Regulating Trust: Love It or Hate It?

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Contributor / Kent Grayson

Associate Professor of Marketing, Bernice and Leonard Lavin Professorship
Kellogg School of Management / Marketing

Part 1 / Regulating Trust: Love It or Hate It? (0:00)
Context plays an important role in the trust that consumers have in an exchange. Trusting the institution can diminish the importance of personal relationships, though it can also provide a foundation for building strong bonds of trust with an institution’s employees.

Part 2 / When Trust Makes Things Too Easy (1:37)
Context is plays an important role in consumer trust in new industries, and professional associations can help build institutional trust. The validation they bestow gives consumers a reason to trust a company, but unfortunately, that trust is not always warranted.

Transcript

BUMPER: Regulating Trust: Love it or Hate it?

When we think about trust in the marketplace, we’re usually thinking about trust between the buyer and the seller and, do I trust you enough to give you money so that when you give me a product or when you provide a service, that it’s going to be good?

But there’s another level of trust that exists in exchange relationships, and that’s trust in the context in which the exchange occurs.

There’s a lot of research on the relationship between institutional trust and individual trust, and some research suggests that the more institutional trust exists, the less people feel like they have to build trusting relationships, because they’re protected by the institution.

But there’s also research that suggests that the more we trust in institutions, that provides a useful foundation for building even stronger trust with exchange partners. And the jury is still out on which is true and which isn’t.

A lot of firms don’t like to be monitored by professional associations, and they don’t like rules and laws that keep them from doing things that they might want to do with customers, and those laws and rules can make companies be less efficient and less profitable.

But they can also enhance the trust that the customer has in the institutions that protect trust and without them, the consumer may not want to engage with firms in the entire category.

And this is particularly relevant for new industries. We hear a lot about the sharing economy. One of the problems about some companies that operate in the sharing economy is that these institutions don’t necessarily exist which protect consumers from these problems.

If you’re working in a sector where there isn’t institutional trust, you have to build your trust one person at a time. At the grassroots level. And it seems like, for some of the companies that are operating in the sharing company, that if they do that and they start to build a critical mass, then the critical mass of trust within a particular social network serves as a certain institutional trust.

BUMPER: When Trust Makes Things Too Easy

Based on the research that I’ve done with a colleague in the mountain climbing industry, it seems that as consumers, when we’re going about our daily decision-making process, we sometimes are willing to place faith in institutions without necessarily knowing what those institutions do and without investigating.

So, the FDA — people think, “Oh, well, I’m going to buy this new product because the FDA approved it.” But there are lots of people who think the FDA is not very trustworthy. And there are reasons to maybe think that in certain product categories.

But many people still sort of, almost without thinking about it—it makes things easy. As I mentioned, institutional trust makes things easy for consumers. They believe, “OK, well I can trust this,” when that trust is misplaced.

And the amount of implicit trust (let me put it this way), the amount of implicit trust that exists in the institution of guiding and maybe in the professional associations that monitor is amazing to me as someone who doesn’t climb mountains.

They say, “Well, I went to a website, and I found this person, and my friend says they’re good, so I signed up for them to give them 60,000 dollars, to have them take me to the highest peak in the world where I might die.” And they’re still willing to place trust.

Keep up with the latest insights on trust

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Marketing trust is essential to facilitating exchange and connections in the economy.

When Trust Works and When It Doesn’t: Key Findings

Research
Contributor / Kent Grayson
Kent Grayson Marketing Communication,Legal Guarantees,Reputation Management,Vulnerability So, the most influential and highly cited papers on marketing and trust are the oldest. And it’s not just because they’ve been around for a while but because they were the first to document, fundamentally, that trust does facilitate economic exchange, that it does create better outcomes for buyers and for sellers.

And equally important, it showed that trust is a key mediator between things that buyers and sellers can do and these wonderful outcomes.

So, for example, why does more communication with your exchange partner make things better? It’s not because there’s something inherently great about communication, but it’s because communication leads to higher trust, which then leads to better exchange outcomes.

So, since marketing researchers have found this main finding that trust helps economic exchange, researchers since then have published some really influential papers documenting times and conditions and circumstances when trust may not lead to better economic exchange outcomes.

So, one example is a really influential paper by Atuahene-Gima and Li. They looked at relationships between sales managers and sales people. And what they found is, first of all, that when sales managers make themselves more accessible (they’re around more and they communicate more), the sales person is going to trust more in the sales manager.

And you would think that that would lead to greater sales. You would think that it would lead to great sales, but it turns out it doesn’t.

And what that leads to is the conclusion that a sales manager can build trust in a sales person by being more accessible, but one of the downsides of that is that the sales person starts to learn about the sales managers — the things that the sales manager pays attention to, the thing that the sales manager doesn’t pay attention to.

And as a result of learning about those things, the sales person can use information asymmetry to their advantage. If they know that the sales manager isn’t monitoring certain things like whether they go out on certain sales calls, it means that they can cut corners out in the field, and that will hurt sales.

What’s cool about this paper is that it highlights that trust is enhanced by information exchange, but information exchange also gives buyers and sellers information about how they can better game the system.

So, that’s an example of some research that has shown that trust doesn’t always have positive outcomes, that there’s a dark side to it, that inherently, it can be good or bad.

Related to that, there is another string of research that has looked at contexts where trust is going to be more or less influential. And again, there’s several papers that look at that. One example of a great paper that looks at that is a paper by Garbarino and Johnson.

And what they did is, they looked at relationships between people who buy tickets for a theater company and how their experience at the theater company influences their likelihood of buying another ticket.

But the interesting thing that they did is that they divided the people they surveyed into two groups. One group are people who are subscribers; people who have bought a subscription and who go to the theater a lot. And another group are people who are just individual ticket buyers and they’re probably not going to the theater a lot.

What Garbarino and Johnson found — first of all, they confirmed the finding that I’ve been talking about all along, which is that trust is this key mediator between things that companies can do and outcomes that companies want. But they found that trust is a key mediator only for the subscription holders.

For people who are individual ticket buyers, the main factor that influences whether they’re going to buy again is their satisfaction with the performance that they saw. If they liked the performance, they’re more likely to buy again. And trust didn’t have any influence at all.

And the interesting thing about that is that for subscription holders, satisfaction was not a key mediator for future intent, or for likelihood of buying another ticket.

In other words, as a subscriber, you could be a little bit less satisfied with the performance and still have the intention of buying another ticket as long as you trust the theater company.

So, one of the interesting things about this paper is that, first of all, it shows us something that we’ve already talked about before, which is this idea that if you have trust in a buyer, that they can maybe take advantage of that.

If you think about the theater company, they could have slightly worse performances and still have those subscription holders. But Garbarino and Johnson emphasize another aspect, which is—when you have a relationship that’s trusting, there’s more room for experimentation.

So, this theater company could do an experimental production that might not go over very well, but might not also lose their customers. So, rather than just saying that trust has a dark side and people can take advantage of it in bad ways, it also suggests that trust has a side where people can take advantage of it in good ways.

One example of an influential paper that takes more of an economic perspective is by Brown, D.V., and Lee.

They studied the hotel industry, and in particular, relationships between the corporate office and the people who own or run individual hotels. And what they looked at is what safeguards the corporate office can put in place so that the individual hotels are less likely to take advantage of information asymmetry.

Now, what do I mean by safeguards? I mean these contracts or agreements that can be put in place to try and keep people from doing things that you don’t want them to do.

One safeguard that can be put in place is that the corporate office can actually own the hotel. And when they own the hotel, they’re able to come in and really demand that people do the things that they have to do.

Another safeguard that people can put in place is to monitor, is to put monitoring mechanisms or have people on the property monitoring what is going on and reporting back to the head office. What this paper did is, it distinguished between two types of safeguards.

One is more economic, like the ownership one. The other kind of safeguard is a little bit more social. They are things like acculturating people to a particular corporate culture, which means more training sessions or more corporate events that help people to understand what the norms and values of the corporation are.

And what this paper found is that more rational or economic safeguards actually have a backlash effect — that when people feel like they’re being monitored, for example, they’re more likely to break trust and behave opportunistically than for safeguards that are more about bringing people aboard and making them part of the culture.

So, what this suggests is that safeguards are, first of all, not always going to universally minimize opportunism, even though they might rationally seem like they do, but also that people can resent safeguards; they can feel bad about safeguards, and they can actually have the opposite effect that the company may intend.
The mall is a good place to see an established buyer-seller relationship.

3 Components of Trust in Buyer-Seller Relationships: A Marketer’s Perspective

Foundations
Contributor / Kent Grayson
Kent Grayson Marketing Breaches,Definitions,Economic Exchange,Legal Guarantees,Mergers and Acquisitions,Regulation,Vulnerability The first thing that people think about when they think about marketing is advertising because that’s the primary way that companies communicate with customers.

And because of that, a lot of people think that if you study marketing, you probably study advertising. And there are marketing researchers who do study advertising. But there are also marketing researchers who study a lot of other things.

And a common interest that unifies all marketing researchers is not an interest in advertising but an interest in what makes economic exchange possible, an interest in the conditions that facilitate economic exchange.

By economic exchange I mean any buyer-seller relationship. So, it could be a relationship between a consumer-products firm and a shopper in a grocery store. It could be a raw-material supplier and an automobile manufacturer. It could be a client and a lawyer. It could be a lemonade stand and a neighbor.

Any buyer-seller relationship like that, marketing researchers are interested in, what factors facilitate that exchange, make it happen, make sure that the buyer and seller are happy at the end? And also, what factors might hinder that exchange?

So, among people who study marketing, there is a bunch of us who study trust. And what’s interesting about trust and trust in marketing is that trust can be broken. We can get burned by trust. And for me, one of the most interesting things is understanding how we as consumers navigate this minefield of the possibility that trust might be broken.

One of the key things that makes it possible for trust to get broken in economic exchanges is this thing called “information asymmetry.” Information asymmetry refers to the fact that buyers know more about themselves than the sellers do, and sellers know more about themselves than buyers do.

And buyers and sellers can take advantage of that information asymmetry and create conditions where they get more out of the exchange than maybe they deserve. But let’s look at information asymmetry as a problem from the buyer’s perspective to start with.

So, let’s say you go into the grocery store, and you see on the shelf a product that promises to clean your clothes if you just hang up the article of clothing and you spray it with this bottle three times. And they claim that it’s going to wash your clothes just as well as in a washing machine.

The thing is, you know that when you buy that product, you’re not going to know if it’s going to work until after you give the supermarket its money, after you drive home, and after you try it on maybe a few articles of clothing to make sure that it doesn’t fade certain clothing or stain certain clothing.

And, on the other hand, the company knows a lot more about how well it works and under what conditions it works and under what conditions it doesn’t work — because no product is perfect. And they may take advantage of that.

They may put only in the fine print that it doesn’t work on jeans or it doesn’t work on cotton, or they may create a formulation that makes it look like your clothes are clean, smell like they are clean, but it actually doesn’t clean as well as a washing machine does.

So, when you as a buyer are about to make that purchase, you have to have a level of trust in the purchase and in the person selling the product. And marketing researchers are interested in what brings you to that point of trusting the product.

Now, the really cool thing about buyer-seller relationships and information asymmetry is the fact that it goes both ways. So, the information asymmetry is a problem for sellers as well as for buyers.

One example is, when you rent out your apartment or you do an apartment share, you’re the seller in that situation, and the buyers are the people coming in to use your apartment. Now, you’re not going to know what they’re doing in your apartment. There is information asymmetry there.

They may use it in ways that you don’t want them to use it, or they may break something without you knowing — you might not find out until later. In business-to-business relationships, if you’re a supplier selling to a manufacturer, they may agree to, for example, pay you in 90 days. They do a big contract with you for a year, and they agree to pay you in 90 days.

But after you work with them for a while, you realize — they’re not actually paying you in 90 days. And they know that you’re not necessarily going to break off that relationship, and they’ve taken advantage of information asymmetry.

So, marketing researchers who study trust are interested in how buyers and sellers can think about all these questions, can navigate all these problems, to minimize these concerns about information asymmetry. And trust is one way that they can do that.

So, as you look across research that’s done by marketing researchers on trust, it comes really in two types. The first type is more psychological in orientation. This research looks at how people think or feel or attitudes towards trust, and how those attitudes towards trust influence their likelihood of exchange or keep them from wanting to exchange.

There is another group of research, or another area of research, where people take more of an economic perspective. And here, the focus is on the kinds of contracts or agreements or norms or expectations that buyers and sellers can bring to the exchange that keep people from taking advantage of information asymmetries and encourage them, or incentivize them, to live up to the expectations of the exchange.

So, what is trust? In marketing, we define trust in the way that many other disciplines define it — which is, it’s a willingness to depend on someone else to do something under conditions where they may not actually do the thing that you want them to do.

And marketers understand that willingness in terms of three dimensions — or three factors influence people’s willingness to depend on someone else to do something that they don’t necessarily have to do or they’re not required to do.

The first dimension, or the first influence, is competence, perceived competence: a belief that your exchange partner is competent to deliver the kinds of things that they’ve promised to do as part of the agreement.

The second dimension is honesty. It’s a belief that your exchange partner is going to tell the truth and keep their promises. The more you believe they’re honest, the more you trust them and the more the economic exchange is enhanced.

The last dimension of trust, or the last factor of trust, is benevolence. It’s a belief that your exchange partner will think about you at critical times in the exchange when they can use information asymmetry for their own benefit, and they’re willing to think about your needs and wants.

And they’re maybe even willing to make sacrifices because they know that making you happy in the exchange is part of making a successful exchange.

Now, these three dimensions are interrelated, but honesty and benevolence are particularly highly correlated, and it’s very hard to tease them apart because a benevolent partner is often thought to be honest, and an honest partner is often thought to be benevolent.
A study on mushroom hunters shares insight on trust and reciprocity.

Rationality and Reciprocity in Trust: Key Findings

Research
Contributor / J. Keith Murnighan
J. Keith Murnighan Management Reciprocity,Social Psychology,Reputation Management BUMPER: Key Research in the Discipline

There have been a bunch of articles on trust that are really important. In 1995, Mayer, Davis, and Schoorman wrote a theory paper on trust that introduced integrity, competence and benevolence as the three critical elements of trust.

Prior to 1995, there had been very little research on trust, for no good reason. Early ’60s and ’70s, there was a lot of work on personality and trust, and trust propensities, and how likely it is someone will trust.

And people would answer questions like, “I believe most people are honest” and other questions like that, and they would try and relate people’s responses to those to their behavior.

And there were moderate predictability but not very impressive. I think that’s kind of why the research on trust dissipated after the early ’70s.

Mayer, Davis and Schoorman were great at coming up with a very noteworthy article that said, “Let’s start studying trust again.”

And so, since the ’90s, there’s been an enormous amount of work on trust.

BUMPER: Trust and Rationality

Gary Alan Fine in our sociology department has written a book on the Minnesota Mycological Society.

And one of the things that he focuses on in this book that relates to trust is that new members of the society — after they’ve gone out mushroom hunting, they come back, they cook their mushrooms and eat them — new members will eat other people’s mushrooms when they haven’t even met the other person. Old members will not.

So, new members want to join, want to become part of the group, want to become members, want to be well thought of, so they say, “yes,” when they’re offered mushrooms that they don’t recognize by someone they’ve never met.

It’s pretty darn dangerous! People don’t choose theirs and are easier to pass it up when they’re already established members — pretty cool.

BUMPER: Trust and Reciprocity

“Attributions of Trust and the Calculus of Reciprocity” — one of my favorite article titles — Madan Pillutla and Deepak Malhotra and I varied how much trustors trusted and then observed how much trustees responded and found very clear indications that the more you trust, the more people respond and reciprocate, especially when they think you’re doing it in a smart way.

That was one of our first studies, and I just thought, very neat and clean and tells us a lot about the trust-reciprocation process.

Other pages in Videos:

Pages in The Trust Project at Northwestern University