CUSTOMER FRAUD and BUSINESS RESPONSES: Let the Marketer Beware

CUSTOMER FRAUD AND BUSINESS RESPONSES: Let the Marketer Beware KELLY TIAN BILL KEEP QUORUM BOOKS CUSTOMER FRAUD AND BUSINESS RESPONSES CUSTOMER FRAUD AND BUSINESS RESPONSES Let the Marketer Beware KELLY TIAN AND BILL KEEP QUORUM BOOKS Westport, Connecticut • London Library of Congress Cataloging-in-Publication Data Tian, Kelly. Customer fraud and business responses : let the marketer beware / Kelly Tian and Bill Keep. p. cm. Includes bibliographical references and index. ISBN 1–56720–387–6 (alk. paper) 1. Retail trade—Security measures—United States. 2. Business losses—United States—Prevention. 3. Inventory shortages—Prevention. I. Keep, Bill. II. Title. HF5429.27.T53 2002 658.4′73—dc21 2001041798 British Library Cataloguing in Publication Data is available. Copyright © 2002 by Kelly Tian and Bill Keep All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2001041798 ISBN: 1–56720–387–6 First published in 2002 Quorum Books, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.quorumbooks.com Printed in the United States of America The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10987654321 This book is dedicated to Kent Smith, whose privately owned business en- terprise is an icon of what we envision is the type of firm least susceptible to customer fraud—one that through the highly individualized treatment of customers creates personal relationships that voluntarily bind customers to the practice of honesty. CONTENTS Illustrations xi Preface xiii Part I The Emergence of Customer Fraud Activity 1 1 Let the Seller Beware 3 Middle-Class Customers as the New Fraud Offenders 3 The Need for Candid Reports on Customer Fraud Activity 4 Overview of the Book 10 Conclusion 20 2 The Social Environment That Encourages Customer Fraud 23 The Definition of Customer Fraud 23 The Declining Stigma of Practicing Deceit Against Businesses 25 The Authorization of Deceit in the Marketplace 28 The Modernization of Society 31 Conclusion 34 3 Customer Fraud as a Form of Resistance to Modern Businesses 37 Origin of Consumer Resistance 37 Characterizations of Consumer Resistance 39 Businesses’ Co-optation of Consumer Resistance Acts 47 Customer Fraud as a Form of Consumer Resistance 53 Conclusion 55 viii Contents Part II Customer Fraud Acts 57 4 Product Acquisition Fraud 59 Fraud Acts 61 Managerial Insights 67 5 Product Return Fraud 73 Fraud Acts 74 Managerial Insights 89 6 Service Acquisition Fraud 93 Fraud Acts 93 Managerial Insights 101 7 Fraud in the Use of Sales Promotions 105 Fraud Acts 105 Managerial Insights 116 8 Fraud in Negotiations 119 Fraud Acts 119 Managerial Insights 126 9 Fraud Facilitated by Employees 129 Fraud Acts 131 Managerial Insights 138 10 Summary of Managerial Insights Suggested by Customer Fraud Acts 141 Overview of Managerial Insights 141 Considerations in Implementing Strategies Targeting Fraud Acts 145 Part III How Customer Fraud Acts Succeed 151 11 Marketers’ Practices That Are Vulnerable to Customer Fraud 153 Marketers’ Vulnerabilities 154 Marketers’ Reliance on Trust Norms 155 Customers’ Resistance to Their “Partial Employee” Role 157 12 Customers’ Fraud Methods That Prey on Marketers’ Vulnerabilities 161 Lying 161 Performance Complaining 164 Self-dealing 166 Double-dealing 168 Conning 171 Managerial Insights 173 Contents ix Part IV The Sequence of Events Leading to Customer Fraud and to Repeat Fraud 175 13 Customers’ First Thoughts of Committing Fraud 177 Overview 177 Cognitive Antecedents: The First Thoughts of Customer Fraud 181 Customers’ Assessment of Resources for “Pulling Off” Fraud Schemes 186 14 Customers’ Post-Fraud Feelings, Justifications, and Discussions with Others 191 Customers’ Feelings After Committing Fraud 191 Justifications 194 Discussions with Other Consumers About Customer Fraud 201 More on the Process of Committing Customer Fraud 202 15 Managerial Insights Suggested by the Process of Committing Customer Fraud 205 Changing the Logic of Committing Customer Fraud 208 Reducing Resources for Committing Fraud 213 Reducing Justifications for Committing Fraud 214 Reducing Customers’ Discussion of Fraud “Tips” With Others 218 Conclusion 219 Appendix: Getting Customers to Disclose Fraud Stories 221 The Decision to Collect Textual Data 221 Data Collection Method 227 Sample Characteristics 232 The Narrative Data 233 Analysis 234 Integrity of the Findings 236 References 239 Index 249 ILLUSTRATIONS Exhibit 1 Types and Variations of Customer Fraud Acts 8 Table 1 Definitions of Categories of Types of Customer Fraud Acts 60 Exhibit 2 Summary of Customer Fraud Intervention Strategies Organized by Fraud Acts 142 Exhibit 3 Summary of Customer Fraud Intervention Strategies Organized by Strategic Area 146 Exhibit 4 Illustrative Stories of Methods of Executing Customer Fraud 162 Figure 1 A Model of Processes of Individuals’ Commission of Customer Fraud Acts 178 Exhibit 5 Themes, Subthemes, and Categories Constituting Concepts in the Model of Customer Fraud Behavior 179 Exhibit 6 General Intervention Strategies Tied to the Process of Committing Customer Fraud 206 Table 2 A Summary of Empirical Marketing Research Related to Adult Customer Fraud in Western Society 222 Exhibit 7 Summary of Method of Eliciting Incidents of Customer Fraud 228 Exhibit 8 Illustration of Story Parts Used to Parse the Written Narratives Prior to Analysis 237 PREFACE In recent years managers of marketing organizations have increasingly complained that customer fraud is having a significant negative impact on profits. Marketing managers have observed evidence that customers steal or consume goods without payment, using strategies of deceit that bypass traditional deterrence efforts established for in-store shoplifting. However, they do not have specific information on the variety of fraudulent acts that customers commit, the methods that render these acts successful, and reasons customers commit fraud. Marketers in some industries, such as the in- surance industry, are under directives from the federal government to devise ways to deter customer fraud. The importance of understanding the nature, methods, and motivations of customer fraud lies in the burden that such acts place on organizations and the public. Beyond threatening the viability of marketing organizations, particularly those that operate on small profit margins, customer fraud costs the public. Customers pay higher prices for goods to cover marketers’ revenue losses attributable to customer fraud. Customers are de- prived of new products that offer improved functional benefits because research and development resources are diverted from true innovations to the development of anti-theft devices. Honest individuals are often penal- ized when marketers, in an attempt to limit their susceptibility to customer fraud, institute policies that curtail benefits to all customers. This book reports the findings of a study in which more than 250 middle- and upper-middle-class Americans told stories about actual incidents in which they used deceit to break rules or norms established by marketers, thereby gaining an advantage. These stories were written and returned to the authors anonymously in the mail. Allowing individuals to tell their xiv Preface stories of customer fraud, rather than respond to a checklist, enabled the collection of honest descriptions of actual fraudulent acts. This is because, in telling stories, individuals could present their customer fraud acts from their points of view, explain what prompted them to attempt customer fraud, and tell how they felt afterward. The opportunity to gain the reader’s sympathy encouraged respondents’ honest reporting of how they “pulled one over” on a marketer. Analysis of the written stories resulted in the full- est cataloging and richest description to date of customer fraud acts and the methods that customers employ to secure their success. The stories also re- vealed explanations for why customers consider committing fraud and then repeat this behavior,often telling other consumers about their experiences. The intended audience is individual marketing practitioners, including managers and employees of retail and service organizations and of retail security and loss-prevention organizations. These practitioners are pro- vided insights into a variety of new customer fraud strategies, receive information on vulnerabilities in their current marketing strategies that render them susceptible to customer fraud, are informed of the reasons customers commit fraud, and are warned that customer fraud appears to be achieving status as a socially acceptable behavior that individuals are will- ing to share with friends. Drawing from these insights, the book presents practitioners with an arsenal of detection and deterrence strategies aimed at combating customer fraud, and guidelines for implementing them in ways that do not alienate customers. The stories reveal that customers commit fraud as a form of resistance to modern business practices, many of which they perceive to be unjust. Thus, the book emphasizes recommenda- tions for how to satisfy customers’ needs that give rise to fraud acts, im- prove customer relationships, and reestablish trust in marketing exchanges. We believe the book will also be of interest to academic professionals conducting research or teaching in the

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