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Wednesday, September 23, 2009

What's an Apology Worth?

I'm sorry, I really am. Here's the economics of apologies:

Saying sorry really does cost nothing, EurekAlert: Economists have finally proved what most of us have suspected for a long time – when it comes to apologizing, talk is cheap.
According to new research, firms that simply say sorry to disgruntled customers fare better than those that offer financial compensation. The ploy works even though the recipient of the apology seldom gets it from the person who made it necessary in the first place.
The ... Nottingham School of Economics' Centre for Decision Research and Experimental Economics ... set out to show whether customers who have been let down continue to do business after being offered an apology. They found people are more than twice as likely to forgive a company that says sorry than one that instead offers them cash. ...
[C]o-author Dr Johannes Abeler said the results proved apologies were both powerful and cheap. He said: "We know firms often employ professional apologists whose job is to say sorry to customers who have a grievance.
"You might think that if the apology is costless then customers would ignore it as nothing but cheap talk - which is what it is. But this research shows apologies really do influence customers' behavior – surprisingly, much more so than a cash sweetener.
"People don't seem to realize they're dealing with an expert apologist rather than an individual who feels genuine shame.
"It might be that saying sorry triggers in the customer an instinct to forgive – an instinct that's hard to overcome rationally."
Researchers worked with a firm responsible for around 10,000 sales a month on eBay, controlling its reaction to neutral or negative feedback. Some customers were offered an apology in return for withdrawing their comments, while others were offered €2.5 or €5.
The simple apology blamed the manufacturer for a delay in delivery, adding: "We are very sorry and want to apologize for this." Customers offered money were told: "As a goodwill gesture, we can offer you €5 if you would consider withdrawing your evaluation."
Because customers had no idea they were taking part in the experiment, their behavior was completely natural and unaffected. Some 45% of participants withdrew their evaluation in light of the apology, while only 23% agreed in return for compensation.
The study also discovered that a higher purchase price further reduced the number of customers willing to forgive for cash. Yet the size of the initial outlay had no effect on the willingness of participants to settle for simply reading the magic words: "I'm sorry."
Dr Abeler, an expert in behavioral economics, said: "It's interesting to note our setting should have made it hard for an apology to work.
"The apology was delivered by a large, anonymous firm and wasn't face-to-face, and the firm had a clear incentive to apologize.
"All of this meant the apology should have been regarded by the customers as calculated, insincere and just cheap talk. Yet it still yielded much better outcomes than offering cash compensation – and our results might even underestimate its effects."

Apparently, this also works for doctors:

Apology a tool to avoid malpractice suits, by Lindsey Tanner, Associated Press: ...Some malpractice-overhaul advocates say an apology can help doctors avoid getting sued, especially when combined with an upfront settlement offer.
The idea defies a long tradition in which doctors cultivated a Godlike image of infallibility and rarely owned up to their mistakes.
The softer approach, now appearing in some medical school courses and hospital policies, is drawing interest as national attention has turned to reducing both medical errors and the high cost of malpractice insurance...
The hospitals in the University of Michigan Health System have been encouraging doctors since 2002 to apologize for mistakes. The system's annual attorney fees have since dropped from $3 million to $1 million, and malpractice lawsuits and notices of intent to sue have fallen from 262 filed in 2001 to about 130 per year...
Dr. Michael Woods, a surgeon in Colorado ... said his research has shown that being upset with a doctor's behavior often plays a bigger role than the error itself in patients' decisions to sue. ...
Accountants have also figured this out.

    Posted by on Wednesday, September 23, 2009 at 05:47 PM in Economics | Permalink  Comments (9)

          


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