buyers discover that the "secure" payment mechanism is not quite as secure as they thought and ebay appears to dismiss their complaints. It all becomes grist to the media mill.The foundation of the ebay business model - trust - is being eroded and ebay need to react. But why and how?

Customers' trust is built on customer (not company) perceptions (not realities). Trust is built on perceptions of benevolence (i.e. fairness, openness, responsiveness, etc.), integrity (i.e. dependability, credibility, honesty, etc.), and ability (i.e. resources, expertise, dynamism, etc.). Whether self inflicted or imposed, erosion of any of these elements can result in disaster. And the consequences are many and varied - slowed growth, declining sales, defection to competitors, openings for new competitors, and diversion of resources to "fight fires", to name a few. History is littered with the corpses of businesses who lost the trust of many customers (Hoover, free flights; Perrier, benzene contamination, Sunny Delight, orange snowman).

So what choices does ebay have?

It could do nothing and ride out the storm. If the problem is very small or very localised, if the product is easily evaluated, if the product commands high market share, if the resource pockets are deep and if the CEO is happy to see new competitors enter the field, this is a possibility. In a service business, built wholly on trust, this is probably not a viable option.

Second, it can deny responsibility. ebay did not perpetrate the fraud, its customers did. Hence it is not ebay's fault. But a defence of constantly restating simple facts does not change customers' perceptions. The fact that only 1% of all ebay transactions are problematic is not the issue. If, as appears to be happening, those defrauded customers are sufficiently dissatisfied and vocal then consumer watchdogs and the media enter the fray. The problem becomes blown out of proportion and potential customers tend to believe the media, not the company. The only people less trusted than large corporations are politicians.

Thirdly, and recommended, ebay can take responsibility and take action. This sends a message that customers' interests are at the heart of the company's ethos. Most customers know the breaches and frauds are not eBay's fault.

However, customers are transacting over e-Bay's systems and feel they have a right to secure transactions with some redress from the service provider whose systems permit the breaches to be perpetrated.

Since individual users have limited or no power to effect a change and they perceive eBay to have more than enough power and resources to effect a change, they expect the latter.

Not fulfilling expectations leads to dissatisfaction and a haemorrhaging of trust. eBay needs to adopt the "Tylenol" defence. It needs to take action and be seen to be taking action. It may cost money in the short term, but not as much as a permanent loss of business to the competition.

What are users expecting? It's simple, really!

* a constant lookout for breaches of both letter and spirit of the eBay codes plus very rapid closure of breaches and publicising those closures

* evidence of pursuit, apprehension and prosecution in the case of criminal activities

* rapid modification of systems to prevent repetition of fraud

* accessibility and rapid and sympathetic response to any and all complaints whether eBay's fault or not

* use of publicity, PR and word-of-mouth advocacy to counterbalance media focus on the problems, to prove to users that action is being taken and that fraud or abuses of the code of "trust" will not be tolerated.

* the introduction of realistic guarantees, warranties, or escrows to reduce the risks of fraud.

ebay users all recognise that there is some risk in arm's length auctions but ebay has spent many years convincing users its system is safe. It has built up a superb business with a large base of very satisfied users. It would be a pity to throw it way by adopting the caveat emptor defence. Such a strategy has little place in a business based solely on the trust.


Dr David C Arnott, Warwick Business School, University of Warwick, Coventry,

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