Wisdom of Consumer Crowds?

    October 23, 2007

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.