The Better Business Bureau has a long history, but it's keeping up with the times. The not-for-profit company, which puts its stamp of approval on businesses that meet its ethical standards, has embraced the Web in a big way, maintaining a blog and tweeting its developments, among other initiatives.
Based in Arlington, Va., the BBB got started in 1912 and now makes most of its money from fees paid by the businesses that get its seal of approval, or so-called BBB Accredited Businesses. BBB also makes some money trying to settle disputes between consumers and those BBB Accredited Businesses, according to Allison Southwick, BBB's media relations manager.
The BBB emerged almost 100 years ago from so-called Vigilance Committees that business people created to fight false advertising. From there, the BBB system evolved with the intent of encouraging business practices that include truthful advertising along with boosting trust among customers and suppliers.
Market for Services Has Grown, But Whose Interests is it Serving?
Because the BBB declines to reveal its revenues, it's hard to determine exactly how it's doing. "I don't have revenue numbers nor do I believe we share them," says Southwick. However, SmartMoney.com reported in September 2008 that between 1997 and 2007, the BBB's chapter dues -- annual fees ranging from hundreds of dollars to $10,000 per BBB member company -- more than doubled to $131 million.
BBB's fees appear to increase depending on the size of the business and the level of control that the business exercises over BBB policies. According to SmartMoney, in 2008 businesses had to pay local chapters between $200 and $10,000 to become accredited members of the BBB. Moreover, the BBB's national council charged 228 companies from a few thousand dollars up to $75,000 for benefits like actual voting rights on some BBB programs.
And although the BBB does not get paid on this basis, demand for the BBB's services has grown, as measured by the number of complaints filed. In 2009, BBB received roughly 1 million complaints, a 4.7% compound annual growth over the 794,728 complaints BBB received five years ago. And 10 years ago, BBB received 380,000, suggesting its complaint business nearly tripled in the last decade. Gripes about cell phones (37,477 complaints in 2009) and cable and satellite TV services (32,616) topped the BBB's 2009 complaint list.
One reason for the big jump in complaints was BBB's move to allow consumers to file complaints online, says Southwick. "This made the process much easier for consumers, and more complaints started coming in," she says. BBB still accepts complaints by mail and over the phone, she adds.
Another reason may be that the BBB got paid by Cingular to take down detailed information about consumer complaints. As SmartMoney.com noted, Cingular paid BBB $50,000 to operate a website that would record 12 pages of detailed information about cell phone service problems.
Verizon (VZ), a BBB corporate supporter with a BBB board representation (and over 13,000 complaints filed against it over three years), swapped $50,000 for the data. Rick Weirich, product development officer of the BBB's national council in 2008, told SmartMoney that the cash just covered BBB's costs, claiming, "It's not like anyone made a ton of money."
Reliability Reports Get Lots of Eyeballs
Another measure of growth is the number of times people have looked at BBB's reliability reports. By this measure, demand for BBB grew at an 8.8% compound annual rate between 2007 and 2009. In 2009, some 4 million BBB reports on businesses were viewed 65 million times in 2009, a 2.6% increase over the 63.3 million viewed in 2008 and an 18% rise from the nearly 55 million viewed in 2007.
The BBB says it is responding to changing customer needs to maintain its market position. Southwick says the BBB now has a presence on online services including Facebook, MySpace and Twitter. It also has a blog. What's more, the BBB has recently partnered with a company that offers a service that speeds up the process for creating new Web accounts and logging into them. Azigo creates a Web plug-in that automatically tells people if a company online is accredited by BBB, Southwick says.
And BBB is pursuing different strategies for growth. Southwick says the company recently launched a service to help consumers avoid getting in over their financial heads when it comes to credit cards, known as Managing Credit – Made Simpler with Capital One.
Changing the Public's Perception
The company is also working on a redesign of its reliability reports on businesses to be more interactive and current. "We are always exploring partnerships with other organizations and businesses on consumer and small business education campaigns," Southwick says.
BBB is trying to change the public's perception as people have perceived the company as being behind the times, Southwick says. "While awareness of BBB is high, we wanted to shake the perception of being stodgy and dusty," she says. "Many people inaccurately think BBB is a government agency or is just 'the complaint people.'"
Southwick says the company underwent a big rebranding effort in 2007. As part of its new efforts, it came up with the new tagline "Start with Trust." "We want people to research businesses with BBB before they buy and to seek out businesses that are Accredited by BBB," she says.
An 'A' to 'F' Rating System
In 2010, the company unveiled a new ratings system. The new system replaces a system that rates a business satisfactory (or not) with one that gives the business a letter grade ranging from A to F based on how well its practices follow BBB's 16-point formula.
The BBB is also branching out beyond bricks-and-mortar businesses. As of 2003, it began offering consumer-protection services related to e-commerce. The BBB seal can be found on more than 50,000 websites and helps consumer identify trustworthy businesses online, Southwick says. "Websites that display the BBB seal uphold our code of business practices and provide protections for consumers online," she says. Southwick says the BBB recommends that online shoppers click on the seal or visit bbb.org to confirm that the site is authorized.
The BBB, of course, is hardly the only competitor in the field of trying to protect consumers online. It has some big rivals including Consumer Reports, which takes no advertising from the companies whose products it reviews and gets 90% of its revenue from print and online subscriptions from consumers. And the Federal Trade Commission (FTC) has a Bureau of Consumer Protection which is also intended to educate consumers and is funded through taxes.
But Southwick argues that BBB's strong suit is its diversification. The company helps consumers resolve complaints, she says, as well as educates consumers and small businesses on how to be savvy shoppers. What's more, it runs many self-regulation programs in the fields of advertising and the auto industry. "To say we have a direct competitor is hard," she says.
Regardless of that competition, BBB has big growth ambitions. As SmartMoney reported, its strategic plan set a goal of doubling business membership in five years.
BBB has been around for almost 100 years and if it keeps adapting to change, it has a shot at another century.
Introduction to Preferred Shares
Learn the difference between preferred and common shares.View Course »