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Rice University researcher studies whether engaging with unethical consumers pays off

A Rice University researcher studied certain online shopping initiatives to see if targeting unethical shoppers paid off for retailers. Pexels

Conventional wisdom, grounded in ethical theory, is clear: ethical retailers shouldn't tolerate unethical customers. But what if some unethical behavior is good for business? Is it really so wrong?

Rice Business professor Utpal Dholakia and colleagues Zhao Yang and René Algesheimer of the University of Zurich recently explored whether ethical transgressions that appear harmful to retailers might actually create benefits in the long run. Think, for example, of such unsavory-but-not-illegal scams as returning used items for a refund or bringing back damaged goods.

To analyze how retailers conceive of and deal with such transgressions, Dholakia and his colleagues created a theoretical framework bookended by two opposing moral philosophies. On one end was the deontological perspective, based on Kantian ethics, which focuses on the inherent rightness or wrongness of an action regardless of outcomes. On the other end was the teleological perspective, rooted in the Utilitarianism School of British philosophers Jeremy Bentham and David Hume, which weighs the cumulative positive and negative effects of consequences rather than the behavior itself. In the teleological view, behavior should be considered moral and worthy of encouragement when its beneficial consequences outweigh its harmful ones.

Retailers by nature, tend to line up on the deontological team. To a manager at Trader Joe's, unethical and unlawful customers are pretty much interchangeable. Because of the belief that all unethical behavior is bad for the bottom line, when unethical customer behavior is detected, retailers want to stamp it out.

Dholakia's team, though, argues for a different view. The retailer, they propose, should distinguish between behavior that is unlawful and behavior that is lawful, albeit unethical. When a customer's action is unethical but lawful, the retailer ought to consider what makes it unethical and then choose the consequences accordingly: punish the customer, do nothing — or encourage them.

To grasp the implications of unethical customer behavior, Dholakia and his colleagues analyzed datasets covering 70 weeks and more than 48,000 accounts from a popular Swiss online retailer. This company provides its customers an engaging shopping experience by using social gaming and price promotions. Customers actively collect and trade virtual cards associated with each offer. In return, they enjoy discounts corresponding to the number of cards collected.

The site sells a variety of goods — the Samsung Galaxy, the Apple iPad, various branded clothes and handbags, prepaid salon and spa services, restaurant meals and trips. When an offer is first listed, a set of ten virtual cards is generated. If a customer can collect all ten cards, they receive the listed item free. So it stands to reason that the company explicitly forbids customers having more than one account.

But, the researchers found, the minority of rapscallion consumers who ignored that rule actually did the company a favor. When customers violated company policy and registered multiple accounts, the business enjoyed higher revenues and customer engagement. In fact, while less than 12 percent of the customers had multiple accounts, they generated more than 27 percent of the retailer's revenue. The fibbing customers used the site more actively than their counterparts, resulting in more revenue.

Dholakia and his team's findings open the door for retailers to take another look at customer policies. The dichotomy between right and wrong, as the double-dipping Swiss customers revealed, may not be quite as obvious as it seems. Might businesses also profit, for example, from customers who violate return policies? What if a shopper insists on trying to return a pressure cooker clearly past its return date — then stays on and spends significant money on food and books? If that second shopping trip brings in more money than the original Instapot did, is the customer really wrong?

Crafting a compromise that bridges the gap between the teleological and deontological philosophical views could allow retailers to change their policies, the researchers say. A customer might be permitted to openly create more than one user profile on a site without stooping to the deception of listing fake telephone numbers or email addresses. Netflix already deploys this attitude, inviting customers to share their accounts with others and create up to five different user profiles.

In addition to unleashing philosophical questions fit for a college all-nighter, the scholars' findings offer retailers a bracingly practical new strategy. Reconsidering consumers' ethical transgressions in a more nuanced and balanced way hurts no one — and can bump profits. This is especially true when the transgression is little more than violating policies created by the retailer that may have no real basis in ethics.

A bit of tolerance for customers who color outside the lines can benefit all, Dholakia's team argues. Consider the client who lies and claims he is returning a jacket because it doesn't fit (rather than admitting the shade of mauve makes him look ill). The pricey shoes he buys on the way out profit the store nonetheless. Tolerating bad behavior may be considered codependent in relationships. But in business, acceptance of errant customers, as long as they're on the right side of the law, can help the dollars to flow.

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This article originally appeared on Rice Business Wisdom.

Utpal Dholakia is the George R. Brown professor of marketing at Jones Graduate School of Business at Rice University.

New ideas can be crucially important to businesses, driving innovation and preventing stagnation. Recognizing those ideas, though, isn't always easy. Getty Images

Whenever the late surgeon Michael DeBakey opened a human chest, he drew on a lifetime of resources: the conviction that heart surgery could and should be vastly improved, the skill to venture beyond medicine's known horizons and the vision to recognize new ideas in everyone around him, no matter how little formal training they had.

Appreciating new ideas is the heartbeat of business as well as medicine. But innovation is surprisingly hard to recognize. In a pioneering 2017 article, Rice Business Professor Jing Zhou and her colleagues published their findings on the first-ever study of the traits and environments that allow leaders to recognize new ideas.

Recent decades have produced a surge of research looking at how and when employees generate fresh ideas. But almost nothing has been written on another crucial part of workplace creativity: a leader's ability to appreciate new thinking when she sees it.

Novelty, after all, is what drives company differentiation and competitiveness. Work that springs from new concepts sparks more investigation than work based on worn, already established thought. Companies invest millions to recruit and pay star creatives.

Yet not every leader can spot a fresh idea, and not every workplace brings out that kind of discernment. In four separate studies, Zhou and her coauthors examined exactly what it takes to see a glittering new idea wherever it appears. Their work sets the stage for an entirely new field of future research.

First, though, the team had to define their key terms. "Novelty recognition" is the ability to spot a new idea when someone else presents it. "Promotion focus," previous research has shown, is a comfort level with new experiences that evokes feelings of adventure and excitement. "Prevention focus" is the opposite trait: the tendency to associate new ideas with danger, and respond to them with caution.

But does having "promotion focus" as opposed to "prevention focus" color the ability to see novelty? To find out, Zhou's team came up with an ingenious test, artificially inducing these two perspectives through a series of exercises. First, they told 92 undergraduate participants that they would be asked to perform a set of unrelated tasks. Then the subjects guided a fictional mouse through two pencil and paper maze exercises.

While one exercise showed a piece of cheese awaiting the mouse at the end of the maze (the promise of a reward), the other maze depicted a menacing owl nearby (motivation to flee).

Once the participants had traced their way through the mazes with pencils, they were asked to rate the novelty of 33 pictures – nine drawings of space aliens and 24 unrelated images. The students who were prepped to feel an adventurous promotion focus by seeking a reward were much better at spotting the new or different details among these images than the students who'd been cued to have a prevention focus by fleeing a threat.

The conclusion: a promotion focus really does create a mental lens through which new ideas are more visible.

Zhou's team followed this study with three additional studies, including one that surveyed 44 human resource managers from a variety of companies. For this study, independent coders rated the mission statements of each firm, assessing their cultures as "innovative" or "not innovative." The HR managers then evaluated a set of written practices – three that had been in use for years, and three new ones that relied on recent technology. The managers from the innovative companies were much better at rating the new HR practices for novelty and creativity. To recognize novelty, in other words, both interior and external environments make a difference.

The implications of the research are groundbreaking. The first ever done on this subject, it opens up a completely new research field with profound questions. Can promotion focus be created? How much of this trait is genetic, and how much based on natural temperament, culture, environment and life experience? Should promotion focus be cultivated in education? If so, what would be the impact? After all, there are important uses for prevention focus, such as corporate security and compliance. Meanwhile, how can workplaces be organized to bring out the best in both kinds of focus?

Leaders eager to put Zhou's findings to use right away, meanwhile, might look to the real-world model of Michael DeBakey. Practice viewing new ideas as adventures, seek workplaces that actively push innovation and, above all, cultivate the view that every coworker, high or low, is a potential source of glittering new ideas.

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This story originally ran on Rice Business Wisdom.

Jing Zhou is the Mary Gibbs Jones Professor of Management and Psychology in Organizational Behavior at the Jones Graduate School of Business of Rice University.