What happened to caveat emptor? That is the title of a discussion by Professor Gunnar Trumbull of the Harvard Business School on his new book Consumer Capitalism: Politics, Product Markets, and Firm Strategy in France and Germany. Caveat Emptor means ‘let the buyer beware’ — a term that Prof Trumbull says has become redundant in the western world over the last four decades as consumer protection rules have evolved to provide vast statutory protection to buyers.
He argues that consumer attitudes and protection standards vary in intent and scope from one country to another and influence the quality of products and design. “Today, arguably no other economic actor in the advanced industrial countries — not the investor, not the worker, not the welfare recipient — enjoys a more thorough set of legal and institutional protections than the modern consumer when he or she enters the corner store,” argues Prof Trumbull.
In fact, one would even argue that the pendulum may have swung to the other extreme in America where MacDonald’s was sued by a customer who spilt scalding-hot coffee on her own laps and by the parents of obese kids who gorged on junk food and held the food chain responsible for their condition. In India, the concept of ‘caveat emptor’ is alive and kicking and we have a long way to go before consumer laws evolve adequately.
That will happen only when all stakeholders — manufacturers, the media (including advertising agencies), policy makers and the judiciary — realise that they are all consumers too. Some things are indeed improving, but slowly. For instance, only recently, television advertising moved into the realm of co-regulation with a government notification making the Advertising Standards Council of India’s (ASCI) code compulsorily applicable to all TV advertisements.
This has happened under pressure from consumer groups who have been lobbying hard for an independent regulator and a stricter advertising code. This development is expected to put an end to surrogate advertising by liquor companies and it is only a matter of time before the Ministry of Consumer Affairs extends the rule across all media and forces advertisers and advertising agencies to become more responsible.
In an interview to HBS Working Knowledge, Prof Trumbull credits comparative product tests launched by Consumer Reports in 1936, going on to Ralph Nader’s campaign for auto-engineering reforms for helping evolve stricter consumer laws. In India, very few consumer groups have the facilities to do comparative testing. And even when they publish reports with fairly startling findings, there is very little consumer interest in using them as a basis for purchase decisions (Insight magazine by the Consumer Education and Research Center publishes comparative product testing reports).
Prof Trumbull also credits the growth in retailing or changed shopping experience and says that government stepped in with regulation to make up for the loss of personal attention and recommendations lavished on customers by the local corner store or grocer. In India, the retail revolution has just begun and companies have yet to wake up to its implications.
In all probability, we will be able to skip one step in the evolution of better consumer protection, since large retailers will have the necessary marketing clout with manufacturers to demand minimum quality requirements or force them to replace sub-standard products without burdening consumers with the task. Indian consumers still pay very little attention to the price-quality trade off. When a dozen different brands of the same products are lined up in a supermarket, customers have to be educated not to focus merely on the price and free gift but make an informed decision on quality as well.
Ideally, it is for companies to highlight their product quality where it is applicable. Curiously enough, consumer protection is one area where the policy makers, especially at the Ministry of Consumer Affairs, have been fairly receptive over the decades and we have seen a slow but steady improvement in consumer protection rules. However, the judiciary is rather less sensitive. Consumer cases drag on for a decade from the district courts to the national commission. And even when consumers have pursued cases with enormous doggedness and won their case, the courts have invariably been niggardly in their compensation.
In fact, a series of cases recently settled by the National Consumer Disputes Redressal Commission (NCDRC) have made it a point to mention the notional loss of income suffered by the consumer, but have awarded a compensation that is a fraction of that figure. Strangely, the courts seem to perceive it as a sign of their ‘even-handedness’ in allowing only a part of the notional loss suffered by the consumer. There is rarely any cognisance taken of the harassment, anxiety and mental torture suffered by the consumer and even costs, when awarded are a mere pittance.
For instance, in a recent judgement by the NCDRC the court calculated the minimum financial loss suffered by the consumer at Rs 9.24 lakh (and a maximum of Rs 20 lakh), but still awarded a compensation of just Rs 2 lakh. In a case against Maruti, the Supreme Court overturned two lower court judgements and decided (after a 10-year battle) a consumer who was sold a car with a defective clutch (that never got fixed for various reasons) was only entitled to a replacement of the clutch assembly and not the car.
In another bizarre case, the NCDRC ordered a compensation of just Rs 25,000 to a senior citizen who was harassed and humiliated by a corrupt and malicious railway employee who falsely alleged that her concessional fare was not in order. Such judgements make manufacturers, service providers and government agencies unconcerned about consumer issues. Unless courts begin to hand out punitive damages at least in case of deliberate harassment, Indian consumers have a long way to go before the concept of ‘Caveat Emptor’ becomes redundant in India.