There is a concept in macroeconomics called ‘perfect information‘. In brief (and apologies for missing many details of the theory and debate for a non-specialist audience), this would say that if all consumers know all things, about all products, at all times, then they will choose the best one for them. Taken to its conclusion, this theory would say that the best products would get the highest sales; and conversely the worst products would get no sales. The best products would survive, because they are the best.
Traditionally, in any purchase, the consumer does not have perfect information at all. Buying a TV, for example, there was no way that they can know all things about all products. Their selection was immediately reduced to the ones a particular store had chosen to stock (so they were not even exposed to all products), they got most of their information from either what the manufacturer or the salesperson chooses to highlight (and so they were in control of the information that is known) and, critically, they did not know about future products that might be just about to come out. The power in this sales relationship lies with the manufacturer and the salesperson, and not the consumer.
Of course, there have been many ways that this ‘information asymmetry‘ can be rebalanced. Organisations such as Which? in the UK have long published detailed reviews and analyses of products. As competition in the market grows, consumers have access to more stores in their towns and online that stock more products for them to compare against. But they are still limited by the products they are able to find (and then buy) and in most cases by the information the manufacturers and salespeople choose to release about their product.
Social media has changed this, or at least many would say has the potential to change this. Reviews, the ability to find other people with a product, and the ability to share images, videos and discussions have flooded the market with information from consumers and for consumers. The manufacturers and salespeople have lost some of their advantage and the information asymmetry is yet again rebalanced a little.
But, will all this extra information flooding the market lead to consumers knowing about all products that exist, knowing all information about these, and having this information to hand when they want it? Will social media lead to perfect information in the consumer market?
It is tempting to claim that it will do. Tempting to claim that social media is bringing a revolution in consumer information that will put consumers on an equal footing with manufacturers, salespeople (and marketers). Tempting to claim that social media will lead to only the best products surviving in the market. But this is unlikely to be the case.
What is happening is actually confusing the picture even more than it was before. In the traditional example above, it was clear that the manufacturer and salesperson had more information than the consumer, and everybody knew that. Social media has not led to perfect information, but rather has made things less clear.
Now the consumer does have more information, that is clear and is evidenced in their changing purchasing behaviour. It is marked in some markets (notably hotels with the likes of Tripadvisor) than others, but this extra information is coming and is changing markets. However, this information is not perfect – the consumer still does not know everything about every product – social media is creating two bigger issues with this information:
- Access to information. The real challenge with all this extra information in the market is the ability for consumers to search for, sort through and find the information they want. As more and more information is out there, tools and organisations that facilitate this will become more important and more valuable.
- Information accuracy. The problem with many reviews and other information in social media is that there is no way that we can 100% assure its accuracy. Often this doesn’t matter – we use it to help inform a decision and use our best judgement to decide on the accuracy. But perfect information relies on the information we have about a product being accurate. As has been seen (again with many Tripadvisor reviews), this cannot be relied upon.
So social media is certainly flooding the market with information. It is definitely rebalancing the information asymmetry between the manufactures / salespeople and the consumer. And it is evidently changing consumer behaviour and making brands change and behave differently too.
But is social media leading to perfect information? No. It is muddying the waters. Perhaps the biggest danger (or advantage – depending on the point of view you are looking at this from) is that social media is leading consumers to think they have all the information and are making the best choices of the best products because of this. When in reality they may be getting closer to this state, but they are not there yet and will probably never get there.