Information asymmetry with CB Motors

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in The Future of Pricing

Whenever a client buys consulting services, they very quickly find themselves running into a problem: No matter how much they know about the industry, they will never be able to fully appreciate the quality of a firm’s people or the value of their assets and methodologies prior to actually buying from them. Buying consulting services is not like buying a machining tool: You cannot inspect the product in your hands before making a purchase or look through the schematics. At a certain point in the buying process, the client has to take a leap of faith—and this has repercussions for how much they’ll be willing to pay.

Economists refer to this as the “problem of information asymmetry”, and it is by no means unique to consulting. The textbook example of information asymmetry is the second-hard car market: Salespeople in this market have to deal with the unenviable task of convincing every potential buyer that they are not, in fact, trying to con them out of their money. To learn more about information asymmetry—and what firms might be able to do to address it—we spoke to Blair Baker, general manager at second-hand car dealership CB Motors, in Kent, England.

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