Social media, perfect information and whether the best products will always win


There is a concept in macroeconomics called ‘perfect information‘. In brief (and apologies for missing many details of the theory and debate for a non-specialist audience), this would say that if all consumers know all things, about all products, at all times, then they will choose the best one for them. Taken to its conclusion, this theory would say that the best products would get the highest sales; and conversely the worst products would get no sales. The best products would survive, because they are the best.

Traditionally, in any purchase, the consumer does not have perfect information at all. Buying a TV, for example, there was no way that they can know all things about all products. Their selection was immediately reduced to the ones a particular store had chosen to stock (so they were not even exposed to all products), they got most of their information from either what the manufacturer or the salesperson chooses to highlight (and so they were in control of the information that is known) and, critically, they did not know about future products that might be just about to come out. The power in this sales relationship lies with the manufacturer and the salesperson, and not the consumer.

Of course, there have been many ways that this ‘information asymmetry‘ can be rebalanced. Organisations such as Which? in the UK have long published detailed reviews and analyses of products. As competition in the market grows, consumers have access to more stores in their towns and online that stock more products for them to compare against. But they are still limited by the products they are able to find (and then buy) and in most cases by the information the manufacturers and salespeople choose to release about their product.

Social media has changed this, or at least many would say has the potential to change this. Reviews, the ability to find other people with a product, and the ability to share images, videos and discussions have flooded the market with information from consumers and for consumers. The manufacturers and salespeople have lost some of their advantage and the information asymmetry is yet again rebalanced a little.

But, will all this extra information flooding the market lead to consumers knowing about all products that exist, knowing all information about these, and having this information to hand when they want it? Will social media lead to perfect information in the consumer market?

It is tempting to claim that it will do. Tempting to claim that social media is bringing a revolution in consumer information that will put consumers on an equal footing with manufacturers, salespeople (and marketers). Tempting to claim that social media will lead to only the best products surviving in the market. But this is unlikely to be the case.

What is happening is actually confusing the picture even more than it was before. In the traditional example above, it was clear that the manufacturer and salesperson had more information than the consumer, and everybody knew that. Social media has not led to perfect information, but rather has made things less clear.

Now the consumer does have more information, that is clear and is evidenced in their changing purchasing behaviour. It is marked in some markets (notably hotels with the likes of Tripadvisor) than others, but this extra information is coming and is changing markets. However, this information is not perfect - the consumer still does not know everything about every product - social media is creating two bigger issues with this information:

  1. Access to information. The real challenge with all this extra information in the market is the ability for consumers to search for, sort through and find the information they want. As more and more information is out there, tools and organisations that facilitate this will become more important and more valuable.
  2. Information accuracy. The problem with many reviews and other information in social media is that there is no way that we can 100% assure its accuracy. Often this doesn’t matter - we use it to help inform a decision and use our best judgement to decide on the accuracy. But perfect information relies on the information we have about a product being accurate. As has been seen (again with many Tripadvisor reviews), this cannot be relied upon.

So social media is certainly flooding the market with information. It is definitely rebalancing the information asymmetry between the manufactures / salespeople and the consumer. And it is evidently changing consumer behaviour and making brands change and behave differently too.

But is social media leading to perfect information? No. It is muddying the waters. Perhaps the biggest danger (or advantage - depending on the point of view you are looking at this from) is that social media is leading consumers to think they have all the information and are making the best choices of the best products because of this. When in reality they may be getting closer to this state, but they are not there yet and will probably never get there.

Why training staff how to use social media will help your business


The Information Commissioner’s Office in the UK has warned employers not to ask for the Facebook username and log-in details of their staff or of people who apply for jobs. That this even has to be ruled on will come as a surprise to many - I wouldn’t expect to give my employers access to my house, or to my diary or to my holiday photos. But apparently some employers in the UK (but more in the US) have been asking for this data so that they can get an understanding of a candidate before they hire them, or of an employee they have working for them.

That this is being done, or even being talked about, reinforces the negative attitude there can be to social media in many organisations and in many recruitment processes. At its worst, it is a way to spy on people and something that should be banned from all workplaces and all workplace activities. This is clearly wrong.

Rather than banning social media or turning into a tool that is used to spy on employees, organisations should be encouraging and educating them to use social media to support their work and to support the brand they work for. A more restrictive attitude to social media is most likely to lead to a lack of respect of the medium and, potentially, of the brand you work for in that medium.

For many leaders and managers, social media can feel scary and like the unknown - there are new channels and networks and tools all the time, and the chances are others in your organisation will be more knowledgeable about them. The openness and sharing that social media enables is new to us all and is very different to the way that most businesses and managers have been used to. And for many there is a real concern that social media is about chat with friends and so it is wasting time in the workplace. None of these areas should lead to restrictive policies on social media, rather they should lead to training, sharing and education so that businesses can use social media in the most effective way.

The most successful businesses, and those that are set to make the greatest advantage from social media are those with a clear programme of training and educating staff about how the brand, and how they as individuals, can use social media. Both for personal reasons and for the brand. The line between the two is drawn, employees understand how and where social media can help them at work and so understand what kind of usage is acceptable.

For example, you might not want one of your sales team to be spending an hour chatting to a friend on Facebook. You might, however, love them to spend this time building initial relationships and credibility with contacts across a target segment or sector. You equally wouldn’t want one of your concierge or front of house teams in a hotel looking at YouTube videos for an hour, you probably would like to spend downtime searching for new places and tips in their city through YouTube or Foursquare so that they can better advise your clients.

Social media can help people to do their jobs more effectively and more easily - helping you to find people, find information, find solutions and learn things. At a conference in Cambridge last week, this was summed up most effectively for me by Charles Elvin, the CEO of the Institute of Leadership & Management in the UK:

Employees need to be constantly learning to help them and to help their employer; and social media is the best way of them doing this

To make the most of this, employers need to take responsibility for training their staff. The true social business has a process of training and educating all staff about social media, how they can use it, how they should use it for work and what they should not do. They may go on to train employees about how the brand uses social media and how they can contribute.

Social media offers many great opportunities for brands and for their employees to be more efficient and do things in new ways. Most people need support and training to make the most of this and it is this that should be put in place, not restrictive policies behaviours.

Social media and influence: Don’t forget the offline


Image courtesy of Shoot

There was a time (not too long ago) when brands were learning the value of considering how customers are behaving online – learning from them, listening to what they are saying and engaging with them. Now we have reached a stage where this kind of benefit and learning is commonplace. In different ways and for different reasons, brands are listening to, learning from and engaging with people online. And they are getting huge benefits from this.

But with these changes and benefits comes a word of caution – just because it is often easier to find, identify and engage with people online we shouldn’t forget the offline. In fact the real benefit comes from when these two work together.

Social tools allow us to find people, sites and conversations that are influential - on a particular topic or with a particular audience. They allow us to get a more nuanced view about things (people might be influential on a very specific issue only, or for a limited time). And to some extent the automate this process. We can debate the concept of ‘influence’ and the way tools from Kred to PeerIndex and Klout measure it another time (and there is a debate to be had). But what is clear to anybody is that when it comes to the influence somebody has over others the lines between the offline and the online worlds are not just blurred, they overlap.

Let’s look at just two stories (based on work we have done with clients at FreshNetworks) that show the importance of offline to your social media influencer programmes.

1. The critical friend online; influencer offline

We had a community of influencers – a private space where these key customers were being talked to and asked their opinions on new products and services, potential changes to these and about the brand. A small tight-knit community of people chosen specifically on their propensity to recommend or influence others to buy from the brand.

In this mix was one customer who was usually only ever critical – they would be negative about ideas, critical of developments and were not evidently engaging in conversations about the brand externally. We thought this person might have made it into the group by mistake – they were not acting as we expected an influencer or brand advocate to act. It was when we brought these influencers together for an offline event that it became clear what was happening.

This influencer was acting as a critical friend online – they were in fact a huge brand advocate and were critical for this very reason (there is some good academic work on this behaviour). But offline their behaviour was very different. From what they were learning online they had converted people across the town they lived in to our client’s services and were even continuing to support them after they had purchased the product – providing support and advice on upgrades and other things to buy.

So this influencer was not exhibiting the behaviours we expected to see online. But by treating them as an influencer and engaging them online we were seeing huge offline impact.

2. How offline events power online influencer

Many influencer engagement programmes rely on engaging people online so that they carry out an action online. Brands talk to them via their blog or Twitter; from time-to-time they might email or call them so they can speak to them directly. But all these communications are one-to-one and don’t really help us bond or get to know each other.

The value of getting your influencers together offline can help to really kick-start their online activity. In one case we had a group of professionals who we knew had the right connections and were leaders in their own fields online but that were not sharing and talking as much as we might expect. One evening in a pub they could all get to changed that. We talked, exchanged ideas, got to know each other as people. We didn’t sell to them, or use nay gimmicks. We just got to know them, and they us. And when they left that evening their behaviour online changed.

That one evening in the pub had helped us to understand them more and helped them to understand us. Not only did just have the connections and respect online, they also had a real bond with us and would grow into useful influencers for the client online.

3 ways retail banks could get more benefit from social media


Three financial services social media ideasFollowing last week’s post exploring social media fears and opportunities for financial services brands, this blog post suggests three  ways that retail banks could make real, innovative use of social media to differentiate their products.

1. Social banking

Create a current or savings account with interest rates individually tailored based on a customers’ ability to recruit more members to the bank. New accounts could open with an average interest rate which increased by a small fraction each time a customer brought on a new member to join.

In the old days of member-get-member direct marketing, it was common for companies to offer discounts, gifts or value added services to customers who did the leg work in finding more customers. This model has now evolved into group buying from sites like Groupon, but there is evidence to suggest that “member get member” banking could work from Key Trade (under the control of Group Credit Agricole).

While Key Trade used a cash signup incentive, an interest based one would be a more meaningful commitment to a customer relationship and stronger motivator for recruiting new customers, particularly if interest rates could be competitive with current market offerings.

2. Social Micro Saving

Create a savings account which encourages you to micro-save via your social platforms. This could also be used to encourage micro-donation to charities. This could work quite effectively as a Facebook app which occasionally puts something into a subscriber’s news feed, reminding them to tuck £10 away in a savings account and make a small donation to charity.

Charitable donations website Just Giving noted the rise of social giving late last year and with the rise of applications like Snoball and SocialVibe, innovation is already beginning to harness the power of social donation behaviour to drive donations for charitable causes. If charitable donations can be contagious amongst social networks, it seems likely that social saving could be similarly rewarding and therefore contagious. Examples might include teams that are saving personal funds & raising charitable funds for expeditions, or groups saving towards a common goal such as holiday makers saving for a big trip.

3. Social Budget planning

Social gaming has proved itself remarkably addictive, but plenty of applications can the human desire to compete to good use. Mobile or social apps that let people compete over their personal budgeting targets could drive more careful budget planning & financial prudence.

As soon as NFC payment becomes a reality, mobile devices will be enabled to track spending both in terms of amounts and locations. If a couple, or group of friends decided to collectively budget towards a savings target, they could opt in to share how well they were performing against self-imposed goals. Personal financial data would remain private, but benchmarking against targets for lunch-time spending, for example, could earn gamers reward points & bonuses, just in the same way that FourSquare currently awards players with badges & Mayorships for check in achievements.

My purpose in exploring these ideas is to demonstrate the varied applications for integrating social media & social network behaviours with personal finance. With the growing popularity of The Co-Operative bank which offers customers a shared gains model and niche banks like Triodos offering consumer banking customers ethical and sustainable savings options, it’s not hard to imagine innovative, social financial products emerging as the financial services industry re-invents its public image.

What the social graph is and why it matters to brands


A simple social graph

A simple social graph

The social graph is not a new thing. The concept has been spoken about since at least the 1960s and is simply a way of representing (drawing) all the connections between people. Imagine a small island community of three people with no links to the outside world; you could represent this community as a social graph - showing all three connected to each other. As well as people we might add on other things - places, events, animals - and so use a social graph to show the connections between all of these objects rather than just between people.

The concept of the social graph is not a new thing, and it is not unique to social media. But what social networks do provide is a systematised way of storing these objects and these connections. Facebook is currently the largest social graph in the world but any social network builds a social graph based on what you tell them about yourself, who you connect to and the actions you do.

An example of Facebook, the biggest social graph

Facebook, for example, knows who you are friends with (and who they are friends with). It knows when you and a friend are connected by an event (that you both attend) or by a photo (that you are both in), or by a film (that you both ‘Like’), or by some music (that you have both listened to on Spotify). It then stores this data in a systemised way and so has structured data on you, your life and the way all of the things around you connect. Think of it as a mass of data that can be used to help to define an individual. And Facebook gives brands access to this through their ‘Open Graph’ API.

Benefits for Facebook

For Facebook the benefits of building and storing these social graphs is obvious - the more they know about an individual, the more they can tailor and personalise their experience and the more useful Facebook becomes to them. They can use this data to monetise the network - mainly by selling targeted advertising. They currently earn almost $1.20 a year from every individual Facebook member, and the more data they collect the better then can personalise the experience and the more they can earn. Finally, the quicker they build an individual’s social graph, and the more information they capture in it, the bigger the barrier they build to others being able to come in and compete with them.

Benefits for Facebook members

For the individual members of Facebook there are benefits too. Whilst personalisation can be difficult to get right, there is no doubt that a personlised experience can be much more useful to an individual than a more generic one. It helps you suggest things that they might actually want to read, things you might actually be interested in, and even show you adverts for things you might actually want to buy. The more data you share with Facebook, the better they can personalise your experience and more useful you will find it. Of course, you need to remember to be informed about what you choose to share and why.

Benefits for brands

It is probably fair to say that brands so far have not taken the most advantage of the social graph. Partly this is because many are still experimenting with social media and many think of it just as a way to engage and build their own communities and networks, rather than exploring the pure data benefits that they can get. But applied correctly, brands can use this data to provide a better targeted and more personalised service, and even to help shape products themselves. Whether you are Amazon, using Facebook’s social graph to help you choose products for your friends’ birthdays, or KLM using Facebook and LinkedIn social graphs to help you choose who to sit next to on the plane, there are opportunities across sectors and audience types. In fact the biggest barrier to brands using the social graph effectively is their own creativity and ability to explore how the data they can get from social graphs (including Facebook) can help your business. And the biggest opportunity is to explore ways that data from these social graphs can be combined with a brands own proprietary data to build a bespoke data set that can let you develop products and personalise services for customers.

All brands should be exploring and understanding the different social graphs out there (including Facebook’s) and the data that these can offer. Social media is much more than just a means of communicating to and engaging with people. In fact the possibilities that this kind of data offers can often be much more interesting.