Category Archives: Consumer Psychology

Satisficing, Bounded Rationality and Search

150px-HerbertSimonHerbert Simon came up with some pretty interesting concepts, among them satisficing, bounded rationality and chunking.

Before Simon, we commonly believed that humans came to optimal decisions in a rational manner, based on the information provided. We took all the data that was accessible, weighed pros and cons and used our cortexes to come to the best possible outcome.

Simon, in effect, said that this placed to high a load on us cognitively. In many cases, there was simply too much information available, so we had to make choices based more on heuristics, cutting the available information down to a more manageable level. He called this “satisficing”, a blend of satisfy and suffice. And Simon started saying this a half century ago. Imagine how this translates to the present time.

We have never had more information available. At the click of a mouse, we can access huge amounts of information. There’s simply no way we can process it all and come to rational decisions. And this brings us to another concept, that of bounded rationality. We’re more rational about some decisions than others. It depends on a number of factors, including risk, emotional enjoyment and brand self identification. Think of it as a chart with three axes. One axis is risk. We put more rational thought into decisions that expose us to greater risk. In consumer decisions, risk usually equates with cost, but in B to B decisions, it could also include professional reputation (related to but not always directly tied to cost). We’re going to put a lot more thought into the purchase of a car or house than that of a candy bar. Another axis is emotional enjoyment. This is a risk/reward mechanism to most decisions, and if the reward is one that is particularly appealing to us, we tend to be swayed more by emotion than rational decision. If we’re planning a holiday, we may make some irrational decisions (or at least, they might appear that way to an outsider) based on a sense of rewarding ourselves. We’ll treat ourselves to a few nights in a 5 star resort, when the 3 star resort would offer greater overall value. The final factor, and one that is usually buried somewhere in our subconscious, is how we use brands or products to define who we are. Now, no one usually admits to being defined by a brand, but we all are, to some extent. This touches on the cult-like devotees that some brands develop. Harley Davidson, Rolex, BMW, Apple and Nike all come to mind. Is a Rolex a rational choice? No. But a Rolex defines, to some extent, the person wearing it. It says something about the person.

Bounded rationality says that there are boundaries to the amount of rational thought that we can and we want to put into decisions. The amount we decide is sufficient depends on the three facts discussed.

Now, the use of Search tends to plot somewhere along this 3 dimensional chart. If risk is high and brand identification is low (buying software for the company), there is a high likelihood that search will be used extensively. If risk is low and brand identification is high (i.e. buying a soft drink or a beer) there is almost no likelihood that search will be used. In this case, the two factors usually work inversely to each other. Emotional enjoyment isn’t as directly tied to search activity. We will do as much (or as little) searching for a purchase that will give us great enjoyment as for those that won’t.

It’s interesting to watch how these factors impact search intent and behavior. Satisficing leads to a classic sort of search behavior, what I call I category search, where we use fairly generic, non branded queries that broadly define the category we’re looking at. Let me give you an example. Tomorrow my wife and I are headed to Europe for a week. We’re going to spend a few days in Portugal, then fly up to London for SMX (where I’ll be talking more about these ideas in some of my sessions). We’re flying into Lisbon, then renting a car and driving down to the Algarve region. I have GPS navigation software for my PDA, but only for North America. I wanted to get European software, but because of the limited use of it, I didn’t want to spend too much. The developer of my North American software didn’t make a EU version, so I turned to search to find a suitable candidate. Here there was no brand identification, some degree of risk (if it didn’t work in Europe, I’d be lost, literally) and no emotional enjoyment factor. My first search was what I call a “landmark” search. I wanted to find some sites to plot the landscape. Sites that listed and compared my alternatives would be ideal matches to my intent.

I searched for “pocket pc gps software”, knowing that “gps software” would be too broad. I soon found the sites were pretty much all about North American versions. Few of them offered or reviewed European versions. I spent several minutes on the TomTom site trying to order a European version from Canada but to no avail. Apparently TomTom doesn’t believe people in North America would ever choose to drive in Europe.

In classic “satisficing” behavior, I wanted to cut my research workload by setting some basic eligibility criteria: it had to work on a Pocket PC, it had to be reasonably priced (under $100 preferably) and it had to offer coverage for all of Europe (we’re going back to France and Italy next year and I’d like to use it then as well). My next search was for “pocket pc gps software europe”. This gave me what I needed to begin to create my satisficed list. Ideally, we want 3 or 4 alternatives to compare. I did find the TomTom choice, but I was already frustrated with this, and the price was over my threshold. Destinator also offered an alternative that seemed to be a little better match. It matched all the criteria, appeared to have some decent reviews and was available on eBay for about $75, including shipping. Sold! Was it the optimal choice? Maybe not. If I had spent hours more doing research, I could have probably found a better package or a better value. But it was good enough.

Chunking has to do with cognitive channel capacity, and the amount of information we can store in our heads, accessible for use. Again, we tend to maximize the available slots by creating chunks of information, grouping similar types of information together.

When you look at Simon’s work, even though the majority of it far preceded search engines, it sheds a lot of light on how we use search in a number of cases. If you want to tap into user intent, I would recommend finding out more about bounded rationality and satisficing. Chunking is probably worth a look as well.

The Wisdom of Consumer Crowds?

Following up on the theme of the rewiring of our brains, is the internet making us smarter consumers as well? There certainly seems to be evidence pointing in that direction.

A study by ScanAlert  found that the average online shopper in 2005 took 19 hours between first visiting a store and completing a transaction. In 2007, that jumped almost 79% to 34 hours. We’re taking longer to make up our minds. And we’re also doing our homework. Deloitte’s Consumer Products group recently released research saying 62 percent of consumers read consumer written product reviews on the Internet, and of those, more than 8 in 10 are directly influenced by the reviews.

In James Surowiecki’s Wisdom of Crowds, he believes that large groups, thinking independently with access to a diversity of information, will always make a better collective decision than the smartest individual in the group. Isn’t the Internet wiring this wisdom into more and more purchases? When we access these online reviews, we’re in fact coming to collective decisions about a product, built on hundreds or thousands of individual experiences. As the network expands, we benefit from the diversity of all those opinions and probably get a much more accurate picture of the quality of a product than we ever could from vendor supplied information alone. The marketplace votes for their choice, and the best product should theoretically emerge as the winner.

Of course, nothing works perfectly all of the time. As Surowiecki points out, communication can be an inexact and imperfect process, and information cascades based on faulty inputs can spread faster than ever online. But it’s also true that if a cascade leads to rapid adoption of an inferior product, we’ll discover we’ve been “had” faster and this news can also spread quicker. The connections of online make for a much faster dissemination of information based on experience than ever before, ensuring that the self correcting mechanisms of the marketplace kick into gear faster.

There’s a pass along effect happening here as well. For social networking buffs, you’ve probably heard of Granovetter’s “Weak Ties”. Social networks are made up of dense, highly connected clusters, i.e. families, close friends, co-workers. The social ties within these clusters are strong ties. But spanning the clusters are “weak ties” between more distant acquaintances. The ability for word to spread depends on these weak ties. What the internet does is exponentially increase the number of weak ties, wiring thousands of clusters together into much bigger networks than were ever possible before. This allows word of mouth to travel not only in the physical world but also in the virtual. I looked at a fascinating follow up study to Granovetter’s where Jonathan Frenzen and Kent Nakamoto also looked at the value of the information and the self interest of the individual and their “strong ties” within a cluster as a factor in how quickly word of mouth passes through a network.

Deloitte’s study graphically illustrates the weak tie/strong tie effect. 7 out of 10 of the consumers who read reviews share them with friends, family or colleagues, moving the information that comes through the weak ties of the internet into each cluster, where it spreads rapidly thanks to the efficiency of strong ties. This effect pumps up the power of word of mouth by several orders of magnitude.

But are we also becoming more socially aware in our shopping? The research by Deloitte also seems to indicate this. 4 out of 10 consumers said they were swayed by “better for you” ingredients or components, eco-friendly usage and sourcing, and eco-friendly production or packaging. The internet wires us into communities, so it’s not surprising that we become more sensitive to the collective health of those communities in the process.

What all these leads to is a better informed consumer, who’s not reliant on marketing messaging coming from the manufacturer or the retailer. And that should make us all smarter.

Infomediating a Broken Marketplace

First published October 18, 2007 in Mediapost’s Search Insider

Last week, I explored the disconnect between how advertisers define Nirvana; the ability to control consumer and persuade them at will by inundating them with advertising; and what consumers dream about: authentic and reliable information on needed products and services. There are costs associated with both sides, the cost of advertising, and the cost of consumer research. Max Kalehoff, from Nielsen BuzzMetric, pointed out another cost: the nuisance cost to the consumer of wading through an earlobe-deep sea of irrelevant and uninvited advertising: zapped TV commercials, blaring billboards, glaring signage, email spam, ubiquitous interstitials and pop-ups, preloads… .or one of the zillions of other ways advertisers choose to scream at you.

So, with this highly inefficient, annoying and disconnected marketplace, there has to be a better way, right? Well, Marc Singer and John Hagel III think so. They call it the infomediary, a concept introduced in their 1999 book, “Net Worth.” It’s well worth the read. The one thing that struck me is that in the entire book, the word “Google” is not mentioned once. This is not really surprising, given the publication date, but for reasons that will soon become clear, the irony was not lost on me.

How to Spot an Infomediary

Here’s the basic foundation of the infomediary. Acting on behalf of the client when he’s looking to make a purchase, the infomediary takes previously gathered personal information, as well as information volunteered by the client, and searches for the best match with vendors. The client can choose to remain anonymous, saving himself from an onslaught of advertising. Or, if the client agrees, the infomediary will pass his name along to a qualified vendor, and for this privilege, the vendor will pay the prospect. In essence, the infomediary plays the role of marketing matchmaker.

There are a number of offshoots of this basic premise. The infomediary supplies privacy tools to clients, marketing intelligence to vendors, the opportunity to bargain as a group for lower prices on regular consumable products, and it also acts as an aggregator of consumer power. In effect, the infomediary takes over control of the client relationship, inserting itself squarely between the consumer and the vendor, with the ultimate goal of protecting the consumer. This is a decidedly customer-centric model.

But it’s in the basic concept of gathering information about a client, and using that to ensure a good match with a vendor, that one begins to speculate about Google’s ambitions to fill this role. In essence, at a rudimentary level, Google is already fulfilling some of the role of the infomediary. Certainly if you factor personalization into the equation, we move a big step closer to Singer and Hagel’s concept.

Disruptive Influences

There are a number of dramatically disruptive possibilities in the infomediary model:

  • It forces advertisers to surrender all pretense of control over the consumer. Persuasion becomes a non-issue. The touchpoint with the consumer is stripped of hype, ensuring that product information is authentic and factual.
  • It gives the aggregated consumer voice a level of power never seen before. Previously, the marketplace was vendor-centric: here’s what we offer, here’s how we offer it, here’s what we charge. The consumer’s choice was restricted to “take it or leave it.” Now, the balance shifts to the consumer: here’s what we want, here’s how we want it, here’s what we want to pay. Provide it or we’ll find someone else who can.
  • By gaining control of the customer relationship, it forces companies to focus on two other core processes: one, either product innovation and commercialization; or two, infrastructure management, excelling in producing and distributing a product.

Something’s Rotten in the State of Advertising

There are a number of other seismic shifts in the landscape that come out of the infomediary model, but “Net Worth” weighs in at over 300 pages, and I have a bare 700 to 800 words for this column. The sum of it all is that the infomediary model, or some variation of it, dramatically changes the rules of the marketing game. A terribly inefficient marketplace has evolved in the past century, with some very wobbly power structures. The communication disconnect is almost laughable in its dysfunction. Advertisers spend more and more, hoping to penetrate a barricade set up by increasingly militant consumers. It’s literally a war, with strategies to match. The only hint of concession to the increasing power of the consumer has been search, and that has been done reluctantly. Remember Einstein’s definition of insanity? “Doing the same thing over and over again and expecting different results.”

If you look at the characteristics of an infomediary laid out by Singer and Hagel, Google has many of them in place already, and certainly has the resources to assemble the rest. The one piece that’s missing, and this is the critical one, is a purely customer-centric approach. For all Google’s focus on the user experience, their advertising models are still primarily driven by advertisers, not consumers. But for the model to work, consumers have to have complete trust in the infomediary and be willing to share their personal information. As we’ve seen with the initial pushback to personalization, there’s still a healthy degree of suspicion on the part of users that Google will use personal information for its benefit and not the advertiser’s.

4000 Ads a Day and Counting

First published October 11, 2007 in Mediapost’s Search Insider

It’s not easy being a consumer. Current estimates indicate that the average urban dweller is exposed to between 3,000 and 5,000 advertising messages every day. That means, settling on the middle number, that every waking hour (sleep seems to be our only reprieve, and I hear they’re working on that) you’re presented with an ad every 14.4 seconds. That’s every 14.4 seconds, every minute of every day you’re alive. The frequency of this advertising barrage has doubled in the past 30 years.

“Are We There Yet?”

So, let’s imagine that your 5-year-old child interrupted you every 14 and a half seconds with “Moooommmm…” or “Daaaaddd…”. If we use my patience limits as a baseline here, that mean’s you’d last about 1.3 minutes before you went ballistic. The difference, of course, is that we’re genetically hardwired to pay attention to our children, much as we sometimes might try not to. We’ve been conditioned to ignore advertising.

But what happens when we really want to buy something? Suddenly, we’re looking for information, and we spend a lot of time doing so. At least, that’s true for some purchases. Take a computer, for instance. It’s not unusual to spend 10 to 15 hours researching a computer purchase, from the minute you decide you need one to the minute you tear open the box in your home. That’s not including the many hours needed to get your “plug and play” box actually playing after plugging.

The Cost of Consumer Research

Of course, we generally don’t put a cost on our time, but let’s say an hour of your time is worth about $40 (an average rate for someone making $75,000 per year). That means that $1,000 box of electronics cost you an additional $600, just in time spent to pick the right box.

The Internet is not making this any easier. Yes, as consumers, we’re armed with more information sources, but we spend a lot of time sorting out sense from nonsense. The explosion of information sources, both the good and the bad, mean we’re spending more time thinking about what we should buy. A study by ScanAlert found that that across many ecommerce categories, the average time to buy has increased by almost 79% in the past two years. Now, this was just the duration from first visit to purchase in the actual online store. It doesn’t include any consumer research before visiting the store. But I think we’re safe to assume that there would be a corresponding increase in the amount of online consumer “tire kicking.”

It’s No Picnic for Advertisers Either

Before you feel too sorry for yourself, let me tell you, it’s not easy being an advertiser, either. How do we get past the filters? How do we stand out from the other 3,999 messages you’ll hear today?

To recycle some research I did for a previous column (because research is a terrible thing to waste), the Ontario Tourism Board ran newspaper ads in Toronto targeting people looking to vacation in the province. The ad cost (at posted rate card rates) about $54,000. Even with an exceptional response rate, that ad might sneak though the filters of 1,700 or so people and actually catch their attention. This works out to an average cost of about $32 per introduction, or, to put it another way, $32 to tear a hole through that advertising barricade you’ve been building.

Got a Minute? I’ll Make it Worth Your While

So, if advertisers are willing to pay to get your attention, why not cut out the middle man and pay you directly? Why should the Toronto Star get all that money, when you’re the person the advertiser wants to talk to? What if every one of those 4,000 advertisers who are going to try to get your attention today (Consuummmerrr…Consummmerrr!) paid you a dollar to listen to what they have to say? You’d do okay financially, to the tune of about $1.46 million a year. Of course, your brain would explode after the first hour.

The concept is not as far-fetched as it seems. In fact, in 1999 John Hagel III and Marc Singer, both principals with McKinsey and Company, wrote a book called “Net Worth” that explored this very premise (along with a number of others) as a potential online business model. The book provided a detailed business plan for a new concept: the infomediary. Some of the details have been passed over in the last eight years since publication, but the basic premise still addresses a significant disconnect in today’s advertising marketplace. Next week, I’ll lay out the foundation of infomediaries and look at how some of our favorite search players seem to be inching their way towards Hagel and Singer’s proposal.

We now return you to your regular commercial onslaught.

Google’s Perfect Marketplace

In my recent conversation with Michael Ferguson, he brought up the book Net Worth and the concept of infomediaries. I hadn’t read the book (an oversight I’m correcting) but I did a little quick online research. First, here was Michael’s comments:

There’s a book that came out in early 1999 called Net Worth, which you might want to read. I almost want to revisit it myself now. It’s a Harvard Business School book that Marc Singer and John Hagel came out with. It talked about infomediaries and it imagined this future where there’d be these trusted brands and companies. They were thinking along the lines of American Express or some other concurrent banking entity at the time, but these infomediaries would have outside vendors come to them and they would entrust all their information, as much as they wanted to, they could control that, both online and offline.  You were talking in your latest blog post about understanding in the consideration phase where somebody is and presenting, potentially, websites that they hadn’t seen yet or ones that they might like at that point in the car purchase behavior. But the way that they were imagining it was that there would be a credit card that might show that someone had been taking trips from the San Francisco Bay area to the Tahoe region at a certain time of year and had maybe met with real estate agents up there and things like that. But these infomediaries, on top of not just web history but even offline stuff, would be a broker for all that information and there would be this nice marketplace where someone could come and say, “I want to pay $250 to talk to this person right now with this specific message”. So it seems that Google is doing a lot of that, especially with the DoubleClick acquisition. But I’m just wondering about the other side of it, keeping the end user aware of and empowered over that information and where it’s at. So Net Worth is a neat book to check out because the way they were describing it, the end user, even to the broker, would seep out exactly what they wanted to seep out at any given time. It wouldn’t be this passive recording device thing that’s silently taping. My experience so far of using the Google Toolbar that’s allowing the collection of history, is that it’s ambiguous to me about how much of my behavior is getting taken up by that system and used.

So, as Michael says, Google seems to be positioning themselves to be this infomediary. Think about the nexus that’s forming between personalization and Google’s acquisition of every available marketing channel. Google is creating the perfect customer acquisition marketplace. And what’s their typical pricing model? Yes, auction based pricing.

So let’s walk down this path a little. Let’s assume that Google is successful in pushing a high degree of personalization on a significant portion of the population. If you capture all the search history and web history, you have a great data set to predict, with a high degree of accuracy, a consumer’s needs at any given time. The math behind this is not that intimidating for the brain trust that Google has assembled.

Then, let’s factor in Semantic Web functionality. Now, through a series of useful apps, Google takes that personalization data and further adds user value by letting them interact with information. It’s Google’s recent announcement of Universal Search, taken to a new and much more functional level. They’ve already warned us that Universal Search is just the beginning. Google powers the web as our personal assistant, so that for any given life or consumer event, Google is determining our intent, either implicitly or explicitly, and providing us with commercial recommendations. In this case, it’s not really advertising, it’s a helpful recommendation.

Finally, through the Google web of properties, both online and offline, you have the opportunity to present these “commercial recommendations” through a number of reinforced touchpoints. The odds of connecting with an engagement consumer and eliciting the desired conversion are almost 100%.

It’s a perfect marketplace, the ideal match between a prospect and a solution.

So now you have the perfect marketplace, complete with a Google console that lets you target the consumer you want in the way you want. Let’s add one more piece of the puzzle, the pricing model. Auction based pricing has worked pretty well for Google in the past. Why should this be any different. There will of course be a quality scoring component to this. Google is way too obsessive about user experience to just open the bidding to anyone. But let’s say that the Google quality scoring mechanism goes deeper than it does right now, determining exactly the best vendor fits with the determined need and intent of the consumer. Let’s say that Google narrows the list down to the top 10, and then from their database of potential advertisers, who have all indicated what they’re willing to pay for an almost guaranteed customer with an already predetermined ROI (remember, we know with a high degree of accuracy what it is that the prospect is likely to buy), they present the advertiser (or perhaps a few options, as we all like to see options) with the combination of the highest bid price and the highest degree of consumer intent relevancy. Once the bid is accepted, a packaged and personalized message goes out to the prospect through the appropriate channels.

Think for a moment what this does to the entire world of advertising. Hmm…some pretty hefty food for thought.

Improving the Odds of Connecting with Your Target Market

Kim Krause Berg had a interesting additional thought to my post about eye tracking. Her question, “What happens when your target market gets up on the wrong side of the bed?”.

This got me to thinking about the validity of market research and understanding more about your target customer. Kim’s point, which she makes quite clearly, is that people are people and all the research in the world won’t be able to tell you if your target customers having a bad day, or for that matter, an extraordinarily good day, when they are interacting with your site. How much of a role does emotion play with predicted behavior?

In marketing and user centered design circles, we often talk about our targeted users and customers. Companies with money to blow will run studies on who their target consumers are, or run focus groups on what people love and hate about their products. The human factors industry studies human-computer behavior. Usability companies try to understand what ticks off end users. Conversions experts look for all the reasons behind failed sales. Search engine marketers dig deep for keywords used by the perfect end user who knows exactly what they’re looking for.

Once all this data is gathered, white papers are written, case studies are published and articles are run that inform us about what our site visitors and product users want, what they like, how they make choices and why. We may think we’re very cool and savvy to have found the holy grail of ROI.

What if your product, service, internet application or website is humming along, primed for the perfect targeted end user and that person is suddenly different?

Perhaps they are emotionally upset. PMS. Menopausal. Facing surgery. Sleepless parents. Overworked wage earners. Out of work. On medication. Depressed. Drunk. Suffers a sudden loss of eyesight or use of their hands. There are a zillion reasons why someone has an “off” day, is feeling emotionally or mentally out of whack or drastically changes in some way. This can last for a day, or longer.

Either way, what they are dealing with, at the moment they are accessing your website, service, product or application, may have an impact on how successful they are at completing a task.

Marketing is a game of percentages. It’s all about increasing your odds of hitting that perfect combination: putting the right message in front of the right person at the right time. Will you get it right 100% of the time? Of course not. But then again, if you can improve your odds of success from 50% to 60 or 70% you’ve just scored a huge marketing coup.

When you reduce marketing to one to one communication, you’re completely dependent on the receptiveness of your intended target. Unless you’re in front of the person when you communicate with them, there’s no way for you to pick up their mood or emotion. You can’t alter your message accordingly to the signals that you’re picking up. But the interesting thing is, as variable as people are on an individual basis, if you put enough of them together they start reacting in predictable patterns. While it might be impossible to predict the success of your message on an individual basis, the greater the size of the group, the more confident you are in predicting what the aggregate patterns will look like. And that’s where understanding more about your target market can dramatically improve your odds. If Kim is in my target market, I might not know what her mood might be on any given day. If I have 10,000 Kim’s in my target market, I can be fairly sure that on any given day a certain percentage of them will be in a good mood, a certain percentage will be in a bad mood, and a certain percentage will be relatively ambivalent. I don’t have to be precise on a one-to-one level, because the law of averages works in my favor. I’ll get more right than wrong. What is important, however, is that you have a good understanding of what all those Kim’s generally like, what motivates them, and what their intent is when they interact with my brand.

There’s a lot of talk about personas as a tool to help you understand your target market better. One of the reasons people hesitate to use personas is that it feels odd, when your target market could be made up of thousands or millions of individuals, to build a conceptual framework represents just one individual. Again, it seems like you’re oversimplifying the collective needs and wants of your segment. But the power of a persona is the way it forces you to shift your paradigm, the way it forces you to look at things from a customer’s point of view and interact with your brand through their eyes, not yours. It’s this fundamental shift in thinking that has to happen to be able to effectively close communication. Once you build your persona framework, you can start dropping in the individual pieces of research intelligence you might have on your target market. It helps to create a profile, complete with a much greater understanding of what motivates that target, relative to your offering. It’s very difficult start a conversation with someone when you have no idea who you’re talking to.

The whole point of communication is to effectively connect and transfer information back and forth. The greater the understanding, the greater the odds of making that connection. Ideally, we should all be able to sit in front of each individual we’re communicating with and be able to read their body language, be able to pick up their signals, be able to interpret their moods and emotions. This being impossible (my track record with my wife is pretty abysmal and I live with her every day) the next best thing is to understand more about the group as a whole and what motivates them, and then to be able to craft your messaging in a way that resonates with them. Again, it’s all about improving your odds for success. If Kim gets up on the wrong side of the bed today, I might totally blow my chances of getting the right message to her, simply because she’s not in the mood to receive it. But for every one I get wrong, there will be several more that I get right.

 A new study from BIGResearch has shown that Word of Mouth continues to be the most influential factor in consumer decisions.

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There’s nothing too earth shaking about this. But consider how Word of Mouth is defined today.

The Web has taken Word of Mouth, which used to be restricted by geographic realities, and exploded it outwards in all directions. Even the very phrase implies a face to face conversation, which by necessity restricts how quickly word of mouth could spread. But now, word of mouth encompasses consumer generated media, which means that stated opinions can spread much further and faster than ever before.

Perhaps the easiest way to judge the implications of the web effect on word of mouth is to strip it back to it’s essential meaning, and then work outwards again.

Word of mouth implies that you’re getting an opinion from someone who:

    1. is familiar with a product or service through personal experience; and,
    2. can be objective because they have no vested interested in whether you buy the item or service in question.

If it meets these two criteria, word of mouth has the ring of authenticity, which is rapidly becoming a valuable commodity on the Web. Historically, word of mouth came primarily from friends and family, so our circle of potential influencers was limited to a few hundred people at the most. We received our word of mouth recommendations in two ways. Either the person giving the opinion had become an evangelist for the product and was offering their opinion whether it was asked for or not, or we would seek out someone we knew who we trusted and who we knew to have previous experience with a product or service. For me, the second type of word of mouth was generally a little more influential. In either case, the reach was restricted, because there was no way for the average person to expand their communication network beyond their normal contacts.

If you took an evangelist and tried to expand their coverage, the value of the message eroded. If the vendor facilitated this, the authenticity decreased and the message became a testimonial. Influential, yes, but not truly word of mouth. Or if the person happened to have a forum that allowed them the spread the word farther, i.e. a newspaper columnist or a TV personality, the authenticity was lost and it became another celebrity endorsement. Again, influential, but missing the grass roots power of true word of mouth.

For word of mouth to be truly powerful, it has to live close to the ground, come from real people, and not have the faintest whiff of commercialism about it.

Now, look at what the empowerment and connectivity of the Web has enabled. If a person chooses to be an evangelist, they still sacrifice authenticity, even if distribution of the message is done digitally. But search allows consumers to connect to real people, just like you and I, who have shared their opinion on something with us online. This maintains authenticity, and opens up the new power of word of mouth.

Think of what sites like TripAdvisor has done for travel. If you were going to go to Florence and you wanted to find a hotel, what would be the odds 15 years ago of finding someone in your social circle that would have the personal experience necessary to give you the advice you were looking for? Probably slim. But now, through search, you can find a number of people who have all stayed at hotels in Florence and have shared their experiences, both good and bad. TripAdvisor uses this collective “word of mouth” to rate the hotels. It’s tremendously influential and it’s available to all of us.

This tying together of consumers into ad hoc ideological communities around a product or service is becoming tremendously powerful, and is completely redefining the principles of marketing and branding.

The Ultimate Market Research Technique?

sharingbrainThis is kind of cool, in a really creepy way. According to a recent study, Scientists can now tap into the brain and predict whether you’re going to buy something or not. Not to get all scientific on you, but apparently a portion of the brain called the nucleus accumbens “lights up” on a brain scan if you’re ready to whip out the plastic. But, if the price tag is out of your budget range, another region of the brain called the insula is activated and the mesial prefrontal cortex is deactivated. Dr. Brian Knutson of Stanford and his team are doing the research.

So, think of this future scenario:

Google gets wind of this and brings this into the Google Labs. They work with Intel to develop a small implantable chip that constantly monitors this part of the brain. Through a secret agreement with the U.S. Government, giving the Homeland Security teamaccess to everyone’s online history, Google gets the right to implant the chip in every new child born in the U.S. The chips are connected through wi-fi, so that Google can monitor everyone’s inclination to make a purchase. You can now test your Google campaigns right down to the purchase, setting up A/B tests with the ultimate feedback loop.

Mmm..the mind boggles with the possibilities here….

Most Shoppers Don’t “Shop Around,” at least Physically

A new study from the Grizzard Performance Group found that US Shoppers don’t have time to “shop around”, with 62% not bothering to compare prices at even two stores. However, they’re very open to saving money, right up to the time of purchase. It’s just that they don’t have the time.

This ties in with my previous post about real time inventory and e-shopping, currently being tested by a a few online services at malls and major chain stores. When we can quickly and conveniently check prices at a number of stores in our area through our handheld devices, trust me, shopping will change forever. And then, a whole new dimension of direct response marketing comes into play. Last minute pushes of discounts at the point of purchase, delivered through your mobile device. As the study by Grizzard indicates, consumers are very open to saving money on a comparable product, even if it wasn’t previously in your consideration set. So consider this. The shopping engine knows what you’re looking for, knows where you are, and knows what comparable products are in stock in the same store. The advertiser can purchase the right to push a message to you right at the point of purchase, offering you 15% off their product, or even offering an automated “match and beat” deal, where it automatically matches the price of whatever you’re buying, and takes a further 10% off. A store around the corner could do the same thing, making it worth your while to check out at least one more store. All these things could easily be handled by algorithms and pre-set pricing thresholds.

And what if we take the Priceline approach? You’re ready to buy, but before you do, you send an offer to stores in your area with what you’re willing to pay for a particular product. The store in question can then decide whether to accept your offer or not. It would be true consumer control. And the really ironic thing? It’s a whole bunch of sophisticated technology, but it brings us right back to old fashioned haggling over the price. Isn’t it fascinating that the more sophisticated the technology, the closer we get to how we used to shop a century ago?

A Sign of Things to Come: eShopping at a Store near You

A small article in the Wall Street Journal (a subscription is needed to read the whole article) is a precursor of a big shake up to come. It’s something I’ve been predicting for sometime now, and while it will take awhile to gain traction, it will turn local retail upside down.

Three malls in California and one in Arizona have agreed to allow shoppers to check prices on actual inventory through text messages from their cell phones with a service called NearbyNow. According to their site, NearbyNow plans to add another 17 malls throughout the US to their network by April. Another service called Slifter is focusing on national chains like Best Buy, CompUSA and Foot Locker.

Here’s why this is revolutionary and why you’ll be hearing more.

  • For shopping, this represents discontinuous innovation. It’s a big win for the user, allowing them to shop smarter than ever before. Consumer demand will drive adoption of this new approach.
  • For retailers, this is scary as hell. By allowing their inventory to be captured realtime, they’re agreeing to be compared side by side with everyone else, including online retailers with no physical overhead to drive up prices. It completely levels the playing field.
  • As a number of technologies improve and converge, this will become substantially more useful and powerful. Mobile computing, GPS and search functionality will make this a must have for consumers.
  • It completely fuses the online and offline worlds, making the transition seamless.

This is one of those ideas you just know will take off, but there’s going to be some significant hurdles to overcome. These services are only as good as their success at signing up merchants. The more stores in the network, the more successful. If only a few are included, consumers will always wonder if there’s a better deal that isn’t part of the service, defeating the purpose. And a number of retailers will resist this trend til the bitter end. Ultimately, it will be consumer insistence that will force the laggards to join.

Another challenge will be the user interface. Right now, both services run on cell phones, meaning you have to deal with an awkward keypad and stripped down display. But this problem will rectify itself with advances in mobile technology.

In the world of shopping, this changes everything.