In defense of telesales

Yesterday's papers reported on a new initiative by the Finnish consumer protection agency, proposing outlawing telesales, unless the individual consumer has given express permission to the salesorganization targeting him. Clearly, many individuals are annoyed at receiving aggressive telesales phone calls, so these people might be happy about this kind of law. However, these kind of benefits typically come with costs attached, costs which aren't often immediately detected by everybody.

The largest daily newspaper Helsingin Sanomat noted yesterday that outlawing/restricting telesales would dent the circulations of papers and magazines, as these rely heavily on telesales. While Sanoma Magazines, who publishes many magazines in Finland may have reason to worry about the proposed law cutting down their circulations, the affect on them would not be all bad.

Worst hit by the law would be potential entrant into the magazine business, or any business for that matter. For while the encumbents, like Sanoma Magazines may find attracting new customers more difficult, they will still have their current customer base. New, potential entrants on the other hand will not have the option of using the, presumably highly cost effective telesales device for attracting customers. This will likely lead to some potential entrants finding entry to the market too costly, with them as a result deciding not to enter.

Outlawing, or severely restricting a cost effective way of reaching potential new customers essentially amounts to increasing the barriers of entry into a market. Increasing the barriers to entry means that the encumbents, those currently in the market will face less competition. This will make serving the market will be more profitable for the encumbents. Here it is of course necessary for the encumbents to be able to keep their hold of their current customer base. Nevertheless, maintaining a customer relationship is always easier than creating a new. 

So who will at the end of the day suffer from this proposed restriction? Encumbents in any market where telesales is a cost effective way of signing up new customers will face the cost imposed by more expensive signing up of new customers. On the other hand, they will face less competition. Potential entrants only face the cost. Consumers, those who are supposedly protected by the law will have to deal with firms facing less competition. This in general leads to higher prices, less variety and potentially worse quality.

So what would the policy recommendation of this post be: Just don't do it. Those individuals who are annoyed at receiving telesales phone calls can sign up to the Don't call registry. Anecdotal evidence suggests it is highly effective. Then let those who are not as annoyed continue receiving offers for magazine subscriptions, boxers, mobile phones, etc. over the phone, at the same time ensuring a decent level of competition in these markets.