This article is a result of my ongoing adventure on Google+. Within just a few months of being on G+, I have learnt, and more importantly understood more about Search Marketing and Social Media than within entire 5+ years of running an agency. The new people I meet on G+ make significant contribution to my success without them knowing it.
One of these people is +David Amerland – a writer, an author of books on SEO and Social Media, a speaker and a contributor to Forbes, HP UK and journalism.c.uk. I’ve been following him on Google+, participating in various discussions initiated by him and frequently checking out his blog at helpmyseo.com.
I have first met with David on a Google Hangout on Air (HOA) hosted by +Max Minzer. Lately, I have also been participanting in a series of hangouts hosted by +John Rakestraw where David Amerland is a co-host. One notable thing about this show - Platform Live Events - and the people on it, is that they make each person on the hangouts feel special. By the way, I met John on another hangout hosted by Max (see how Max is connecting people?).
Platform Live Events series of hangouts became the single biggest source of inspiration to me. John and David have this wonderful ability to continue conversations for hours yet keeping it full of valuable thoughts and insights. I particularly enjoy their ability to think big and envision the change. The shared, yet diverse, vision of the future that we discuss, makes creativity happen. This quote by David Amerland sums the process up about perfectly:
In stepping onto each other's shoulders we all end up being giants
So let’s dive into this synthesis of thoughts and insights and see what social media, transparency, innovation, hyperinflation and co-creation have in common.
With the advent of social media, consumers are gaining tremendous advantage in dealing with brands. Our demand for transparency and better quality is being heard. Social Media is about to bring consumers higher satisfaction through forcing a series of changes onto the businesses. We will evidence a rise in transparency, innovation & product improvement. Consumers will have more control over product development and quality assurance. Companies will work harder to set our expectations right and meet those accordingly.
However, there is something I feel many fail to see. Social media is a double edged sword. As social pressure over brands mount, they will adapt. And at the end of this adaptation, we will be paying more for most products and services. Along with the price tag, will come a new name for these products and services – co-creation.
Social media gave us incredible power of sharing. Within seconds, hundreds of people (and often thousands) can hear you. Before social media, only chosen could share their opinion so effectively through traditional media.
As social media integrates into our lives, marketing practices that fail to set adequate expectations and product development that fails to align with customers' expectations will become unsustainable. Expectations are set wrong or not met? Share it. Expectations exceeded? Share it. Your complaints and compliments will be heard by fellow consumers. And so will their opinion be heard by you and the others. It is this multitude of shared product assessments that creates transparency.
Buyers’ expectations of a product are set during his or her purchasing journey. Awareness (in AIDA) through Action, consumers’ product and budget requirements blend into the mix of advertised product features and price to form expectations.
The more information Sales and Marketing make available about their product, the easier it is for the buyer to align his or her expectations with the actual product. In the real world, many companies choose to present their product rather vividly which causes lack of transparency and excessive client expectations. Of course, buyers become very skeptical of any advertisement in attempt to balance exaggeration out. So, on the one hand, marketing people are responsible for creating transparency and setting adequate expectations. On the other hand, buyers are responsible for aligning their expectations with realities of a product.
While it is obvious that power of sharing will force companies to become more transparent, it is not as obvious how social media will help consumers to ensure that their expectations are not reasonable. There is one phenomenon that is already evident – social scrutiny.
A brand that sets expectations right and is able to meet them will always have a loyal fan base. These fans will advocate the product and the brand; they will ridicule judgement that is inconsistent with theirs. And unless one has a fair number of supporters, there will not be a single reason for the brand to pay serious attention to unreasonable feedback. This phenomenon will definitely align consumers’ reasoning with the real value of the product.
Product features are likely to determine product price. As well as the price paid by the client can also affect product’s composition.
In a perfect world, marketing works hard to align the consumer’s budget and product requirements with the product features and price. In a perfect world, we get what we pay for. Therefore, a reasonable buyer is always satisfied with the product.
The price on the expectations curve is where fair value lives. It is the fine line that separates low and high value products. Notice how price grows exponentially with the ability of a product to meet the highest expectations. That’s a well known fact -- perfection is costly. Another way to explain this phenomenon is through understanding of supply and demand. Companies that offer sophisticated product with possibly a high doze of intangible components thus create scarcity that drives the price up. In his article, David Amerland explains how value is calculated in today's world and why there is a need for this model to change. Nevertheless, if we pay a high price for a creation that caters to our high expectations, the value is fair.
In the real world, there are many different pricing strategies and methods out there. Some of them are intentionally used to influence our perception about the quality of a product.
Price for the product A (figure 1) suggests that we should expect much of it. In reality, this product is not worth the money because it only meets basic expectations. Clearly, marketing for this product sets expectations that are not aligned with actual experience. On the other hand, product B will exceed our expectations and product C will likely match our expectations.
Now, what about the other products which range fairly close to the ideal fair value curve? In the real world, fair value is a range. The line becomes blurred and looks more like a ribbon.
Notice how it becomes wider at the high end. It is easy to compare low-end products head-to-head. On the other hand, high-end products are not about features, they are about highest expectations and are often able to live up to dreams. It’s harder to compare and assign a dollar value to dreams.
Before social media, individual product assessment was rarely honored by the public. Occasionally, serious issues or great experience with products were made public through traditional media and some other channels. The result of traditional product assessment stayed between the client and the company. Of course, the word of mouth would also travel some distance. However, the majority of feelings and emotion still stayed in a closed loop. For the word of mouth to travel far, the brand had to be either fairly large or very local.
As social media integrates tightly in our day to day life, Social Product Assessment takes place. Buyers make their opinion public through various social channels. These assessments are being heard by fellow consumers and general opinion about the product is formed. The balance between compliments and complaints as well as other specifics about the product help consumers make fair judgement about the product before they make a purchase. The beauty of this process is that the word of mouth now travels socially. The people we share our opinion with don't even have to be our friends. In fact, with our feedback about a product, we are more likely to influence people we don't know - fellow consumers - than our own friends.
Social Product Assessment is far-reaching. With social media at the tip of our mind, it does not matter whether the brand is large or small, local or global. Our thoughts about any given company will influence the opinion of their existing customers and prospects. Therefore, virtually every product on the market will be put to test and valuation of it will become more transparent than ever.
"If Muhammad will not go to the mountain, the mountain must come to Muhammad."
In the social media era, if a brand does not go after transparency, transparency will go after the brand. If company’s marketing sets expectations wrong, consumers will know about it very soon. What happens then?
Expectations for Product A (Figure 3A) were set so high that it was able to sell at a much higher price than it ought to. Social Product Assessment will quickly surface, labeling the product a scam. Now, the company either goes out of business or adjusts rather rapidly. They will either (a) set expectations right and lower the price or (b) meet expectations they have set and improve their product or (c) do a combination of both. In any case, this product’s price and feature set will get closer to fair value. And the same will happen to any other low value product (those are products above the fair value range).
For Product B (Figure 3A), which exceeds expectations, outcome (b) where quality drops and output increases is not rare but chances of failure are high. Remember Krispy Kream? We can all learn from their mistake.
Other outcomes for Product B are (a) where the price increases and gets it to fair value and (c) a combination of both (a) and (b).
Image courtesy of Schwartz’s - Montreal Hebrew Delicatessen
I know a meat store in Montreal that always exceeds my expectations. There is always a line of consumers. Probably everyone in Montreal knows this place. The shop also had quite a few visits by world celebrities in the past. Celebreties just didn’t have social media on the tip of their mind back then. Will social media today help this queue get longer (provided they don’t change their price and quality)? I think so. And as the line grows, the business will have to adapt. Will it become a (a) franchise, (b) expand or (c) cater to gourmet?
Let's look at the broader picture. By making gravity around fair value much stronger, social media essentially squeezed the acceptable fair value range (Figure 3B). This adaptation might be painful for many businesses but very benefitial for consumers. With the help of social media, we'll be more likely say that the price is right for any given product.
Let's look at what's involved in the change that is brought through Social Product Assessment.
Companies previously offering low value products will experience severe financial shock. Their approach to bringing fair value will most likely involve price reduction (loss), re-branding (investment) and product improvement (investment).
Companies previously exceeding our expectations will benefit from Social Product Assessment. They are likely to increase output (investment), price (gain) or both. Their marketing will also likely undergo a change (investment).
Companies already offering fair value will still face Social Product Assessment; there will still be people not satisfied with their product for a good reason. Having to deal with these customers will also require investment into a more transparent marketing strategy, PR, product improvement and quality assurance.
It is a likely outcome that increased prices for previously high value products will balance out reduced prices for previously low value products. In a broader sense, gains of ones will be negated by the losses of the others. However, almost every company will have to make investments into improving their marketing practices, product quality and transparency. These aren’t just the typical expenses that companies make year after year. This is a costly race to perfection. So what happens when suddenly every company out there becomes perfect?
Social media will bring transparency. Transparency will cause a race to perfection. All of a sudden, most companies will end up landing their products within the now narrower fair value range. Consumers will now have all the information they need to compare products head to head, feature to feature.
Competitive pressure will mount and companies will have to differentiate themselves on the market. That means another wave of investment is on the way. This wave will focus on innovation and further re-branding in search of new markets. In exchange for innovative products and services, companies will want their higher margins back.
Companies have been making significant investment into research and development, marketing, PR, and quality assurance. Some carried out significant losses. Some went out of business. Who is paying for all that? In the long run, consumers are likely to take the full cost of this change. Why?
There aren’t many companies out there sitting on a pile of cash looking forward to spending it (gazing at Apple’s 100+B liquid assets). In reverse, many businesses carry debt. Therefore, even if we don’t pay their transformation costs directly, we’ll pay those through the cost of debt that companies accumulate during this massive transformation
If we look at the big picture, we can see how consumers are paying a higher price for the products and services that have been redefined. Companies now certainly are able to cater to significantly higher demands. But boy, it came at a cost to consumers. In addition, the criteria of fair product valuation has now been blurred once again. With all the innovation that’s there to come, it will be much harder to compare mid and high-end products head to head.
In fact, social media is already helping to redefine valuation models. In a #maximpact hangout hosted by Max Minzer - Disrupting Buying & Selling - David Amerland and Alison Andrews, CEO of Galoo, introduce us to a new model of e-commerce where fair value is negotiable. As e-commerce evolves, social commerce will take place. Services like Galoo will most likely operate in transacting higher-end products for which fair value will always remain a relatively obscure concept.
In his book called The Great Boom Ahead, Harry S. Dent, Jr. calls this massive transformation an Innovation Wave that is almost inevitably followed or accompanied by hyperinflation. Now, I am sure that innovation excites everyone's mind but how about hyperinflation? Equiped with knowledge that Harry S. Dent, Jr kindly provides in his book, I believe that hyper-inflation is simply a way to finance a hyper-leap to a better standard of living. The age of co-creation is coming.
Today, the goal of sales and marketing is exactly to market and sell. Not many companies have their marketing goals set to exemplify transparency and satisfaction. But some companies do a good job at integrating their marketing with their overall business and philosophy. We call them thought leaders.
The new standard that social media is bringing to transparency is about to change how most companies develop and market their products and support their clients. It is already happening to selected technology companies. Departments are becoming ineffective and product teams are replacing them. A product team is becoming the new core of each product – development, to market and to support.
Customer service is not a department, it’s an attitude
Product teams will communicate with the end client openly in a decentralized fashion and with customer-centred goals in mind. How will this work? Have you noticed how Google employees are out there in the open on social networks? Microsoft, Dell, HP-- have you seen their employees socializing lately? I have. Are they losing control? I don’t think so. They are realizing the value of social media in improving their product and are fearlessly stepping forward towards transparent future. This change will significantly improve about everything as it relates to product quality and customer satisfaction.
Marketing will focus more on achieving client satisfaction rather than on finding ways to sell. Product teams will seek and find help from the end users. Quality assurance will learn about problems with the product directly from the clients. When people socialize, they are more likely to share in a positive manner without excessive frustration. Consumers will have their input as to what they want to see in the product and how they see it done.
This social dialogue will help companies understand the needs of their market much better and make innovation so much easier and more transparent. The process where consumers and businesses elevate our standard of living is called co-creation.
We can clearly see many events and processes happening as social media becomes a significant part in everyone’s life. However, it’s hard to predict the magnitude and scale of the upcoming changes. For certain, companies will become more transparent and products will improve significantly. The wave of change will most likely affect any business, small to large. The wave of innovation will perhaps be accompanied or followed by hyperinflation.
I truly hope that the price we pay for this change will be well worth it. And even if this price is high, we are one giant step closer to co-creation where buyers are not there to buy and sellers are not there to sell. Co-creation is where we all stand together to create a better life for each person in the world.
Social media will not affect all verticals at the same time. Moreover, social media will most likely affect large, medium and internet-based businesses first and all other businesses second. Therefore, we will never actually see exactly what I've shown on the graphs. This transition will not happen in sharp stages and change will not be as obvious.