Perception is reality

Article

Hannah, D., Treen, E., Pitt, L. & Berthon, P. (2016). “But you promised! Managing consumers’ psychological contracts.” Business Horizons, 59(4), 363-368.

Reviewer

Dr. Scott Downey, Associate Director and Professor

Summary

Research on psychological contracts originated in the 1950s to describe aspects of the commitments between employers and employees. The idea was that, while there were legal obligations for pay or treatment, there were also unspoken promises that were important at work. Psychological contracts are mutual obligations in which certain behaviors are exchanged for specific outcomes. They might appear as various intangible aspects of service, particularly relating to reliability and responsiveness. A consequence of a seller who is seen as having violated a psychological contract is that the buyer is less committed to honoring their own perceived obligation. Marketers must understand that psychological contracts are just as real in the customer’s mind as legal contracts. To honor psychological contracts, companies must make sure that their people are trained to understand them. Service employees must create clear expectations for service and deliver on it using both verbal and written tools. Psychological contracts should be revisited (reviewed) periodically if they are long term and discussed explicitly; and, perceived breaches should be over-compensated in order to make things right.

What this means for food and agricultural businesses

This is not a complex article to understand and was not empirical. There wasn’t any testing to see how customers view or react to psychological contracts. However, it was well researched and drew from literature in other areas to make its point: Perception is reality for customers.

There are several implications for food and agribusiness marketers. We tend to talk about and demonstrate product performance. When we do that, we are often under no legal obligation to achieve performance outcomes because we include language in our fine print to cover ourselves, such as “Performance may vary.” Most buyers today are pretty savvy and know that these aren’t guarantees; however, there is some performance level that is expected. Satisfaction, loyalty and repeat purchase decisions are often tied as much or more to perceptions on psychological contracts than they are the legal ones.

I think the service aspects of what many suppliers or vendors provide are where the psychological contracts are most complex. The idea that everyone understands what is expected was perhaps easier when the primary means of communication was face-to-face. With texts, voicemails and emails, the nuances of communication (and therefore understanding of unspoken psychological contracts) dissipates. It’s simply harder to know where expectations might be less well understood because we don’t have the body language or sometimes even intonation that communicates uncertainty. That means that sellers have to be more explicit in shaping service expectations: response times, schedules, training, support and information are rarely written down. Wishing to be responsive, good people often communicate an aggressive response time only to breach that “promise.”

Performing well from a service standpoint can be its own downfall in terms of contracts. A supplier or vendor who typically responds quickly trains customers to expect a quick response, which means a psychological contract can develop wherein the customer rewards the seller with loyalty in exchange for continued responsiveness.

Changing circumstances might lead to breaches of psychological contracts as well. Employee turnover is a great example of this. Poor communication might lead to new employees not fully grasping the terms of psychological contracts and not fulfilling them effectively. It is problematic when a vendor creates an expectation that their service will meet or exceed the market norms, but doesn’t adapt quickly to a new service standard put forth by a competitor. Think about the community bank that isn’t able to offer ATMs or online banking as those technologies became the “norm” for banks to offer.

It is important to remember, though, that contracts work both ways. When a supplier has bent over backwards for a customer only to have them leave for a few pennies, the customer breaches the psychological contract they create with the seller. Or when the customer goes over a salesperson’s head without good reason, the psychological contract that says, “You take care of me and I take care of you,” is violated.

It’s a good idea to make sure everyone is clear about what to expect in the buyer-seller relationship. Good communication is and always has been important, but we probably have to work a little harder at it these days.