Trendsurfing: Reputation pricing (The Times)
By David Rowan
As a Times Magazine reader, you cherish a reputation as a cultured, intelligent and stylish connoisseur of quality. But if we wanted to put a price on it, how much would that reputation actually be worth? As more of us buy and sell goods to strangers online, an easily quantifiable reputation for trustworthiness can instantly differentiate the safe shopping partner from the scammer. That's why growing numbers of economists are working to cost those reputations in measurable pounds and pence.
In the old economy, a business would itemise its "goodwill" value using a line buried in its accounts somewhere under "intangibles". It was a vague and unscientific estimate that would often bear no relation to the price a market would be willing to pay. But today, in the necessarily more transparent trading exchanges of eBay or Amazon Marketplace, buyers and sellers can examine each other's transaction histories in a format that allows an at-a-glance numerical comparison between the reliable and the risky. If you are contemplating buying a Scissor Sisters CD from a trader with 100 per cent positive feedback from 1,000 customers, and one with 50 per cent negative feedback from just four, the cold numbers tell you whose reputation will likely deliver a more satisfactory shopping experience.
A good reputation will tend to make its owner wealthier - and we now know by how much. According to a fascinating study led by Paul Resnick, an economist at the University of Michigan, a seller on eBay who has established a highly positive reputation through customer feedback can expect to pocket around 8.1 per cent more money than a new seller marketing the same goods. In other words, the value of a decent reputation can be priced at just over eight pence in the pound.
Resnick worked with an established eBay dealer of vintage postcards to conduct his randomised controlled experiment. The dealer offered roughly equivalent batches of postcards for sale under eight separate trading identities: his own, whose eBay feedback reflected 2,000 trades of which just one was judged "negative", and seven others which began the experiment with no feedback at all. Over 12 weeks, the newbies consistently achieved lower prices than the established trader for equivalent goods. "People with good reputations are rewarded," Resnick concludes, "and people with no reputations are not trusted as well."
Economists being economists, the trend for putting concrete values on market reputations is becoming an emerging industry of its own. Business-school strategists and marketing researchers have been eyeing opportunities of their own. Weber Shandwick, the PR company, employs what it calls a Chief Reputation Strategist; there is even a New York-based Reputation Institute with a mission to boost companies' economic value "by implementing coherent reputing strategies", whatever a coherent reputing strategy might be.
And, of course, there are endless new economic formulae, all intended to enhance the market value of the academics who coin them. Take this mind-numbing example, intended to place a financial value on a commercial company's reputation, which has emerged from Manchester Metropolitan University's Business School:
[complex formula, very difficulty to show in HTML, here...]
where MV is market value, RQ is the company's Reputation Quotient, X is ...
Whoa. It's Saturday morning and you really would rather be reading the shopping pages. Let's stop now. This column does have a reputation to maintain, you know.
(The Times Magazine, October 14 2006)
As a Times Magazine reader, you cherish a reputation as a cultured, intelligent and stylish connoisseur of quality. But if we wanted to put a price on it, how much would that reputation actually be worth? As more of us buy and sell goods to strangers online, an easily quantifiable reputation for trustworthiness can instantly differentiate the safe shopping partner from the scammer. That's why growing numbers of economists are working to cost those reputations in measurable pounds and pence.
In the old economy, a business would itemise its "goodwill" value using a line buried in its accounts somewhere under "intangibles". It was a vague and unscientific estimate that would often bear no relation to the price a market would be willing to pay. But today, in the necessarily more transparent trading exchanges of eBay or Amazon Marketplace, buyers and sellers can examine each other's transaction histories in a format that allows an at-a-glance numerical comparison between the reliable and the risky. If you are contemplating buying a Scissor Sisters CD from a trader with 100 per cent positive feedback from 1,000 customers, and one with 50 per cent negative feedback from just four, the cold numbers tell you whose reputation will likely deliver a more satisfactory shopping experience.
A good reputation will tend to make its owner wealthier - and we now know by how much. According to a fascinating study led by Paul Resnick, an economist at the University of Michigan, a seller on eBay who has established a highly positive reputation through customer feedback can expect to pocket around 8.1 per cent more money than a new seller marketing the same goods. In other words, the value of a decent reputation can be priced at just over eight pence in the pound.
Resnick worked with an established eBay dealer of vintage postcards to conduct his randomised controlled experiment. The dealer offered roughly equivalent batches of postcards for sale under eight separate trading identities: his own, whose eBay feedback reflected 2,000 trades of which just one was judged "negative", and seven others which began the experiment with no feedback at all. Over 12 weeks, the newbies consistently achieved lower prices than the established trader for equivalent goods. "People with good reputations are rewarded," Resnick concludes, "and people with no reputations are not trusted as well."
Economists being economists, the trend for putting concrete values on market reputations is becoming an emerging industry of its own. Business-school strategists and marketing researchers have been eyeing opportunities of their own. Weber Shandwick, the PR company, employs what it calls a Chief Reputation Strategist; there is even a New York-based Reputation Institute with a mission to boost companies' economic value "by implementing coherent reputing strategies", whatever a coherent reputing strategy might be.
And, of course, there are endless new economic formulae, all intended to enhance the market value of the academics who coin them. Take this mind-numbing example, intended to place a financial value on a commercial company's reputation, which has emerged from Manchester Metropolitan University's Business School:
[complex formula, very difficulty to show in HTML, here...]
where MV is market value, RQ is the company's Reputation Quotient, X is ...
Whoa. It's Saturday morning and you really would rather be reading the shopping pages. Let's stop now. This column does have a reputation to maintain, you know.
(The Times Magazine, October 14 2006)
posted by David Rowan at Saturday, October 14, 2006
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