The information gap in customer communication

If you customers don’t “get” your communication you’ve probably got a case of information asymmetry.

Businesses tend to be well aware that happy customers mean healthy profits, but too often, this  doesn’t translate into the quality of their customer communications. Customer facing information often suffers from lack of simplicity, clarity and sometimes even from inaccuracy. Befuddled, disgruntled or skeptical customers don’t typically make for happy ones!

What is information asymmetry, and why you should care.

In part, customer communication is meant to address the problem of information asymmetry, which occurs in all interactions between two people or groups of people who do not have equal information about the subject of their interaction. The economist George Akerlof first depicted the pitfalls of information asymmetry in the 1970s with the example of the used car salesman who will know more about the defects of the cars he is selling than a potential customer. Customers will always be wary of being sold a ‘lemon’ and hence, be unwilling to pay a good price even for cars in perfectly good condition.

The theory is extremely relevant for B2C business today. If your communications to your customers are not able to adequately address the information asymmetry problem that most customers face, they are less likely to offer their custom or their loyalty in the longer term. This article shows how, depending on the quality of customer-facing communication, businesses can mitigate the negative effects of information asymmetry, and in some cases, may even worsen them.

Poor customer communication – what it looks like and its implications

Recent events such as the subprime mortgage crisis in the US and the mis-selling of Payment Protection Insurance (PPI) in the UK have drawn a great deal of damaging attention towards the financial sector. These issues have not only triggered an increased burden of disclosure-related regulation on financial sector firms but have damaged business prospects. Amongst the key areas of concern is the complexity in the make-up of a product coupled with lack of clarity in setting out its important features to the customer.

One major example is selling over-complicated, multi-layered mortgage backed securities to investors without properly highlighting their sub-prime exposure. Overloading customers with paperwork and/or legal jargon can leave them in the dark regarding the full nature of the product on offer. Buying a property or even opening a bank account usually prompts the delivery of enormous packs of jargon-filled documents to your doorstep, which often end up unread, in the dustbin or filing cabinet.

Both these issues diminish your business’s credibility and trust in the mind of the customer. Whilst being convoluted or unclear about the details of a scheme or product may mean a few more sales are made this year, the long-term effects in terms of loss of business can be far more regrettable.

5 possible causes

More often than not, a business is not deliberately setting out to exploit the information asymmetry between itself and its customers. Usually, management is well aware of the benefits of building customer confidence and nurturing long-term customer relationships. Poor communication typically occurs due to one or more of the following types of reasons:

1. Too much information

Often there is too much information about the different aspects of a product to be condensed easily into a small document. In the interest of time, or out of fear of leaving out relevant information, businesses may resort to a “more is better” strategy with respect to customer communication.

2. Lingo

When working in an environment where financial, legal or other technical language and acronyms are regularly used, it is easy to forget that customers may not be familiar with the jargon that is part of your daily speak. In customer documents or when negotiating or explaining contracts to customers, sales people can often fall into the “lingo trap” of using terms that are obvious to them, yet make little sense to the customer.

3. Negligence

Rates and charges can typically arise from several sources, and may be contingent on multiple conditions. Some aspects may be missed in the process of collation and representation to the customer. Credit card charges are often faulted for this type of problem. Similarly, mobile phone customers commonly complain about being charged for items that they understood to be included in their all-inclusive packages.

4. Operational changes

Changes in the business such as a merger or acquisition or a restructuring exercise may mean that different customer communication systems and protocols may have to be merged and/or updated to effectively address a potentially changed customer base.

5. Priority

Lack of priority given by management to good customer communication can lead to staff being unmotivated to prepare effective customer facing documentation or not being trained and incentivized to engage with customers effectively.

Fixing the information gap. A few suggestions.

Depending on the nature and extent of the problem, the process of improving customer communication will likely involve: 

• Developing a customer communications policy laying out fundamental principles and criteria that all customer facing information must adhere to
• Designing improved communication templates
• Designing and rolling out a training programme for all customer facing staff regarding the company’s communication priorities and protocols
• Incorporating communication targets into the incentive and pay structure of employees
• Ensuring efficient internal informational flows across relevant departments so that customer communications can easily be kept up to date and accurate

Some of these activities can be done as quick fixes and could make an immediate impact on your business. Improving the templates for certain types of customer communication may be an obvious starting point that could deliver quick results. Incorporating information and communication related competencies in employees’ appraisal processes may also be a relatively easy fix. However the type of activity required will depend on the nature of your particular business and any particular problems it is facing.