The information ecosystem
Effects on sales and marketing
The small-world clustering effect can influence retail buying patterns, both on and off line. This can be visualised by imagining a little old lady living in a cottage in a remote village in the English countryside. She never ventures outside of her cottage except to go once a week to the local grocery store. A travelling salesman also stops at the store to take orders from the grocer. This salesman might have a daughter who is married to an America who works in the White House. By way of conversation the salesman might tell little anecdotes to the grocer of things that happen in the White House that he has heard from his daughter via her husband.
The grocer might repeat these anecdotes to some of his customers including the little old lady. In this way, the little old lady in the cottage might be as much informed as to the goings on in the White house as most Americans - and would be connected directly to the President through no more than five links. She might well hear about a particular favourite dish of the President and decide to try it for herself. Perhaps, if her grocer didn't stock it, she'd ask him to buy it in for her.
In a similar way, the conclusions of a discussion about a product or service in an Internet discussion forum might be passed on to somebody who doesn't own a computer. People not connected to the Internet are perhaps only one or two steps further away from these discussions as anyone who actually takes part. In this way, the ideas and recommendations, coming out of debates and information exchange from a multitude of different on-line groups, spread to the population at large.
On-line influences can be highly magnified because the small-world clustering effect can rapidly transfer information from one discussion forum to another. A company in the UK, by way of a promotion, once offered free theatre tickets to the first twenty people to apply at their site. They had fourteen thousand visitors within the first twenty four hours as word quickly spread from one news group to another.
The effect of small-world clustering is bound to effect advertising and marketing techniques in the Information Age. If everyone is virtually connected to the Internet, even though they may not own a computer, it may be that word of mouth and viral marketing will have many advantages over mass media marketing techniques. This will undoubtedly lessen the importance of "point of sale" as being the place to convince and influence customers: most people will already have made up their mind by the time they reach the source.
Small-world clustering effects were not appreciated by the early dotcom companies at the turn of the century, who advertised extensively to get customers - marketing costs sometimes reaching as much as a thousand dollars per customer. Those companies found that they could get first time customers at a cost, but, there was little incentive for the customers to stay loyal if there were better similar deals on offer elsewhere - and the Internet grape vine would soon inform them if there were.
The dotcom's mistake was to assume that customer buying patterns would be the same on-line as off-line. In the bricks and mortar world, a customer might be aware of a better product or a better price elsewhere but it may not be worth the time and effort to go to the place where it is available. The situation is far different when shopping on-line. A cheaper price or a better product is simply a few clicks of a mouse away. Customer loyalty is severely tested in this situation. As long as word of mouth recommendations include reliable service and better prices, there is little deterrent to customers shopping for value rather than convenience. Simply stated: a customer list is only as good as the value being offered.
The early dotcoms were very server oriented. They believed all sales could be generated at a Web site location. The initial clarion call was "Content is king" and because there seemed to be logic in the premise that if you create interesting stuff to get people coming to your web site then this traffic could be used to generate a flow of revenue. Everybody was proclaiming that content was king and everyone should concentrate on content and, like lemmings, everyone charged in that direction. Billions of dollars were pumped into dotcom startups whose business plan was based upon this premise.
Then reality set in. The overheads and cost of generating interesting and varying content was unsustainable. Most of them ran through their capital before they had established a viable income. A new buzz expression came into regular use: "Burn rate" - the speed at which capital evaporates as a dotcom business struggles to become viable.
At the time of this writing, the clarion call is for Web site traffic monitoring, customer analysis and content customisation. It has a compelling logic. But, how much of this is going to be of use when customers have already made up their mind what they want before they arrive at a site - because Jack next door has told them what and where to buy, or, they've heard about it from an on-line discussion forum?
My gut feeling tells me that this customisation for customer profiles is no more than another passing craze, that's going to eat up a lot more speculative investment funding. There are now so many developers and solution providers getting into this "new vision" that it will soon be passé. My bet is that it will be the client side that is going to be where the real influences are going to be made - and this is going to be totally dependent upon the value and the quality of the service or product being offered.