Music, Technology, Art, Economy

On “Smart Markets”

(Below is a comment on “Netflix: Leading Indicator on Challenges Ahead for Brands,” by Chris Perry.)

This is such a great post that strings together many of my favorite insights about media, technology, and economics.

I thoroughly agree with the two prescribed steps towards success in a world of “smart markets” (i.e. well-informed customers): research and education.

I’ll add that there is usually a prerequisite to taking those steps, which is to reject a cynical view of “the target market” and acknowledge its newfound power.

Peter Drucker writes in 2002:

“…the center of gravity, and the center of power, will be the customer.  In the last thirty years, the center of power has shifted from the supplier, the manufacturer, to the distributor.  In the next thirty years, it will certainly shift to the customer – for the simple reason that the customer now has full access to information worldwide.”*

My first thought on how marketing/communications can apply these insights: write for the lowest-common-denominator when you have something new and important (or unexpected) to say.

This does not mean that your 10-K should include scatological humor or that Dane Cook is the ideal corporate spokesperson.  It means that simplicity is more important than ever.  Even though markets are smarter, most people don’t follow your company’s every decision as closely as an investor or journalist.  Brands must anticipate very basic questions about their actions and communicate them as proactively as possible.  Formal, abstract language is your enemy.  The FAQ is your friend.

A secondary benefit of writing for the lowest-common-denominator is that simpler communications better maintain their integrity.  Social media is a giant game of telephone; most information spreads through word-of-mouth and complex messages get out of control quickly purple monkey dishwasher.

“Simpler” is not a new priority but it is more acutely important these days.  And it’s also easier said than done.  But I agree the challenge can be mitigated with more frequent education to the market.  It can only help to have created context when you have something complex to explain.

The second thought I want to share is a perspective on the definition of “connected customer.”  This can mean “everyone has a mobile data plan and is connected to the Internet all the time.” 

What follows from that, however, is what people are connecting to.  Increasingly, they are not connecting to mainstream media or ads.  They are connecting to one another via tools like Yelp, Twitter, and Facebook, because peers are more trustworthy.

Which brings me to my last thought: how companies can build more trust.  Ultimately, the responsibility for building trust with the market rests with the CEO and senior management (and is expressed by their decisions and results).  However, there are some interesting things that marketing and communications can do to support this key priority.  Every company has some form of valuable expertise (that’s why it’s a profitable, going concern).  Marketers can easily learn how to build trust with the public by contributing this expertise to conversations that are complementary to their sales process.

Michelin famously used this strategy to sell tires.  Their guidebooks slowly built up credibility, and — voila — you’re using up more tire tread as you tour the two-star restaurants of Burgundy.

This strategy is even more potent on the web.  And any brand can use it as long as the content is properly complementary (i.e. it’s credible).  This is basically a content programming issue.

Great post.

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*During the previous 30(+) years, the supply-side held more market power because it had access to information about products (cost, performance, dependability, etc) that the customer did not and could not have.  More importantly, the customer did not need this information if she could trust the brand (hence the profitability of investing in orthodox branding and advertising…which some argue is decaying rapidly).

Social influence in decision-making: game theory edition

Long-time and short-time readers alike know that I’ve been studying game theory and how it affects the design of online communities and marcomm strategy.

Part of applying that is learning to be allocentric about allocentricity, meaning: it’s important to understand how people influence each other, so you can better anticipate how people will behave when they’re putting themselves in others’ shoes.

Here’s a pretty little nugget of wisdom from Yochai Benkler’s new book, The Penguin and the Leviathan (page 171):

..the best way to see that self-interest plays a role in decision-making is to go back to the lab.  Economists have long operated under the assumption that the higher the stakes, the more the pursuit of self-interest guides our behavior.  This turns out to be wrong.

Across countless experiments of the type I’ve been describing, simply raising the stakes did not in fact significantly change the levels of cooperation — even when experimenters went to poorer countries, where they could make the stakes as high as three months’ wages.

What did make a difference in people’s behavior was the relative cost of cooperating.  When the relative gain from acting selfishly…compared to the potential payoff for cooperating, was made smaller, more people cooperated.

In other words, in a game of Prisoner’s Dilemma, if the payoff when both players cooperated was $4, and the payoff to the defector when one defected and one player cooperated was knocked down to say, $6 instead of $9, fewer people defected.

Logically, that change should not have affected the behavior if one were driven purely by self-interest.  You are still better off defecting; $6 is still more than $4.

But that isn’t how the subjects in the experiment saw it.  At least some people were willing to behave cooperatively at a personal cost to themselves, as long as the cost was not too high…In other words, our willingness to cooperate is sensitive to the price we have to pay for the privilege of cooperating.

In the real world, one of the day-to-day practices that best exhibit this phenomenon is recycling.  In cities with recycling programs, compliance is much higher when the municipalities do curbside pickup rather than requiring residents to take recyclables to some central location.

A couple of weeks ago, I published a blog post about related research from HP Labs, “Social Influence in Recommender Systems”…check it out for more on this subject.