A friend of mine manages an auto dealership, and he tells me about how his industry is being turned upside down. A decade ago, he says, customers would occasionally show up carrying printouts from Consumer Reports. Beginning about five years ago, nearly everyone started coming in clutching lists of specs and prices downloaded from the Web. Some knew more about the cars they were considering than his own salespeople did.
Over the last couple of years, people have started arriving with information about how much other buyers have paid for the same cars in his dealership. “There is no margin in selling new cars anymore,” he laments. “We make our money on service and givebacks from the manufacturers.” Thousands of auto dealers that have shut their doors during the prolonged economic slump attest to the difficulty of running a business that way.
It isn't just cars. Stop by your local big-box electronics retailer and watch people wandering the aisles with their smartphones, checking out products on the shelf against user ratings on Amazon and price comparisons on Google or MySimon. Is it any wonder consumer electronics is such a horrible business?
Get used to it, because the rules of engagement have changed. Prospects now have cheap, instant access to rich information from all kinds of sources that aren't you. They don't care about carefully worded case studies or well-coached reference accounts because with a couple of mouse clicks they're in touch with people just like them. And there isn't a thing you can do about it.
What does this change? In a word, everything. Our system of commerce is predicated upon the assumption of buyer ignorance. That means that if we can intercept prospects early in the consideration cycle, we have a good chance of guiding them down a path to a decision in our favor. We lovingly call this “the funnel.”
But the funnel is being squashed by the Internet. In the future, prospects will enter our orbit at all stages of the buying cycle. In many cases, they will be armed with information that comes entirely from third-party sources, whom they consider to be more credible than us. This will happen across the spectrum of b-to-b and b-to-c companies. It's only just starting, and you ain't seen nothing yet.
The good news: Research has demonstrated that customers who arrive at a decision through trusted third-party sources are more loyal and spend more money. The survivors in the new economy will be businesses that clearly understand their value, articulate it to a ruthlessly skeptical market and enlist their constituents to act as a referral network. The automotive and consumer electronics industries are the tip of a very big iceberg.