Houston Voices

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.

------

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.

Trending News

Building Houston

 
 

As of this week, Lara Cottingham is the chief of staff at Greentown Labs. Photo via LinkedIn

The country's largest climatetech startup incubator has made a strategic new hire.

Lara Cottingham is the new chief of staff for Greentown Labs, a Boston-area company that opened in Houston earlier this year. Cottingham previously served as the city of Houston's chief sustainability officer and the chief of staff for the city's Administration and Regulatory Affairs Department for the past seven years. In her new role, Cottingham will oversee the day-to-day operations and communications for Greentown's CEO Emily Reichert, along with key stakeholder engagements and strategic initiatives for the incubator.

"Lara brings a tremendous wealth of knowledge and experience to our team from her dynamic leadership role at the City of Houston," says Reichert in a news release. "Her breadth of knowledge in sustainability, climate, and the energy transition, and her expertise in regulatory and stakeholder aspects of the energy industry, will be incredibly valuable to our team and community."

Under her leadership at the city of Houston, Cottingham was the chief author of Houston's Climate Action Plan, an initiative aimed at reducing greenhouse gas emissions in Houston, and getting the city to a point where it meets the Paris Agreement goal of carbon neutrality by 2050. Cottingham helped the city move to 100 percent renewable electricity, according to the release, and helped turn a 240-acre landfill into the nation's largest urban solar farm.

"In leading the Climate Action Plan, Lara helped spark Houston's leadership in what has become a global energy transition and was a passionate advocate for climate action in Houston," says Houston Mayor Sylvester Turner in the release. "While she will be missed, this new role will only strengthen our partnership with Greentown. I look forward to working with Emily, Lara, and the Greentown team to meet our climate goals and make Houston the energy capital of the future."

Before her work at the city, Cottingham worked at Hill+Knowlton Strategies' Houston office range of clients across the energy sector. Earlier in her career, she served as communications director for two congressmen in the U.S. House of Representatives. She began her work with the city in 2014.

"In working with Mayor Turner and Climate Mayors across the U.S., I saw how important partnerships are to helping cities decarbonize," says Cottingham in the release. "There is no better partner or place for climate action at work than Greentown Labs. Greentown is 100 percent committed to attracting and nurturing the energy companies of the future and making Houston the energy transition capital of the world. I'm excited to join the team and see how climatetech can help cities reach their climate goals."

Greentown Labs first announced its entrance into the Houston market last summer. The new 40,000-square-foot facility in Midtown across the street from The Ion opened its prototyping and wet lab space, offices, and community gathering areas for about 50 startup companies opened in April. Greentown was founded in 2011 in Somerville, Massachusetts, and has supported more than 400 startups, which have raised more than $1.5 billion in funding.

Trending News