The Economics of Trust

Hair-cutting shops are a ubiquity in India. You can find small barber shops in every residential area – big or small, posh or simple. Equipped with a basic infrastructure and facilities, they chop your hair for anywhere between Rs.10-30. You also have the option of going to highly stylish, upmarket hair salons. Though they are less in number and located in major residential/commercial areas, they come with all the frills one could ask for. Nicely done interiors, lighting, contemporary furniture. They are unisexual and boast of having the best hair stylists on their rolls. By the way, they typically cost about Rs.200-1000 for a hair-cut. Infact, the upper ceiling on price can extend further north.

I realize that these ‘upmarket’ salons do enjoy the patronage of their clientele. Their customers are loyal and their demand can be said to be fairly inelastic in relation to the price. I happened to visit one such store sometime back, looking for a fancy hairdo. I came out satisfied, the spikes looked cool. I was lighter by Rs.300 though. Three weeks later, I realized it was time to trim my hair again. Of course, the local barber wouldn’t be able to do this kind of fancy art with his scissors, I thought. I went to the salon and, there went another 300 bucks. I thought this couldn’t go on…I would end up spending a large sum on my silly hair every month. After walking out of the salon, I rushed to the local barber shop in my neighborhood and told him to take a close look at my hair. I said I would come to him from next month for the same style. He said, “No problem, saar!” Since then, I regularly visit him and get my hair in shape for Rs.30. I found this amazing. The local barber probably has almost the same kind of skills as the barber in the upmarket salon, yet commands nothing in terms of a premium.

I thought thorough this and realized that hair is a very ‘sensitive’ part of our outward appearance. Every now and then, you notice people setting their hair right with their hands. It needs to be perfect and is not supposed to be messed up with. The modern salons score over the local barber shops in one crucial area – trust. People trust these salons, their staff. They feel that they are more professional, knowledgeable and dexterous. And, trust wins them the premium.

Taking this analogy further, I feel that the ‘economics of trust’ applies to every single brand. Perhaps, it is one of the most important building blocks of a brand. Just take a look around and you realize that great brands like Dettol, Vicks, Colgate etc. have an element of trust in their branding activites. Trust is even more relevant in the B2B space, where transaction values are large and so are the expectations. Infosys is not going to win contracts if their customers don’t have faith in their manpower and execution capability. Thousands of investors would not invest in Reliance Petroleum IPO if they didn’t trust Reliance Industries. After all, why put in money on a petrochemical plant that exists only in plans and paper. Moreover, the brand equity created by trust is more long-lasting and less prone to erosion, in contrast to tactical gimmicks and below-the-belt activities.

4 thoughts on “The Economics of Trust

  1. Pingback: The Economics of Trust « Don’t Look Before You Leap!

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