Customer strategy foundation: SEC analysis determines how customers buy

My blog post first appeared on

Knowing whether buyers conduct consideration with complete, partial or minimal information about the qualities of goods they seek is an essential starting point for customer experience strategy.

This method puts customer purchases on a continuum of how easy or hard it is for buyers to evaluate the qualities of a potential purchase. In my fifteen years of advising management teams, this has been a durable and enlightening way to understand how buyers engage, select and recommend sources of good and services.

This model is especially productive because it recognizes that the trust required to overcome a buyer’s own reservations is linked to the kind of the purchase they are considering. Enabling experience strategists and marketers to recognize these dynamics is like enabling sailors to anticipate the currents they’ll need to accommodate in their travels.
The model uses a continuum of three types of goods: Search, Experience and Credence. Identifying which type of good an offering is can help companies better engage buyers in consideration, or to create experiences that shift offerings from one category to another.

Search Goods

Search goods are commodities such as dollar bills, gallons of 91 octane gas, or heart medicine. When a buyer shops for any of these, they have a clear perception of what they want and a high degree of certainty it will be useful in a predictable way.

As commodities, you know what they are as soon as you find them. Drug stores provide highly uniform drugs, banks provide highly uniform money. A can of Libby’s peaches at one grocery stores is the same as the ones at others. Groceries, banks and pharmacies at their root provide search goods.

Naturally, businesses which distribute commodity products will attempt to differentiate themselves through experiences which add value to the commodities. Clean restrooms don’t make the gas more valuable, but they may make a visit to the gas station better. Personable bankers don’t make the money more valuable, but it makes getting it less taxing. A grocery store that dusts their cans of peaches can make them more appetizing. You get the picture.

When will people pay extra for experience?
Or to state this as an economist, when might improving customer experience make buyers less price sensitive? When the price of search goods is highly visible, buyers are the most price sensitive. Consider how prominently gas prices are displayed on giant signs. A price difference of a penny or two per gallon is frequently enough to get drivers to go out of there way when getting gas. This type of behavior is less likely when people are shopping for commodities which aren’t as directly linked to price, such as prescription medicine where it might be rare to know one’s post-insurance cost until the end of the checkout process.

Experience Goods

Experience goods are those where price, quality or some other attribute remains unknown until purchase. When visiting a new restaurant or buying a new wine, for example, consumers show a willingness to take a risk on how satisfying the product will be. Compare that with purchasing gas where quality of the product is expected to be satisfying regardless of what station you buy from.

Yet, with experience goods, once a person has consumed the food or wine they can readily evaluate their satisfaction with it. The knowledge of prior customers’ satisfaction is highly influential to those considering the same choice. This dynamic makes Yelp, Angie’s List, or other buyer reviews, especially influential in the purchase of experience goods.

Is work a search or experience good?
Access to information can change which category a good falls into. This can be seen in labor pricing. The practice of employers keeping salary information confidential can be seen be a way of preventing the kind of comparison between opportunities that would turn job opportunities in to search goods. The formalization of function and reward brought by union contracts, would serve as a counter force to this, making these jobs more predictable and thus more like search goods. Seen in this light, union wage standardization and work rules commoditize jobs to the benefit of applicants, just as more transparent work and pay histories would commoditize applicants.

Credence Goods

Credence goods may be the most interesting to marketers, because even after their purchase and use, customers may still be unable to assess their quality. This is often the case with expert or high-end services like lawyers, surgeons, mechanics, management consultants and prestigious universities. Most of my professional life has been spent helping these services to market and position their brands among other hard to evaluate competitors.

When customers don’t know best
Often not with credence goods. In areas such as law and medicine, the clients of even the best practitioners often don’t get the outcomes they seek. But this may have more to do with their own circumstances than the skill of experts helping them.

Conversely, clients may experience superior outcomes that have nothing to do with expert services: patients sometimes make recoveries where none was expected. Unless customers frequently purchase such services and are experts themselves, they may be responding more to the result they obtained, rather than the service which facilitated it.

Finding the best expert is hard
Since customer opinions are less useful in respect to credence goods, there is a tendency to turn toward data to create objective scoreboards. The attempt to do this both in law and medicine are endless. However, performance data are often confounded by human selection, as people with the most difficult cases may seek out highly accomplished practitioners, so make comparison to their peers uneven.

Prestige is the currency of credence goods

Absent a true success metric, the trappings of success such as high fees, architecture with marble columns, and professional endorsements stand-in to influence selection. Consider higher education, which has previously been a classic credence good. A prestigious university may draw the brightest applicants and note years later how bright and successful they remain. Yet it is difficult to know if their advantage is an effect of association with a prestigious brand, being in a high functioning cohort, or that their academic training created this difference.

Prestige and rankings by expert judges about credence goods play a similar role to customer reviews of experience goods. We see this in the importance of U.S. News and World Report rankings of higher education and healthcare competitors. They pay substantial fees to use this seal of approval in their marketing. Some even devote staff to maintaining their strong rankings. Now, do you know anyone who subscribes to U.S. News magazine today? I’m not sure they still publish regular news. That shows how powerful rankings are in selecting credence goods. Consumers will accept prestige markers, even knowing they may to some extent be contrived or bogus.

Credence goods call for professional ethics
In many cases, consumers of credence goods may be unable to evaluate to what extent they even need these goods at all. Buyers of credence goods often rely on expert opinions to both assess their need, and to fix the situation they have diagnosed.

In his article, Credence Goods and Fraudulent Experts, economist Winand Emons points out that “brake shoes changed prematurely work just as if the shoes replaced had been faulty”. Likewise, a patient whose appendix was removed un-necessarily has the same prospect of health as one who needed and received that procedure. In such cases, buyers may be unable to determine the extend or urgency of own need, or later gauge how expert services helped them.

In answer to this challenge, experts of all kinds are finding ways to use digital technology to improve these experiences. In medicine from Orthopedics to Gastroenterology? and Dentistry, digital imaging and modeling are helping doctors to record what they are treating and its effects. In previous generations patients would have taken the world of these experts that something needed to be fixed, now they can see the dimension of their need and the benefits of care.

This asymmetry of information which comes credence goods, creates a need for practitioners to adhere to and police ethical precepts to prevent the exploitation of such expert advantages. Professional licenses, union certifications, and standing in learned associations are all revocable signs of good conduct, used by these communities to protect their specialties’ reputation.

Let the customer strategy fun begin!
So, now that you have this way of looking at buyer relationships, how do you use it? The next time you see a ranking shield on a website, you might be more likely to reflect on how much certainty it really gives you have about that service.

There are also examples of firms which use innovation to move their goods from one SEC category to another. Part of the genius of McDonalds is how it made its restaurants in to search goods (commodities). They provide a predictable experience supported by metrics to perpetuate that uniformity.

In higher education, a classic credence good, there is a long-standing current of to provide training and certification which is measurable to the point of being a search good. (Example: Where did you do your Project Management training? Beats me, but I passed the exam!) Numerous online services also allow students to review their professors, which could make higher education into something closer to an Experience Good, defined by customer satisfaction scores and reviews.

SEC analysis informs content marketing
In my own life, thinking about SEC goods absolutely influenced my decision to make an index ranking hospital digital experiences. Knowing that hospital teams already valued external rankings, it made sense to approach them with the kind of expert analysis that aligns to credence purchases.

Since this method is rooted in economic theory, few customer-experience professionals know about it or use in to ground experience strategy. But as they empathize with buyers, it is helpful to understand the level of information consumers have in a buying process can be determined by the type of good, and that this creates recognizable dynamics which companies can address as they engage with buyers.

2 Responses to "Customer strategy foundation: SEC analysis determines how customers buy"

Leave a Reply

Your email address will not be published.