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Taking Online Dispute Resolution To The Next Level

posted by Pamela Foohey

New HandshakeYesterday I purchased a travel alarm clock through Amazon. This morning, the manufacturer emailed me with instructions for its use, including a very important point about switching the travel lock button off to activate the clock. The clock apparently arrives in the locked condition, which has caused some customers confusion and led them to think that the clock was defective when it was not. The email made me think of a recently published book, The New Handshake: Online Dispute Resolution and the Future of Consumer Protection, by Professor (and former Slips guest blogger) Amy Schmitz and Colin Rule, who is the former Director of Online Dispute Resolution for eBay and PayPal.

The New Handshake surveys that current landscape of online dispute resolution and sets out a blueprint for how the Internet can help consumers worldwide deal with disputes arising from their e-commerce transactions. With more and more consumer transactions moving online (ten years ago, I likely would have purchased that travel alarm clock at the-somehow-still-semi-alive Radio Shack), the book's detailed ideas for how to design an effective dispute resolution system is increasingly important for businesses and for consumer advocates. As Schmitz and Rule note, largely gone are the days when transactions were sealed in person with a firm handshake, and class actions seem less and less effective overall -- which leaves both challenges and space to innovate for business and consumers. For my own interests, two parts of the books stood out.

First is data that Rule shares about customer loyalty from eBay's experience establishing its online dispute resolution system. eBay tracked its system's "return on resolutions," calculation of which includes how the resolution process impacts customer loyalty and retention. As a baseline, it calculated that buyers who did not file a complaint (that is, did not use the system) in a 3 month period used eBay about 8% more in the subsequent 3 month period. But buyers who filed complaints that were resolved amicably with the sellers through the system during a 3 month period used eBay 17% more in the next 3 month period. Similarly, buyers who filed complaints that were settled outright during a 3 month period used eBay 14% more in the next 3 month period. Even those buyers who filed claims that were settled in the sellers' favor because the buyers were found to be at fault increased their usage of eBay. The only group of buyers who used eBay less were those who filed claims, but whose claims remained pending for longer than six weeks. (For more details, see chapter 4 of the book.)

Which leads to one of The New Handshake's most interesting and important insights. Consumers want to be heard, not necessarily win (though that's nice) or be paid off every time they have a problem, such as with coupons and gift cards (though those are nice too). This results aligns with research regarding procedural justice in civil and criminal law. People often are more concerned with the fairness of the adjudicatory process than the process's ultimate outcome. They want a voice and for their voice to be heard by people they view as trustworthy. And this is essentially what eBay found when it looked at its data.  

Second is one of the fictitious case studies that Schmitz and Rule include at the end of the book to illustrate the basic premises of their global redress system, which they name newhandshake.org. The email from the manufacturer of my new travel clock reminded me of this case study. The case study's specifics are less important than its outcome. In reaction to its interaction with a customer via newhandshake.org (the online dispute resolution system), the fictitious business adds important information to its website. I have a feeling that my travel clock manufacturer can tell a similar story. Via Amazon, it likely heard lots of complaints. The email was its equivalent of updating the website.

The power of global redress system that The New Handshake outlines is to aggregate complaints about goods or services that businesses otherwise would not hear in sufficient numbers to prompt them to update their website or other materials to head off future complaints. Although businesses have the advantage, as Schmitz and Rule aptly point out repeatedly, proceeding from the premise that the vast majority of businesses want to provide quality goods and services to their customers (which is easy to forget when transactions break down), a truly global system will channel information to businesses so that they can provide customers what they expect, decreasing complaints. And although some businesses necessarily will fail, and some customers simply will not be satisfied, The New Handshake shows that, in the future, it is possible to leverage the Internet to increase consumer protection.

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