What really influences consumers? Itamar Simonson, professor of marketing at Stanford University Graduate School of Business, and Emanuel Rosen, bestselling author of The Anatomy of Buzz, have a few ideas:
“We both used to believe in these commonly held beliefs, but in the past few years we’ve been asking ourselves how these concepts are affected by the new information environment that is emerging around us. What really happens when consumers increasingly rely on reviews from other users or experts in assessing the quality of products and services?”
Their new book – Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information – opens with five of those “commonly held beliefs” about consumer decision making that, the authors claim, are losing their relevance today. We asked them to explain.
Common belief 1: “A company’s brand is more important today than it has ever been.”
Itamar and Emanuel: Many marketers still believe in the critical role that brand names play in decision making, but we think that brands are becoming less important in certain categories, as they are being replaced by better proxies for quality. In the past, consumers could not easily evaluate the quality of products before buying, so they depended on (often unreliable) quality proxies. Brand is one example of such a proxy.
Today, better sources of information such as reviews from other users or experts make it easier for people to know the absolute value of the specific product or service they’re considering. This allowed companies such as ASUS (laptops) or Roku (streaming players) to gain market share even though they were virtually unknown. Of course, we’re not arguing that this is the end of brands. We argue that when consumers rely on reviews from users and experts, the importance of brands with respect to assessments of quality (and thus purchase decisions) is bound to decline.
Common belief 2: “Nurturing loyalty should be the marketer’s primary, day-to-day concern.”
With all the talk about loyalty, Deloitte reported in 2012 a steep decline in consumer loyalty to travel brands. For example, only eight percent of survey respondents indicated they always stay at the same hotel brand. Why is this?
When assessing quality was difficult, when good information was hard to get, relying on our previous positive experience with a brand made sense. This isn’t true when we can now use Expedia, TripAdvisor, or similar web sites to evaluate our likely experience at a certain hotel. Again, we’re not arguing that this is the end of loyalty, but that consumers’ past experience will play a reduced role in their decisions.
Common belief 3: “All customers are irrational.”
This is another common belief in industry and academia. In fact, one of us (Itamar) spent much of his career showing that consumers tend to act irrationally. But this is changing in the new reality. Many of the so called “irrationality” effects work best when the consumer is confined to information from the marketer, which is often no longer the case today. Contrary to what we frequently hear these days, customers are better able to evaluate products for what they are, rather than just how the products are described or how they compare with other options they happen to see. (We include in our book some experimental evidence for that.)
Common belief 4: “An overload of options may actually paralyze people.”
We keep hearing about the concept of “too much choice” and information overload, the notion that too many options and too much information may overwhelm consumers to a point where they don’t buy at all or make poor decisions. While we agree that under certain conditions people can be overwhelmed by too many disorganized options, the web provides very effective tools for sorting and using the most relevant information. Also, based on a recent review, it appears that the choice overload problem is not nearly as serious as one might expect based on some highlighted findings. The review article, which combined the results of fifty experiments dealing with the phenomenon, concluded that “the overall effect [of having many choices] in the meta-analysis was virtually zero.”
Common belief 5: “Positioning is the most important part of the marketing game.”
Many marketers still believe that they can shape how consumers perceive their product based on the way they present it relative to other options. This often worked pretty well in the old information environment. Volvo managed to position itself around “safety,” and Toyota captured “reliability.” But when consumers base their decisions on reviews, positioning attempts are less likely work. The reason is simple: Reviewers usually evaluate multiple features of a product and are not likely to isolate a single attribute just because it was highlighted in a company’s ad campaign. For example, in recent years we’ve seen attempts to introduce new phones that would be positioned as “the Facebook phone,” but reviewers evaluated all features of these phones.
As we explain in our book, there are categories, segments, and situations where consumers still use traditional sources of information, and in those cases, some of these concepts will still be very relevant. But as customers increasingly base their decisions on the opinion of others, we need to re-examine even our most basic beliefs about marketing and consumer decision making.