Digital ShrinkageIn my recent discussion with Martin Brossman, I mentioned the concept of “digital shrinkage.”

For those of you not familiar with the retail term “inventory shrinkage,” it might be good to get that baseline definition:

The loss of inventory that can be attributed to factors including employee theft, shoplifting, administrative error, vendor fraud, damage in transit or in store and cashier errors that benefit the customer.

In the traditional retail industry, shrinkage is calculated and accepted as a cost of doing business. It can be mitigated with checks and balances, but for the most part, retailers accept that 1 to 3% of inventory will be lost due to various nefarious reasons.

In reputation management, digital shrinkage occurs when your reputation is hurt by any of the following:

  • Bad-mouthing by anonymous employees
  • Fraudulent reviews by competitors
  • Customers faking displeasure to get free goods or service

For reputation management, the same approach must be taken. You will inevitably found that a small percentage of customers will try to get a free dessert, refund on shipping, or a gift card, by complaining about something that either didn’t happen or where offense was exaggerated in order to make the business owner squirm. Any time a customer states, I’d like a better view for my hotel room or I’ll complain on TripAdvisor, that is digital shrinkage.

What can you do about it? Not much, except to accept that it will happen and account for it accordingly. When you do, it will actually stop you from going insane trying to achieve something that is unachievable – the perfect online reputation.

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