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Creating Confident Consumers
The Role of the Ministry of Consumer Affairs in a
Dynamic Modern Economy
May 2003
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7. Emerging
Consumer Issues
The general principle supported by the Review Team is that the
Ministry needs to concentrate its efforts on those consumer
problems that are most likely to have a significant impact on its
proposed outcomes.
This section now examines a set of emerging consumer issues
that the Review Team believes will be important influences on
whether the Ministry achieves its outcomes in the long term.
The aim is to draw these high-level issues to the attention of
those in the Ministry who will be developing work programmes each
year, to ensure that the implications of these issues are fully
considered and integrated into policy as required.
This is not intended to be an exhaustive list of possible
issues: the Review Team looked specifically at those issues it
thought would affect the Ministry's outcomes. These issues need
to be considered in the Ministry's work programme as a matter of
priority, if it is to achieve its outcomes in the long term.
The Review Team acknowledges that it is identifying issues and
implications at a particular point in time. The external
environment evolves over time: new issues arise and implications
become clearer as our knowledge develops. Accordingly, it is
crucial that the Ministry commits itself to reviewing important
environmental issues and their implications on an ongoing and
regular basis, and that it adjusts its strategy accordingly.
Future Consumers
New Zealand's population is changing - and this affects the
make-up, characteristics, and expectations of New Zealand's
consumers. The Ministry can therefore expect the factors driving
consumer confidence to alter over time. It will need to adapt its
strategy to ensure it continues to meet these consumers' needs.
It is helpful to begin with a picture of who New Zealand's
consumers are.
New Zealand consumers are likely to live in urban areas, and
one in three will live in Auckland.
[13] Ten of New
Zealand's 16 regions are expected to grow in population size,
with Auckland, Bay of Plenty, Tasman and Northland leading this
growth.
New Zealand consumers are ethnically diverse. While 80% of the
population is of European ethnicity, the proportion of people of
European descent continues to decline. The number of people of
Asian ethnicity has doubled since 1991, and is now greater than
those of Pacific ethnicity. The Māori
population is also increasing.
Many New Zealand consumers are connected to the global
electronic environment. In 2001, 46.6% of all households owned a
computer, and 48% of people had Internet access at home.
[14] Seventy-two per
cent of people had access to the Internet at work, schools,
libraries, and Internet cafes.
[15] In 1998, 83% of
primary and 94% of secondary schools had Internet access.
A significant proportion of people cannot access this
networked world, and the consumers who are least likely to be
able to do so are those whom the Ministry has traditionally
targeted: Māori, Pacific, and low-income
earners. At least one in nine Māori and
Pacific households do not have telephone, fax, or Internet
access. Households composed of members over the age of 65 are
also likely to be disadvantaged in terms of Internet access.
Changing Consumer Demographics
There are two key changes in consumer demographics. These
changes are likely to affect both consumption patterns and the
nature and mix of issues that the Ministry will have to deal
with.
First, the population is ageing. At the time of the 2001
census, more than 450,000 people (12%) were over the age of 65.
This proportion of the population is expected to more than double
to 26% by 2051. [16]
These people are likely to have a more restricted income: the
median income for those over 65 was $13,100 compared to the
median for all other New Zealanders ($18,500 in 2001). As our
population ages and faces a decrease in buying power, older
consumers are likely to demand better access to information to
assist their purchasing decisions.
Second, the population is becoming more ethnically diverse:
- Māori are projected to reach 21% of
the total population by 2051. In common with other ethnic
groups, the Māori population will become
increasingly older: half will be more than 32 years of age by
2051.
- On current trends, the Pacific population is growing at a
rate 11 times faster than other groups and is expected to
double by 2031.
- Projections for the growth of the Asian population are
based on a net gain of 4,000 immigrants per year until 2016. If
this continues, the Asian share of the population will almost
double (to 9%) by 2016. It is relevant to note that in 2001,
some 85% of Asian people were able to speak English, with
nearly a quarter (24%) speaking only English.
Changing Consumer Characteristics
Demographic information is essential but, as Statistics New
Zealand itself has recognised, there is a strong need for
statistics that allow connections to be drawn between social,
economic, cultural, and environmental measures.
[17] Categorising
consumers across a range of measures may assist the Ministry in
the future to develop focused information strategies.
For example, a recent large study suggests a model for
thinking about consumers in three distinct consumer social types:
"traditionals", "evolvers" and "I-cons" (individualistic
consumers). [18]
The greatest distinction is between "traditionals" and
"I-cons":
| Traditionals |
I-cons |
| Focused on basic needs |
Focused on discretionary choice |
| Motivated by price and a fair deal |
Motivated by choice and information |
| Focused on functionality and the
transaction |
Focused on the relationship ahead of
the transaction |
| Having trust and respect in
institutions |
Not trusting in institutions |
| Liking someone else to organise them |
Insisting on organising their own
lives |
Evolvers share elements of each of these
groups and may become I-cons over time.
The research suggests that traditional consumers place the
greatest reliance on government to provide them with information
that allows them to make decisions with a high level of
certainty. They prefer information that is instructive and
requires few choices. The Ministry is familiar with the
expectations of "traditionals", and the information it provides
is likely to find its way to this group of consumers. As
"evolvers" age and replace this group, the information that the
Ministry currently provides may lose relevancy.
"I-cons" are the new breed of knowledgeable consumers who do
not rely on government to provide information unless it is
relevant to them. They consume constantly and have an appetite
for technology to accelerate that consumption. They do not fit
into traditional demographic descriptions, as they can be
identified across all age groups by the range of characteristics
outlined above.
Although "traditionals" currently comprise more than half of
the population, "I-cons" are increasing in number. In Australia,
they account for nearly half of discretionary consumer spending.
[19] It is also worth
noting that the New Zealand experience of an ageing and
culturally diverse population, coupled with young
technologically-savvy consumers, is not unique.
Young Consumers
Children make up 23% of the population. While this figure has
remained largely unchanged since 1991, significant decreases are
projected. Children and young people are entering the consumer
markets at increasingly younger ages. They are also being
introduced to technology at an early age, which means it is
likely that the next generation of adult consumers will be more
technologically sophisticated than today's adult consumers.
Although there are similar proportions of children in the
Asian and total New Zealand populations (24% and 23%
respectively), young people (aged 15-24 years) made up a larger
share of the Asian population. In 2001, 15 to 24-year-olds
comprised 21% (50,991) of the Asian population but only 14% of
the total New Zealand population. Sixty per cent of Asian
children usually live in households with access to the Internet,
compared with 52% of European children, 25% of
Māori children, and 19% of Pacific children.
There are more children of Māori or
Pacific descent than any other group. It is likely that the
future consumers who will be left behind in the technology trend
will be the groups that the Ministry has traditionally targeted:
Māori, Pacific peoples, and low-income
consumers.
Future Consumers: Implications for
the Ministry
Changes in consumer demographics and consumer characteristics
have significant implications for the Ministry - and, in
particular, for its information-related functions.
The Review Team has identified a number of issues, all of
which require further study for their implications to be fully
understood:
- As "traditional" consumers are replaced over time by
"evolvers" and "I-cons", the Ministry will need to assess the
continuing effectiveness of its information strategies, given
the suggestion that "I-cons" in particular receive information
differently and have different information demands. The
available research suggests that "I-cons" prefer self-help to
government assistance, are more likely to want information
tailored to their particular circumstances, and possibly want
pre-transaction information rather than post-failure
assistance.
- The Ministry will need to discover whether "evolvers" and
"I-cons" experience problems transacting with confidence. If
they do experience problems, the Ministry needs to understand
the nature of those problems and identify a mix of solutions
aimed at the needs of these consumers and the ways in which
they receive information.
- Thought needs to be given to the implications of an
emerging class of technologically-savvy young consumers who
have discretionary income and who are targeted by suppliers.
The extent to which these consumers know their rights and
responsibilities under consumer law is not known. The Ministry
already targets children via Consumerkids,
[20] a bilingual
website, which could become a foundation for young consumers to
obtain pre-transaction information. Even so, the Ministry must
ensure it understands how young consumers receive information
so that it can shape its policy advice and information delivery
accordingly.
- Demographic changes need to be monitored to ascertain
whether non-targeted groups of consumers (such as those over
the age of 65, Asian, or young consumers) experience problems
that affect their ability to have their expectations met and
therefore transact with confidence.
- The Review Team is aware from its stakeholder interviews
and analysis that there is an expectation that government will
target certain consumers based on welfare and equity
considerations. Stakeholders are also of the view that the
Ministry needs to look for long-term solutions in relation to
its target consumers. The Review Team's proposed outcomes
framework allows the Ministry to take a longer-term view and be
concerned with achieving consumer welfare through economic
growth underpinned by dynamic and competitive markets.
Targeting is appropriate where some groups of consumers are
more likely to make bad deals because they face particular
barriers to accessing and using information. The Ministry must
assess the need to target particular groups of consumers in the
light of demographic trends and must monitor regularly the
effectiveness of its targeting programme.
All of this suggests that the Ministry needs to be aware of
changes as they occur. Changes are likely to have more than one
implication and the effects may flow through various areas of the
Ministry's work. To take one example: if "I-cons" are focused on
self-help, that may mean they will not use recognised channels
for assistance that capture data on emerging consumer issues
(such as the Citizens Advice Bureaux). This could have an impact
on the sources of data available to the Ministry.
Information Volume
The increasing diversity of products and producers implies an
increasing need for consumers to access and process product
information. [21] As
suppliers attempt to differentiate their products and gain market
share, consumers are faced with increasing volumes of competing
information. This is compounded by the marketing of secondary
products such as extended warranties, easy finance deals and
loyalty schemes - all of which require reading of the fine print.
Supplier information of whatever kind can operate as a method to
shift the terms of trade in favour of suppliers.
[22]
Information problems cut across all markets, from high-tech
Internet-based markets to "no-tech" markets such as door-to-door
selling. [23] Whether
a transaction is made using a traditional retail outlet,
telemarketing, door to door selling or the Internet, consumers
are expected to make complex market choices daily. Consumers are
likely to undertake a higher level of search for information
about products that are perceived as high risk and/or expensive -
a car or a mortgage for example. But when faced with an
increasing choice of supplier and product, and a hefty time
investment in the search for information, even the most
risk-averse consumers will make less-than-optimal choices.
[24]
Many consumers will stop searching for information when the
gains from searching are outweighed by the cost of further
searching. In general, consumers receive the most information
about the product they wish to purchase from the seller or
manufacturer directly (these are the people who know most about
the product). Information is expensive to produce and
disseminate, however, and at some point the cost of producing
information will outweigh the benefit the producer will receive.
Because of this, producers can influence the size of information
shortfalls. [25]
Information Volume: Implications for
the Ministry
Information overload is a potentially significant issue for
the proposed outcomes framework because it is itself an
information-based approach. Nevertheless, it has to be remembered
that information volumes are increasing as a result of highly
competitive borderless markets. Intervention by government will
not necessarily mitigate the effects on consumers of imperfect
information.
Even if the Ministry was to intervene, its influence over
information volumes would be limited. There is no relevant
legislation, and no obvious mechanism, to restrict information
volumes. The Ministry could respond by providing information
itself, to help consumers to filter information provided by
suppliers. But there is a risk in doing this - the Ministry may
just become another competitor in the information market and so
compound the problem. The recognition that not all consumers
need, want or receive information in the same way can help the
Ministry to achieve its outcomes. This is especially so for
intermediate outcome 1: that consumers' expectations of
transactions are met by suppliers. It is here that information
plays a key role through the relevance and importance consumers
place on it.
This suggests the Ministry should seek ways to enhance the
operation of the market so that, for example, information
overload for consumers becomes less of a problem. One way to do
this is through effective market rules and institutions - the
Ministry's second intermediate outcome. Weights and measures
legislation and effective rules to reduce safety risks are two
examples of this approach. Similarly the Ministry should consider
mechanisms for addressing information shortfalls where they
occur. That is, the Ministry needs to respond to problems that
arise in particular contexts in which it is an appropriate
agency, and for which it has established clear guidelines for
intervention.
Globalisation
Consumer choice is no longer restricted to the goods and
services provided by domestic suppliers.
The global electronic environment allows consumers and
suppliers to make transactions easily, cheaply, and quickly
across increasingly invisible national borders.
While the global electronic environment has opened up new
opportunities for consumers through enhanced choice, it has also
opened up new opportunities for some suppliers to defraud
consumers. Anecdotal evidence in international policy and
enforcement forums suggests that the perpetrators of online scams
can be well-organised and set up their operations to maximise the
advantage to be gained from the barriers to cross-border
enforcement. These barriers can include limitations on
territorial application of law, jurisdictional issues, evidence
gathering, cross-border co-operation between enforcement
agencies, and cross-border recognition and enforcement of
redress.
Inconsistent approaches to consumer policy by different
countries may result in gaps that can be exploited by rogue
traders. They may also pose real obstacles to consumer redress
for failed transactions. While national borders are comparatively
invisible when online transactions are entered into, they can
become highly visible when transactions fail and questions of
jurisdiction, applicable law, and applicable forum need to be
considered.
One way of overcoming this is to work internationally to
develop common approaches to consumer policy and mutual
assistance and co-operation in operations and enforcement. The
Ministry has already built strong international links - for
example, with the International Organisation of Legal Metrology (OIML),
OECD, APEC, and various Australian advisory committees.
Most of the Ministry's involvement is with developed economies,
to ensure that our clients and competitors have confidence in the
New Zealand consumer environment and also to build the confidence
of New Zealand consumers in purchasing from these markets.
Increasingly, these organisations are looking to build the
capacity of developing economies. This is an important issue for
the Ministry to consider, because New Zealand's geographical
location means it has a sphere of influence with the Pacific
nations and the
ASEAN
group of nations, and because New Zealand consumers are
increasingly purchasing goods and services from suppliers in Asia
and the Pacific. As part of its outcomes framework, the Ministry
could help consumers transact with confidence with these nations
and facilitate New Zealand's trade and economic growth by
assisting these economies in developing modern consumer
legislation and providing robust enforcement. For example, some
weights and measures legislation in the South Pacific region is
borrowed from outdated Australian regulations that no longer
follow international best practice. Strengthening these
economies' consumer regulation and enforcement will, in turn,
improve their ability to be credible trading partners with New
Zealand and other developed economies.
Globalisation: Implications for the
Ministry
The growing influence of the global market means consumer
policy tools used in New Zealand have an impact on businesses and
consumers beyond our borders. The growth in cross-border consumer
transactions raises particularly difficult policy issues, in part
because of the jurisdictional issues raised by these transactions
and in part because of the nature of these markets.
Because the global electronic environment facilitates business
to consumer (B2C) transactions, it can be difficult, if not
impossible, to assert jurisdiction over a supplier who is based
overseas; and non-compliance with consumer law is difficult to
detect when goods enter the country in packages destined for
individual consumers rather than in shipments for distributors.
A key issue for the Ministry's role here is that where
suppliers enter into cross-border consumer transactions, a
market-based solution is less likely to emerge of its own accord
because the legal machinery is not in place to hold overseas
suppliers to account. Given the absence of international legal
frameworks governing such transactions, there may be a legitimate
role for New Zealand to work with other governments and establish
appropriate legal machinery to protect consumers.
The stakeholders consulted in the stakeholder analysis agree
that New Zealand needs high levels of consumer confidence and
trust to develop new markets, and that the Ministry needs to
provide for consumer protection and develop policy to maximise
confidence in transactions between consumers and businesses. This
means the Ministry needs to understand the factors that influence
trust and confidence, and to keep abreast of developments so that
consumer problems affecting the outcomes framework can be
identified and resolved.
Changing Market Practices
Within competitive markets, suppliers innovate to attract and
retain market share. This can result in market practices changing
over time. New market practices can respond to underlying
consumer demand and offer consumers benefits, and can negate in
some cases the need for the application of consumer law. Of
course, new market practices can also result in new consumer
issues that are not addressed by existing consumer law, or issues
arising in particular consumer markets that are not
well-understood by regulators or well-policed by enforcers.
Not all of these new market practices are technology-driven.
For instance, the Ministry is aware of instances of new
immigrants attempting to transact (as suppliers and consumers)
using practices to which they are accustomed but which are not in
accordance with New Zealand's consumer law. As New Zealand's
population becomes more ethnically diverse, it is possible that
there will be more instances of this.
Changes in consumer demographics and characteristics are also
likely to encourage suppliers to innovate, both in products and
practices that may or may not be associated with technological
advance.
Consumer-to-Consumer Transactions
via Internet Auctions
Internet auctions are one supply practice made possible by new
technology. These auctions - which are more like a series of
closed tenders than a traditional auction - act like an
electronic notice-board for people to post offers and
counter-offers for buying goods. They are sophisticated versions
of trade and exchange arrangements, and have increased the
popularity of consumer-to-consumer (C2C) transactions.
Internet auctions have clearly met a latent consumer demand;
[26] and when they
work well they offer an efficient market. Bargaining is a more
efficient way of reaching a price in terms of level of demand and
willingness to pay than the retailer "menu type price-setting"
offered by retailers. Evidence from overseas, however, suggests
that Internet auctions can pose a risk of consumer detriment that
may ultimately undermine consumer confidence in the medium.
Consumer Sentinel [27]
figures for the 2002 calendar year noted that half of the 102,517
Internet-related fraud complaints (received largely from
US complainants) involved
Internet auctions. [28]
On face value this number of complaints may appear small -
however a substantial number of consumers, particularly those
from outside the USA,
may be unaware that they can lodge such complaints.
Internet auctions also blur the distinction between consumers
and traders for the purposes of consumer law. In New Zealand, it
seems unlikely that an Internet auction operator is required to
be licensed under the Auctioneers Act 1928. Furthermore, the
electronic medium allows people to masquerade as consumers to
intentionally subvert consumer law. It can also make collusion
between purchasers difficult to detect. Other common problems
associated with Internet auctions include non-delivery and
non-payment.
Changing Market Practices:
Implications for the Ministry
New supply practices - often driven by technology - will
continue to emerge. The Ministry needs to assess new supply
practices for their impact on the proposed outcomes framework, so
that appropriate policy responses can be developed if the impact
is assessed as adverse. All three of the Ministry's intermediate
outcomes are likely to be affected by changing market practices -
which suggests that a complex mix of interventions may be
required if a particular market solution proves ineffective.
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