Third-party content leads to the demise of traditional advertising

I came across an article last week from the NYT, and I found it interesting on several levels, not least of which was that if comes from research done at my alma mater, Duke University.  Most important however is the fact that the article underscores a phenomenon that we live every day at Ivy:  that of assisting marketers in a battle that they’re steadily losing, in trying to persuade their customers in favor of their products given the wealth of “unowned” (read:  third-party) content outside marketers’ control.

The article puts it best:  “As consumers rely more on one another, the power of marketers is being undermined, said Itamar Simonson, a Stanford marketing professor and the lead researcher.”  The initial discussion is about the value of providing the long-understood good-better-best trilogy of options to consumers, knowing that those who’re less informed will generally opt for the middle option as a way to optimize on vectors of both price and feature set.  (They refer to this phenomenon as the “compromise effect.”)  From there, the article moves on to state that with the advent of customer product reviews, the middle road was largely abandoned in favor of the good and best options.  The main driver for this behavior was that others’ experiences with the products are now available proxies for our own experiences, at which point we identify with one or another set of consumers, and purchase accordingly.

Put bluntly, the study reveals what most of us already intuitively know from our experience as digital buyers:  Outside parties’ opinions have much more sway on our purchasing behavior than does the marketer’s pitch.  As the article author puts it, “[b]rand names mean less. The results suggest that companies should spend less money trying to shape consumer opinions in traditional ads, he said, and more on understanding what and who are shaping those opinions.”

I scarcely could’ve said it better myself.  As a private consumer, we all know and practice this bias toward lending far greater weight to third-party proxies for our own experience, stealing clout from what the company itself has to say for itself (it’s a zero-sum game at the moment).  However, despite being consumers themselves, marketers are still slow – or perhaps reluctant — to realize this drastic shift in buyer behavior.  Or if they do appreciate that it’s occurring, they don’t understand how to shift their own approach to take advantage.

But that’s material for another post …

NB:  Here’s the article in its entirety in case you’re not an NYT subscriber:

There’s Power in All Those User Reviews
By MATT RICHTEL
Published: December 7, 2013

You are no longer the sucker you used to be.

So suggests continuing research from the Stanford Graduate School of Business into the challenges marketers face in reaching consumers in the digital age. As you might suspect, the research shows that a wealth of online product information and user reviews is causing a fundamental shift in how consumers make decisions.

As consumers rely more on one another, the power of marketers is being undermined, said Itamar Simonson, a Stanford marketing professor and the lead researcher.

In the study, participants were asked which of three Canon cameras they’d like to buy. Before deciding, they were allowed to spend a few minutes reading user reviews and other information about these and other cameras on Amazon.com.

To get the full impact of the findings, you first have to know the conclusions of a similar experiment decades ago by Dr. Simonson, then at Duke. In it, some subjects chose among three Minolta cameras: an inexpensive one, a midprice one and an expensive one. Another group was given a choice of just two of the Minoltas: the midprice one and the less expensive one.

The researchers found that when study subjects had only two choices, most chose the less expensive camera with fewer features. But when given three choices, most chose the middle one. Dr. Simonson called it “the compromise effect” — the idea that consumers will gravitate to the middle of the options presented to them.

The study showed how marketers could manipulate consumers. Just by presenting three differently priced options, they could get consumers to gravitate to a midprice one from a less expensive one. This finding further led Dr. Simonson and other scholars to describe widespread “irrational” behavior by consumers who made decisions not based on a product’s actual value but on how the item was presented relative to other products.

Flash forward to the new experiment. It was similar to the first, except that consumers could have a glimpse at Amazon. That made a huge difference. When given three camera options, consumers didn’t gravitate en masse to the midprice version. Rather, the least expensive one kept its share and the middle one lost more to the most expensive one.

“The compromise effect was gone,” said Dr. Simonson, or, rather, he nearly exclaimed the absence of the effect, underscoring his surprise at the findings. They are to be published next month in “Absolute Value,” a book by Dr. Simonson and Emanuel Rosen.

Today, products are being evaluated more on their “absolute value, their quality,” Dr. Simonson said. Brand names mean less. The results suggest that companies should spend less money trying to shape consumer opinions in traditional ads, he said, and more on understanding what and who are shaping those opinions.

Ran Kivetz, a marketing professor at Columbia who did his dissertation at Stanford under Dr. Simonson, calls the new findings “very significant,” but sees a catch: Digital tools can change the compromise effect but strengthen companies in other ways, letting them gather consumer data and gain instant feedback on what marketing ideas work. In theory, it could lead to more powerful, if subtler, manipulation.

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