Social media and high technology are subverting the economy's traditional, top-down hierarchies. As consumers gain leverage, corporations are learning to obey.
Molly Katchpole, a freckled, chipper, 23-year-old post-grad, doesn't look like a rebel at the barricades. Yet twice last fall, she led consumer revolts--against Bank of America, then Verizon--and both times, she prevailed. Katchpole became the emblem of angry consumers who have seized on the reach of social media to take on the giants of the business world. The insurrections heightened the sense that the spread of high technology is shifting power from institutions to individuals. What used to be a one-way conversation--from corporations to consumers, from rulers to the ruled--is becoming a dialogue.
Katchpole's success in talking back landed her a dream job. A progressive nonprofit advocacy group in Washington called Rebuild the Dream hired her to help run its campaigns to make student loans more affordable and reduce the principal for underwater mortgages. Those are just the sort of hot-button issues that tech-savvy, petition-happy young Americans might be expected to support.
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Wishful thinking. Although Katchpole's petition to persuade Bank of America to revoke a monthly $5 fee on its debit-card accounts drew some 300,000 signatures last October, her recent blog post blasting Sallie Mae, the huge student lender, attracted only four comments. So far, at least, Katchpole has been unable to recapture the wellspring of wrath that empowered her to bring two megacorporations to their knees.
What went awry on the way to the revolution? "I don't know, ... " she began, then trailed off. But in a way, she does know: "The $5 fee was this simple thing that pissed people off. Student loans"--Katchpole paused--"are complicated."
Indeed. So are many other substantive issues: the federal debt, Wall Street regulation, climate change, the rising cost of health care. A petty, insulting bank fee is easier for a peripatetic public to comprehend. "We're definitely in the shiny-bauble stage of the consumer backlash," said one consumer advocate who asked to go unnamed for fear of alienating his group's members. "Most of these backlashes are in response to easily understood changes to services millions of people use." It's no accident that this spate of consumer revolts has relied on social media, which prize the pithy--140-character tweets, for instance--at the expense of complexity.
But this is only one aspect of a swiftly evolving relationship between corporations and consumers, driven by the technological possibilities--and temptations--of e-capitalism. The Molly Katchpoles of the world may be the least of the Fortune 500's worries. Far more threatening are the apps and smartphones that are injecting transparency into pricing practices. If would-be purchasers can first visit Best Buy and then unleash their smartphones to find the best Internet deal, they serve as an invisible hand in the marketplace--the likes of which Adam Smith, the first philosopher of capitalism, never imagined.
And the market is responding. Quicker-witted businesses are learning how to harness technology and social media for their own ends. Groupon reinvented the coupon for the digital age; Procter & Gamble teamed up with NBC to create its own content on sites such as Petside.com and DinnerTool.com; Ford has turned its blog into a forum for car enthusiasts.
The common thread is that smart companies have learned to take the initiative, to reach out and befriend consumers before they, too, become the target of an insurrection. The wired public, in a sense, has become an interest group of its own, able to punch well above the weight of an AFL-CIO or a National Rifle Association. Just look at what happened to the Susan G. Komen Foundation when it triggered its own social-media squall: Within days, an upsurge from abortion-rights supporters forced the breast-cancer charity to abandon its plan to pull funding from Planned Parenthood. Millions of people can gather around a single Facebook page or Twitter hashtag and draw the attention of the global media. For a day, or maybe a week, they become a force more powerful than any single political action committee or watchdog group or national newspaper.
The influential economics blogger Umair Haque calls these temporary agglomerations "proto-institutions." He draws a connection between the protesters in the #BofA revolt and those of the Arab Spring--"they emerge, pop off," then blend back into the general population. With tweets and e-petitions and YouTube videos, consumers are fast becoming to the economy what the electorate is to the body politic--an often disorganized, occasionally passionate force that, once riled, few institutions can withstand. Call them the "consumerate." They've got a powerful weapon in their hands. It's cocked, and it's loaded. So far, it's been aimed at minor targets. But for how long?
THE POWER OF HASHTAGS
Revolutions don't proceed by great leaps only. It's the tweaks, the incremental advances, that can make the difference. Gutenberg's printing press in 1440 didn't immediately cause the flowering of learning and literacy we call the Renaissance. It took the cheap and portable octavo edition, invented some 60 years later, to put knowledge within reach of Everyman. As Clay Shirky, a noted new-media scholar, has written, "What seemed like a minor change--take a book and shrink it--was in retrospect a key innovation in the democratization of the printed word."
The Internet alone wasn't enough to foment the democratic hurly-burly we're seeing now. Social media has been around in one form or another since 2002. Twitter now generates about 340 million tweets every day. If Facebook were a country, its population would be more than twice that of the United States. It's not mere size that empowers consumers, however, but rather how we wield that power. How did Molly Katchpole bend Bank of America to her will? It wasn't the online petition--those have been around for as long as the Web itself. No, it isn't the tools, nor their ubiquity, but the fact that we learn how to use them to our greatest advantage. The technology behind the moving picture was available in the 1880s. Yet, nearly 30 years passed before D.W. Griffith thought to produce what we would recognize as a "movie."
Consider, then, the lowly hashtag, the basic organizing principle that creates coherency out of those 340 million daily tweets. Add #BofA to your tweet, and thousands--sometimes millions--of people could very well read it. Leave it off, and it's like a tree falling in a forest. The hashtag isn't some newfangled technology; it's a convention that evolved out of the way people used the new medium. Facebook provides a similar function. With a single click of the mouse, users can join a group or simply hit the "like" button and join a virtual town-hall protest. These actions show up in the news feeds that all of their friends can see. They transform every tweet into a broadcast.
This is how a movement builds in our new age: with an infinite capacity for amplification and lightning speed. Think of the U.S. Geological Survey, which uses Twitter to estimate the severity and breadth of an earthquake. Why? "People like to tweet after earthquakes," USGS seismologist Paul Earle said when the agency launched the program in late 2009. The tweets, he noted, are faster and more comprehensive than the agency's best instruments.
GOLIATH, MEET DAVID
Enter Molly Katchpole. Last fall, she was a lot like other recent college graduates--overworked, underpaid, feeling stressed. Four months out of Roger Williams University in Rhode Island, she had moved to Washington and found two low-paying jobs. She rented a basement apartment on Capitol Hill and tried to stay solvent. "I knew every expense--$625 for rent, $40 for my phone bill, $100 for utilities," she recounted. She also knew that the grace period on her student loan was soon to expire, which would cost her another $500 a month.
So, money was already on Katchpole's mind when she heard that Bank of America, where she kept her paltry savings, would start charging $5 a month to make purchases with a debit card. A bank spokeswoman explained blandly that "the economics of offering a debit card have changed."
"I was angry," Katchpole recalled. "Five dollars doesn't sound like a lot of money, but when you're counting every penny, it counts. And I guess I was fed up with banks. Taxpayers had just bailed them out. They'd posted record profits earlier that year. I was, like, 'Enough.' "
Within minutes of learning about the new fee, Katchpole went to Change.org and started an online petition. Then she posted a link to the petition on Facebook and Twitter. Within days, it gathered some 10,000 signatures, but the bank refused to blink. So, Katchpole sent a tweet to ABC News reporter Matt Gutman, who filmed a segment about her. Other media outlets piled on. Within four weeks, the petition carried 300,000 signatures. On Nov. 1, after weeks of bad publicity and damage to its brand, Bank of America backed down. Change.org bragged on its home page, "We won!"
Verizon's stint in the hell of social media began a few days after Christmas, when it announced a $2 "convenience charge" to pay a bill using a debit card. Katchpole struck again, using the same combination of Twitter, Facebook, and Change.org. This time, Goliath saw David coming and surrendered without a fight. Less than 24 hours after its announcement, Verizon rescinded the fee.
Verizon's decision "had to break some sort of corporate world record," said David Butler, the deputy director of Consumers Union. "And that was largely because of what they'd seen play out weeks before with B of A." These two companies weren't alone in suffering the outrage of an increasingly organized public. Angry consumers have recently waged similar campaigns against the organic cereal maker Kashi, Coca-Cola, Wal-Mart, the Gap, Target, and Apple---as well as the memorably named beef product "pink slime."
Netflix might have suffered the most. Last summer, a marketing executive for the movie-rental company issued a faux-friendly blog post that revealed plans to raise prices by nearly 60 percent and to end its popular combination of sending DVDs to your door and also letting you stream shows into your home. The reaction among Netflix's 22 million customers was fast and furious--10,000 comments to the blog post the first day alone. Soon the ire spread on Facebook and via Twitter, where "Dear Netflix" became a "trending topic." Every attempt to undo the damage made things worse. Netflix lost some 600,000 subscribers, although it has since gained them back; its stock price has plunged by nearly four-fifths.
Ignoring the consumerate is a mistake, but fearing it may be nearly as dumb. The consumerate, as we'll see, can help as easily as it can harm.
WHAT'S A COMPANY TO DO?
These Internet-driven uprisings that batter one business or another may have something in common. "They're not about the money," said Steven Cody, the CEO at Peppercom, a New York-based public-relations company that advises companies on how to handle social media. "People are pissed because they feel no one's listening to them. And often, no one is listening to them."
By now, most firms have embraced social media, at least in theory. An employee or two may be assigned to monitor the Twitter feed, like the Geological Survey does in scanning for reports of possible earthquakes. Some companies use their Facebook pages to push out press releases. "But that's different than acknowledging the reality of social media," Cody said. Social media is, well, social. If you were at a party, would you want to talk to someone spewing out press releases?
"The age of top-down marketing plans is over," Cody declared. Once upon a time, he recalled, "you told people your new product was the coolest thing since sliced bread, then watched the dollars roll in." But now, a brand's success has everything to do with the global, real-time, 24/7, electronic conversation taking place around it.
Adapting to this new reality takes more than an updated marketing plan. Organizations need to make changes at the deepest, structural levels. "I guarantee you that every time you see one of these backlashes, you can trace it back to a company where customer service has been ghettoized," Cody said. Even if it isn't outsourced to call centers offshore, it becomes a menial caste of sorts. Not surprisingly, the representatives who actually deal with customers rarely talk to the marketing executives who craft strategy.
Not at Zappos. Few companies listen to their customers as slavishly. The online retailer emblazons its toll-free phone number across many a Web page, inviting customers to call day or night. It has become known for covering all shipping costs and allowing unlimited returns. Shoppers aren't shy about ordering a half-dozen pairs of shoes, then returning five of them.
But what's revolutionary about Zappos are things that consumers don't see. The call center is housed inside the corporate headquarters in Las Vegas. Customer-service representatives, rigorously trained, know a lot about the products they sell and enjoy considerable opportunities for advancement. The well-paid staff and free shipping suggest that Zappos spends far more on customer service than most companies. But that's not how the company sees it. "View each call as an investment in building a customer-service brand, not as an expense you're seeking to minimize," Zappos CEO Tony Hsieh wrote in his how-to memoir, Delivering Happiness.
It's not incidental that all Zappos employees are also allowed--encouraged, in fact--to have their own Twitter accounts. They use these to develop lasting relationships with customers or simply to gripe about being stuck at work on a beautiful day. Consumers have rewarded this transparency and goodwill by reciprocating with their own. Zappos boasts exceptional customer loyalty, with the consequences apparent in its financial success.
Zappos's business practices contrast sharply with those in most industries, ranging from banking to manufacturing, where the customer-service people hardly ever converse with the executives at the top. But some companies have been getting it right. Look at JetBlue, operating in a competitive, low-margin business rife with grumpy customers. After the upstart airline mishandled an ice storm in 2007, leaving thousands of fliers stranded, then-CEO David Neeleman issued a mea culpa through YouTube. Soon, the company embraced the fledgling Twitter platform and has now accrued 1.7 million followers. JetBlue not only uses its account to issue travel updates, it also trolls Twitter for unhappy passengers and addresses individual customers as well. "Hooray!" JetBlue recently tweeted. "We're happy Ruth was able to help you out. Thanks for the shout-out, Winnie!"
Or consider what happened at Procter & Gamble a year ago, when its reformulation of Pampers prompted a consumer to claim that the product caused diaper rash. She built a Facebook page devoted to the accusation and enticed some 5,000 parents to complain to the Consumer Product Safety Commission. That the agency eventually agreed with the company that the diapers were safe didn't avert the damage. But being smart helped. "P&G engaged 'mommy' bloggers to decide for themselves, and very quickly, the tide of opinion shifted," said Jonathan Copulsky, who advises companies on customer relations for the consulting giant Deloitte. P&G had built a reservoir of goodwill, Copulsky explained, and was able to tap into it.
Building trust with customers can immunize a company against a potential revolt. When Copulsky picked up a copy of U.S. Army/Marine Corps Counterinsurgency Field Manual, then-Gen. David Petraeus's 2006 tome, it struck him as a revelation: "I realized that what we were seeing going on in PR and marketing was an equivalent of what was happening in Iraq and Afghanistan." Last year, he turned the insight into his own book, Brand Resilience: Managing Risk and Recovery in a High-Speed World. He regards the backlashes against Netflix and Bank of America as insurgencies. "Brand insurgents," he said, "are ready, willing, and able to sabotage your brand."
Copulsky advises companies to take steps to adapt to an era in which consumers can strike as quickly--and powerfully--as a Tunisian revolt. The first, he said, is to assess "what could cause your company problems." That in itself might have protected Bank of America. In this economic downturn, he said, consumers have become exceedingly sensitive to any change in pricing. The bank announced its new fee just as the Occupy Wall Street protests were at their height.
Employees, Copulsky noted, must also buy into a corporate culture of customer service. Most important of all, they have to enjoy their jobs. "If you look at the companies with the best consumer reputations--Nike, JetBlue, Zappos--they also tend to be extraordinarily good places to work." A revolt, after all, can just as well be triggered from within as from without.
Companies should also consider that consumers have more to offer than dollars. "If you can get customers engaged in helping to solve real commercial problems, it can pay enormous dividends," Copulsky said. Netflix had, in fact, tested the notion of separating its streaming and DVD services--but at an investors' forum, not among the people who were paying for its service. If CEO Reed Hastings had approached customers to explain the challenges the company faced, Netflix might have discovered a different--maybe better--solution. At the least, the price hike might not have arrived as such a shock.
Hastings has continued to insist that the original plan was the right one--for shareholders, for the company's long-term health, and also for subscribers, who would benefit from a corporate treasury rich enough to license a larger catalogue of films. But whether Netflix was right is irrelevant, PR maven Cody pointed out. "You have to listen to the customer. That's where 'right' lies."
CONSUMERS' TRUE POWER
We can say two things about the consumerate: It's powerful and it's unpredictable. In March, ABC News aired a series of reports on "Lean Finely Textured Beef," also known as "pink slime." LFTB, as the beef industry prefers to call it, is a composite of meat scraps, connective tissue, and other "salvage" from the beef-production process that is treated with ammonia gas to kill bacteria. The burger you ate in February probably contained about 15 percent pink slime. The burger you'll eat this weekend will, in all likelihood, contain none. The consumerate took umbrage at the pink slime in supermarkets, restaurants, and--above all--elementary schools. Soon, major retailers and school districts were boycotting LFTB. The beef industry swung into damage-control mode, to no avail. Forum boards, Twitter, Facebook, and YouTube fueled a viral backlash against the meat filler. Within weeks, producers of pink slime declared bankruptcy.
Such is the power of a crowd united in righteous indignation. But consider this: The ABC News series that triggered the pink-slime protest wasn't the first time the public had learned of the yucky additive. Two years earlier, The New York Times had published a high-profile investigative piece on LFTB. The public response? Crickets.
Why did ABC's report trigger a backlash? One reason is that the consumerate has grown larger, measured by the number of people with access--and inclination--to use online mechanisms of aggregation such as Facebook and Twitter. But it's more complicated than that. Naturally, the conditions must be conducive: a sluggish economy, public trust in major institutions at historic lows. And there must be a legitimate point of complaint: Blasting meat scraps with ammonia is disgusting; spending five hours on the tarmac is ridiculous; being charged a "convenience fee" is galling. But probably the best answer to the question of why the ABC report struck a nerve? Nobody really knows.
Not everyone quakes in fear of the consumerate. Ralph Nader, who pioneered the art of consumer advocacy, believes that today's consumers don't have a long enough attention span to force real change when sizable corporate interests are involved. Seth Godin, an entrepreneur and author, has spent a career studying how the Internet affects branding and marketing. He dismisses the Bank of America, Verizon, and Netflix revolts as "slacktivist tantrums." In all three, he said, the key "is that no nuance was required." Anything complicated (how to alter the incentives at Goldman Sachs, say) is beyond the reach of bumper-sticker wisdom.
There is reason for skepticism. Recall how an earlier, underrepresented constituency--employees--achieved economic power. Patiently and relentlessly, over many decades, the labor movement advanced a hardheaded, specific agenda before it succeeded in creating the modern workplace. At any rate, Godin said, the power that consumers wield now has little to do with hashtags or easy slogans, and everything to do with a rapidly expanding period of consumer choice.
New technologies have given consumers a lot of leverage over companies, Godin explained, but not because of the consumerate's ability to quickly raise a big stink. "Mob rule isn't nearly as important as the leveling and competitive impact of online choice," he said. What will unsettle Bank of America and Verizon--and every other company--going forward? Not mob rule. Instead, Godin said, the force will be simple competition. He points to services, such as TripAdvisor and Yelp, that allow consumers--with the click of a mouse--to compare goods and services by quality and price.
Social-media platforms, it is true, have made it possible for millions of like-minded people to gather in a virtual public square. But the lasting effect of these new technologies, as the economy reshapes itself to meet them, is the way they allow people to effortlessly join a virtual queue. "If you can make it clear to consumers that you have a better offer," Godin said, "it's infinitely easier to acquire a million consumers than ever before." Fingers on a smartphone or a mouse make it simpler than ever for people to vote with their feet. Adam Smith would smile.