Age of the Customer Heralds Potential Economic Boom
The power dynamic between buyers and sellers has changed and the market is rapidly adapting to a new paradigm shift. Thanks to the disruption caused by the Internet, consumers have more power than ever before
—and this power will continue to grow.
Jim Blasingame’s new book, The Age of the Customer, details the forces behind the power shift to consumers and its implications. Blasingame is the president of Small Business Network, Inc. His thoughts are not only vital to business owners looking to grow their businesses and the economy, but to larger debates over public policy—specifically consumer protection regulations.
The technological innovations accompanying the Internet’s rise empowered buyers to new levels of control in their interactions with sellers. Specifically, Web 2.0—which allowed for user interaction, sharing, and collaboration—led to the demise of the age of the seller and the rise of the age of the customer. The full implications of this shift will not happen overnight (Blasingame predicts it will continue until 2025), but as more consumers realize how to wield their new-found power, businesses that refuse to change will start to disappear as their equity and available credit deteriorates.
Before this change started, the dynamic of buyer/seller relationships favored the seller. This had been the case since the origin of markets 10,000 years ago. Customers controlled the buying decision, but products or services themselves and information about them were controlled, or at least heavily influenced, by businesses.
This is no longer the case because of user generated content (UGC). UGC is referred to by Blasingame as “word of mouth on steroids.” Whereas dissatisfied customers could tell their social networks about poor experiences before, now they can potentially tell millions. This provides greater incentives for businesses to delight their customers, and necessitates that they do not disappoint them.
The repercussions of this paradigm shift are discussed in detail. Beyond the book’s relevance for business, its argument has profound policy implications.
Many state and federal regulations are based on the old power structure where sellers enjoyed an advantage. While consumers were far from powerless in the old structure (they could refuse to purchase the goods or services), it was difficult for them to fully inform themselves about the effectiveness or dangers of their purchases.
This imbalance is what provided the justification for consumer protections. Now that the imbalance has shifted in favor of consumers, revaluations of policy are necessary. A 21st century economy cannot reach its full potential with the burdens of 20th century regulations.
Blasingame clearly warns businesses of dangers to come if they refuse to adapt to this paradigm shift. However, government bureaucracies do not face the competition businesses do. There is real danger that as the market adjusts to this new reality regulations will remain static—or worse, grow more onerous.
Regulations expand red tape and bureaucracy, all in favor of big business. Large, established businesses are able to influence legislators to write laws that exempt firms or are so complicated that millions of dollars in legal and accounting fees are necessary to navigate the regulation.
Corporations have more available funding to absorb the cost of compliance. This is why the CEO of Exxon Mobil is in favor of carbon taxes and Costco’s CEO wants a higher federal minimum wage. Regulations hurt small businesses and consumers by insulating large companies from competition.
Occupational licensing laws, requirements that individuals obtain government sanctions to work, are perfect examples of this. While their justification is protecting consumers, they now protect entrenched interests at consumers’ expense. An Institute for Justice report highlights how the extent of regulations are not proportional to danger to the public. When people have to pay hundreds of dollars and gain thousands of days of experience to become licensed interior designers, the only people helped are existing interior designers. No one has ever died from ugly drapes.
To open a chapter, Blasingame uses a quote from author John Naisbitt, “The new source of power is not money in the hands of a few, but information in the hands of many.” The tremendous progress displayed by entrepreneurs in lightly-regulated Silicon Valley is evidence of the power of information. Rather than squelch this bright spot in the economy, policy makers should try to emulate it in other industries, especially energy.
Market dynamics have changed and the challenge of the next ten years will be how businesses and regulators adapt to this shift. There is great upward potential for an economy driven by the need to satisfy customers. Will Washington get in the way, or allow the economy to boom?
Jared Meyer is a policy analyst at Economics21, a center of the Manhattan Institute for Policy Research. You can follow him on Twitter here.