He Has a Great Personality: Using Digital Footprints to Segment Markets

personality word cloud
Courtesy of Lambiotte and Kosinski and the Proceedings of the IEEE.

Isn’t that the line when someone tries to fix you up with a blind date — he or she has a great personality. It’s usually code word for ugly.

Unlike in dating, in the case of target marketing, personality may be your golden ticket.

A brief history of segmentation

Segmentation began in the 1950s and was dominate by demographic variables like age, income, and gender, not because these were the defining characteristics of consumers, but because that’s what information was available. Prior to the 1950s, in what marketers call the production era, most energy was focused on producing products and satisfying consumer wants and needs was inconsequential. But, with increased competition and more product differentiation, marketers like Smith argued for consumer segmentation as a tool for improved market performance. He argued:

Segments should be based on consumer/user wants and a company should be better able to serve these needs when it has defined some segments within a larger market.

By 1974, a formal definition of segmentation comes from a seminal paper published by Wind and Cardoza, which identifies market segments as:

A group of present and potential customers with some common characteristic (s) which is relevant in explaining (and predicting) their response to a supplier’s marketing stimuli.

As better sources of information arose, especially with modern digital marketing, more information is available about consumer personality, including lifestyles, media usage, attitudes, and other non-demographic characteristics. Segmentation moved from identifying target markets based on demographic variables to rich market persona, built on deep personality data.

Personality and marketing

First, let’s get an understanding of what we mean by personality. According to Boundless personality is:

Personality is the combination of behaviors, emotions, and motivations that comprise an individual human being. Over time, these patterns strongly influence personal expectations, self-perceptions, values, and attitudes.

But, the use of personality in marketing, especially for segmentation, is relatively recent. For much of its short history (the discipline of marketing is only a little over 80 years old), marketing was heavily influenced by economics, such that economic variables like pricing dominated discussions of positioning products for various market segments. It’s only within the last 10 years or so that marketers began trying to understand personality and how personality factors impacted consumer behavior.

Likely the first use of personality in marketing was not for understanding consumers, but for imbuing personality into products.  Brand personality encouraged consumers to buy certain products whose personalities they liked — a practice that remains very effective today.

Increasingly, marketers use consumer personalities to segment consumer markets and create options for positioning brands to attract consumers based on personality. And, digital marketing offers rich data for understanding consumer personality, segmenting consumer markets based on personality, and helping brands reach consumers who share certain personalities.

Big data: using consumers’ digital footprints

Understanding consumer personality is challenging because, short of doing expensive market research, what consumers think and feel, how they live their lives, and what things they value is inaccessible. With the advent of social networks and mobile devices that create a digital footprint of individual consumers, such information is readily available.

In a special issue of the Proceedings of the IEEE published in December, researchers from Namur University in Belgium and Stanford in the US discussed the use of consumers’ digital footprints to infer personality, which is useful for marketing segmentation and selective reach of messages to a particular segment based on personality as well as personality-driven search engines and recommender systems (like Netflix’s and Amazon’s related product recommendations).

When we talk about personality, we’re talking about fairly stable traits. People differ across 5 broad personality styles: openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Facebook’s myPersonality project

In 2007, researchers created the myPersonality project; offering Facebook users access to psychological tests resulting in personality data from over 6 million users (users controlled whether their personality results became public in the anonymous database and access to that database is highly restricted to researchers). Below, you can see what an individual’s personality profile looks like.

5-factor personality model
Courtesy of Lambiotte and Kosinski and the Proceedings of the IEEE.

Facebook data shows not only messages (which are mined for text data regarding values, attitudes, and lifestyle), but relationships with other users and likes (brand page and post likes). Mining this data shows personality differences across geographic regions like the one below showing neuraticism (upper) and extroversion (lower) across the US.

personality differences across the US
Courtesy of Lambiotte and Kosinski and Proceedings of the IEEE.

This pattern of Facebook likes helps predict demographic variables, as well as psychological ones such as:

  • religious views
  • political leanings
  • sexual orientation
  • intelligence

Mobile data

Mobile devices send information about geolocation, colocation with others, physical states (such as running, walking, and not moving), and call data records, as well as emotional feelings using apps such as EmotionSense.

Using digital footprints

We’ve just scratched the surface of using digital footprints, but the marketing implications are enormous.

NPD

Knowing more about customers and their personalities opens up vast possibilities for new product development (NPD). Sure, text analysis provides huge benefits when developing new products, but adding the personality component helps greatly.

For instance, let’s say your existing customers are extroverts. You could research digital footprints of other extroverts to understand their wants and needs to develop new products for that segment. Since you’re already successful with extroverts, going after this market rather than another target market usually results in higher market performance.

Messaging

We know personality is a huge determinant of how consumers respond to market messages. For instance, someone who’s neurotic will respond better to messages about safety, while an extrovert will respond better to messages about connectivity.

Courtesy of Lambiotte and Kosinski and the Proceedings of the IEEE
Courtesy of Lambiotte and Kosinski and the Proceedings of the IEEE

Extraverts also have different social network characteristics from introverts. Notice in the graphic, who extroverts (on the right) have both larger and more diverse social networks, while introverts (on the left) have dense relationships within concentrated groups. Thus, messaging travels differently between introverts and extroverts. Likely, introverts are more influential because of their deep relationships (strong ties) within small groups, while extroverts generate a wider awareness of the message because of their diverse relationships across many groups (weak ties) — based on Granovetter’s notion of strong versus weak ties.

Obviously, extraverts have some strong ties, as well, but their major benefit is in their ability to spread your message.

Facebook already allows message targeting based on some personality characteristics coming from purchased databases — such as Personicx. Data allow targeting based on personality within a broad range of characteristics such as family composition, dwelling location (ie. urban versus rural), their media watching habits, hobbies, what they like to eat and drink, preferred sports and teams, technology use, and many others. You can also target based on what they buy, which infers not only personality, but how personality acts on their behavior. I commonly advise clients to use Facebook sponsored posts because of these personality targeting options and the relatively low cost of reaching a particular target audience.

Better understanding of consumer behavior

New insights come from using digital footprints data — a type of data whose volume and richness never existed before. For instance, the knowledge that introversion and neuroticism vary in some systematic way across geographic regions is not only an interesting insight from digital footprints, but has strategic implications. For instance, marketers might use geographic shortcuts to selectively target individuals with certain personality traits.

Likely new insights will come from further investigations of personality data from digital footprints.

Caveat to using digital footprints

Of course, using digital footprints has its drawbacks. The most serious drawback of using digital footprints in the privacy issue and issues of who controls your digital data. For this reason, many consumers opt out of sharing private data and avoid platforms that don’t conform with their desires for privacy, such as Gmail and Facebook.

Need help?

We welcome the opportunity to show you how we can make your marketing SIZZLE with our data-driven, results-oriented marketing strategies.  Sign up for our FREE newsletter, get the 1st chapter of our book on digital marketing analytics – FREE, or contact us for more information on hiring us.

Hausman and Associates, the publisher of Hausman Marketing Letter, is a full service marketing agency operating at the intersection of marketing and digital media.

 

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It’s All About the Click: Traditional media versus digital media versus social media

goal strivingConversion is the end zone in marketing. Not just getting folks to buy your product, but speeding them on their buying journey by signing up for your mailing list, downloading your white paper, or going to a webinar.

Don’t believe me? According to Hubspot research, 13% of all leads come through email marketing; making it the 3rd best tool for lead generation.

And, no matter what you’re conversion goals are, digital media has a huge advantage over traditional media — it’s actionable.

Traditional media versus digital media

I know I’ve posted about the huge differences between traditional media and digital media before (and, if you missed these posts, here’s a link to the 16 differences between traditional media and digital media and another about integrating traditional media versus digital media).

But, with digital media, it’s all about the click — creating an urgency and tools for converting immediately.

If it’s not immediately obvious why digital media is more actionable than traditional media, just think about it for a minute.

Traditional media — print, broadcast (and cable), radio, public relations …

How are you supposed to respond when you see their message?

I mean, you’re driving down the road and see a billboard for a product or hear a radio commercial.

Do you stop your car to immediately call the number to order?

Do you whip out your smartphone to go online and order?

Of course you don’t. Even if the commercial message manages to cut through the clutter — other billboards, scenery, traffic, radio programming — and manages to reach your consciousness, you’re not about to interrupt your drive to order.

And, even though many folks, especially millennials making up the so-called Connected Consumers, watch TV with their laptop burning their legs because they’re too distracted to notice or their mobile device in their hands, they’re using the 2 devices in parallel, not in tandem. That means they’re watching TV with one eye (and likely zapping through commercials) and stalking their ex on Facebook. They’re not watching your commercial and reaching for their device to order your product — unless you’re Dominos.

Maybe consumer behavior will be different with Smart TV and tools like Delivery Agent that let you buy products you see on TV programs, but I doubt it. Consumer behavior patterns get locked in and changing those behaviors takes time and is unpredictable. So, for the forseeable future, your traditional media spend won’t be actionable.

Digital media versus social media

Digital media, by its very nature, is actionable. See a product in an Adwords ad or Facebook promoted post — click to go directly to the page to buy the product. In fact, if you don’t do digital media right (don’t include landing pages to let clickers buy your product directly, for instance) and your quality score increases your digital advertising costs and buries your ad on the back pages in SERPs (ranking on search engine results).

Unless you do it the right way, social media also isn’t actionable. I have this argument all the time with potential clients. Social media isn’t really marketing unless you’re ultimate goal is to drive traffic to your website. Sure, I know Facebook is really pushing it’s storefront app, Shopify, but there are lots of reasons to use an ecommerce website (with a blog) over the tools offered by Shopify.

Extending this argument, that means your goal with social media marketing should be driving traffic to your website (digital media), so social media isn’t really actionable by itself.

Is it all about the click?

Let’s return to my original statement — it’s all about the click. Is that really true?

And, if it’s all about the click, why use traditional media and social media when they don’t generate clicks?

Traditional media and social media both make sense because they drive potential consumers along the customer journey. Conversion is merely the end of that journey and too great a focus on the end, reduces the likelihood you’ll ever get there.

To continue the football analogy (with apologies to my readers outside the US for whom US football doesn’t exist), even though you only score when the football gets into the end zone (converts), you can’t throw a series of “hail mary’s (a term referring to a long pass aimed close to the end zone with the notion of a quick score). Instead, you systematically move the ball down the field in a series of first downs until you’re within striking distance of the end zone.

The customer journey is the same way. You need to focus on moving consumers from:

  1. reach
  2. acquire
  3. develop
  4. advocate

Reach

Traditional media and social media are excellent for reaching potential consumers with commercial messaging. Think about a Super Bowl ad. It reached over 100 million viewers in 2014. And, a well crafted social media strategy amplifies your original message so it might reach millions or billions on Twitter, Facebook, YouTube, or other social platform.

Although, I question the wisdom of spending $4 million on a 30 second Super Bowl ad when your entire digital marketing budget is only a little more than that. I think heavy spending on traditional advertising stems from the fact that traditional advertising is what’s been done for over a century to mass market products. Reducing spend on traditional advertising spells disgrace and potential dismissal for the executive making that decision if sales drop even slightly. Meanwhile, the upside of using digital advertising is both less tangible and slow. No one is likely to lose their job over NOT doing digital marketing and, even successful digital media is more a slow burn than an immediate spike in sales.

Acquire

Consumers buy products based on emotion, not reason. Even industrial buyers.

Social media, traditional media, and digital media all aid in pushing the emotional buttons that drive sales. Hence, setting the stage for conversion, social media, traditional media and digital media establish the brand image and make the emotional connections necessary to make conversion happen.

Develop

Developing your audience happens better on social and digital media because there’s more real estate and more frequent interactions on these platforms than on traditional media. In part, that’s because content distribution on social and digital networks is costless, while traditional channels charge high fees for distributing content.

Now, don’t get me wrong — content marketing isn’t free. Far from it. But, distribution is free. And, it’s that consistent flow of valuable content that makes social and digital media work. It’s the grease that gets your brand to show up in all kinds of searches (not just internet search, but on all kinds of social platforms).

Content (both created and curated) goes beyond emotional involvement with the brand by creating a tit-for-tat relationship. This indebtedness creates an obligation making purchase more likely.

Not only that, a sound content marketing strategy of sharing value with your target market clearly establishes you as a leader in your industry and, in many cases, an expert in your field. Your target audience trusts you and that trust results in conversion.

Advocate

In the old days, consumers might have gone around humming your jingle, thus sharing your brand with others. Today, social and digital media generate the engagement that drives advocacy.

And, don’t underestimate the importance of an advocate. Sometimes called brand champions or brand ambassadors, advocates are the online cheerleaders for your brand. They not only add their voice to your marketing messages which makes them more trustworthy, but they aid in customer support by answering questions and solving user problems.

Need help?

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Hausman and Associates, the publisher of Hausman Marketing Letter, is a full service marketing firm operating at the intersection of marketing and social media.

 

 

 

 

 

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The Internet Economy

Saul Klein
Saul Klein of Index Ventures — author of the Klein Report

The Internet economy is bright — very bright according to Saul Klein of Index Ventures. But, are investors getting returns like Facebook and Google when they invest in tech? Or are they missing some of the secret sauce that makes these investments almost bullet-proof?

Returns like Facebook and Google

Look at recent investments by Facebook and Google — Instagram (by Facebook) and YouTube (by Google).

Facebook paid $1 billion to acquire Instagram in 2012 – not a paltry sum. Begun in 2010 by a couple of Stanford grads, the app today boasts over 200 million users with more than 75 million logging on each day, including both the Obamas, the Royal family, and most celebrities.

What did Facebook see in Instagram? The fast growing users base on dedicated users fit Facebook’s business model and the photo sharing over Facebook (and other social networks) created synergy, but maybe the thing that drew Facebook to buy Instagram was because they were afraid of Instagram — afraid users would desert Facebook for Instagram … afraid users wouldn’t want to split time between the 2 apps and would choose Instagram … afraid Instagram solved a problem — sharing photos — that made Facebook obsolete. Just as General Motors acquired Oldsmobile, Cadillac, Chevrolet (once competitors) to eliminate the competition, Facebook did the same with Instagram.

Google’s purchase of YouTube for $1.65 billion 4 years earlier made it the most expensive acquisition by Google to date — topping what they paid for all acquisitions the year before. Again, the purchase was a strategic fit for Google, who grew from its search roots to become a major player in many aspects of life for its target demographic. Following the successful strategy of Apple Computers, Google seeks to be everything to this target market from search to wearables to automation (self-driving cars, for example), to communication and productivity, to every aspect of innovation (life extension, for instance). Buying YouTube meant not only acquiring more folks in this target demographic, but convincing them to spend more time with Google properties and, through its single sign on, making easier to bundle everything a consumer needs into one package. Acquisition of YouTube also provides synergy — making Google’s chief money-maker — adsense — even more valuable and driving more businesses to the advertising platform (which also operates on YouTube).

No wonder Google sowed up 70% of search!

A good question is what Facebook and Google see that eludes other investors? And, how can other tech investors get returns like Facebook and Google?

Investor barriers

According to Saul Klein, investors today are investing like investors of 20 – 30 years ago — not understanding the ecosystem changed forever with the rise of the Internet economy.

According to Klein:

The Internet isn’t really a technology, it’s a belief system

And, ecommerce companies, software, and online travel outperform the traditional markets (creating tangible products) where investors traditional focused their resources. With the exception of smart devices, these markets just don’t perform that well anymore.

And, Klein isn’t alone. The prestigious Boston Consulting Group (which created the infamous BCG matrix taught to generations of marketing students) estimates the growth potential for the internet economy at $4.2 trillion. In their report, BCG analysts say:

By 2016, there will be 3 billion Internet users globally—almost half the world’s population. The Internet economy will reach $4.2 trillion in the G-20 economies. If it were a national economy, the Internet economy would rank in the world’s top five, behind only the U.S., China, Japan, and India, and ahead of Germany. Across the G-20, it already amounted to 4.1 percent of GDP, or $2.3 trillion, in 2010.
the internet economy
Courtesy of BCG

Because Internet growth is exponential, not linear, opportunities in the Internet economy far exceed those available through any other opportunity — which also fueled not only the growth of Facebook and Google, but their acquisitions of Instagram and YouTube. Take a look at how the Internet economy is shaping up next year in this chart from the BCG report

And, they expect continued growth means the economic impact of the Internet economy will double in just 6 short years — between 2010 and 2016. Beyond 2016, exponential growth continues — shortening the time it takes for economic impact to double.
Developed markets in the US, Western Europe and much of Asia (including a surprising strong showing by South Korea) lead the way in the digital economy in terms of BCG’s e-intensity, which assesses a countries Internet infrastructure, online expenditures, and online engagement online, but new comers in Latin America, China, and the Middle East (except Israel, which maps to Western Europe in e-intensity), are leap-frogging directly into social the way they leap-frogged directly into mobile rather than land-based telephones.

Research versus buying online

We probably already knew this — or at least suspected it. The amount of money spend online is really tiny despite years when gurus predicted this would be the year when online sales (desktop and mobile) would take off. But, don’t underestimate the importance of online marketing and retailing. A large percentage of consumers do their research online, then buy what they want in the store — the brick and mortar kind. Mixed channels — using 2 or more channels — are common, especially in the US, where almost twice as much stuff is purchased in a brick and mortar (after researching online) as is purchased online.

Multichannel retailing goes the other way, too. With companies like Best Buy complaining about customers taking up time (and time IS money) shopping in the stores, then buying online. Shoppers even shop the price of an item right in the store before making a purchase. If they find a TV or Blu-ray for less on Amazon, there goes the sale.

Of course, not all research is intentional. We get recommendations from our friends all the time on social networks. It’s also common for folks to ask their friends for recommendations before buying. I recently had a friend ask whether to buy a Sleep Number or Temporpedic mattress to replace his existing foam mattress. We trust our friends because they don’t have any hidden agendas — they give it to us straight. This, of course, explains the true power of social media.

Not to mention all the brands building their image through social channels. Branding sends subtle messages about the positioning of the product and it’s suitability that have a subconscious influence on the brands we choose in both online and offline settings.

Even though a small number of purchases actually occur online (about 4.3% of GDP according to BCG), the power of the Internet in influencing offline purchases is enormous.

So, what does it all mean?

I’m glad you asked. The Internet economy impacts much of how we market businesses today. Like Klein said, its a belief system supported by technology, not a technology.

As an investor

You should probably think like Facebook and Google — investing in the Internet economy by building synergies with existing business and stopping competitors by gobbling them up. Stop investing the old way and supporting startups who are doing things the old way. Today, that probably means stop looking for the next Facebook or Google and, instead, look for firms like Instagram and YouTube who expand the internet economy.

Two suggestions — the Internet of things and email substitutes.

As a marketer

The Internet economy presents great opportunities, but also great challenges. Learn to harness the power of the Internet economy by putting on a different set of glasses than the ones you’ve used to view the world so far.

If you’re not online (and mobile-friendly), you’ve missed the boat. A digital presence is just the price of admission now. And, don’t go creating an app unless you provide some enhanced capability over your website. Just make you website mobile friendly. The high cost of keeping your app at the top in the app store is too high to do anything different.

Joining today’s Internet economy means becoming part of the new ecosystem — an ecosystem that’s consumer-driven, not like the one we all grew up in.

As a consumer

The Internet economy offers great opportunities to increase your buying power and get things that truly make your life better. Demand more from brands — make them earn your $$$$ every day. When they do something wrong, vote with your dollars to drive them out of business. If they offer greater opportunity, give them a try and tell your friends if it works out. We certainly need that more than sharing another cat video!

Need help?

We welcome the opportunity to show you how we can make your marketing SIZZLE.  Sign up for our FREE newsletter, get the 1st chapter of our book – FREE, or contact us for more information on hiring us.

Hausman and Associates, the publisher of Hausman Marketing Letter, is a full service marketing firm operating at the intersection of marketing and social media.

 

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How to Use Consumer Psychology to Increase ROI

consumer psychology and ROIEver think about how consumer psychology affects buying decisions?

If you think about it at all, you likely think consumers make decisions similar to the ones on the left in this infographic. And, if you’re a marketer, you probably learned consumer psychology that looked something like this (especially for advertising):

Awareness

Interest

Desire

Action

AIDA

Termed AIDA (because marketers love acronyms almost as much as the military), this formula has been taught to marketing students for decades. It’s simple and easy, but also not very insightful. And, in many cases, dead wrong.

AIDA assumes consumers actively seek information about products to make their lives better. And, that may be true in certain situations, but most of the time we’re simply out to have a good time and don’t want to be bombarded with advertising. That’s why we mostly ignore the right hand side of Google search, Facebook’s Newsfeed, and zap through commercials on TV with our TIVOs. We simply don’t want to know about your stuff, so our actual involvement with your brand looks more like the infographic’s right side — we meander aimlessly through our days online and off, not paying much attention to your advertising.

Consumer psychology and social media

That’s why social media, when done right, works so well, especially content marketing. By creating valuable content, you evade consumer defenses against advertising and put your brand right in their newsfeed, search results, and Twitter feed — where consumers are defenseless against your message.

Social media (both owned and earned and some paid) increases consumer exposure to your brand and also creates a great image for your brand, which increases their interest in your products.

Despite increased awareness of your brand through content marketing, slogging through other aspects of consumer psychology, like the consumer decision-making process. create challenges. Overcoming these challenges to consumer psychology potentially explode your ROI.

Consumer psychology challenges

Awareness

Take a look at the infographic’s right side. What you see is a consumer who appears on autopilot and that’s pretty close to the truth. Today’s connected consumer is less focused on your advertising and doesn’t dedicate much effort to processing your message. Instead, they’re using multiple screens — likely watching TV (or their computer monitor via Hulu or Netflix) while checking their Facebook or Flickr feed, chatting with their friends on SnapChat or text message, or checking out their friend’s Pinboards.

Capturing any level of awareness of your brand relies on repeat exposure to your message through an integrated effort combining paid, earned and owned media with traditional advertising.

Elements of successful social media marketing
Elements of successful social media marketing

Look at this integrated marketing infographic embedded within the larger infographic. Not only does it highlight the integration of paid, earned, and owned social media with traditional advertising, it shows how SEO, combines with traditional marketing elements such as market research to understand what consumers want, excellent customer service including product quality, branding, market segmentation and target marketing, as well as using tools of influence, CTA (call to action), and other motivational tools.

Interest

Interest relies heavily on creating valuable content, especially when it generates engagement from networked users connected to the consumer.

Content that’s novel, entertaining, and eye-catching works best to generate interest in your brand. That’s why use of video, infographics, memes, and podcasts dramatically increases interest.

A good example of this comes from Talenti, the premium gelato. They create innovative content, such as their wheel that users can spin to determine which flavor to buy. Combined with guerrilla marketing efforts like delivering samples via bicycle at community events, the company is closing in on big names like Ben and Jerry’s in terms of market share.

Desire

Reaching consumer desire relies heavily on a positive brand image and recommendations from a consumer’s social network. Surprisingly, younger consumers consider the tacit endorsements of mere social media acquaintances more than the recommendations of friends and family according to a study. These younger consumers seek user-generated content and are more likely to follow a brand on social networks than family and friends.

That’s some weird consumer psychology — so brands need to up their game to reach these millenials.

Action

Taking action relies more on logistics than consumer psychology. Factors such as pricing (and financing), availability, and the effort necessary to acquire the product precedence at this stage. Simple improvements across these factors reduce the nearly 68% of abandoned online shopping carts.

Online shopping, especially new Facebook shopping options, make it easier for consumers to take action — buy your brand. Reducing the # of clicks required to make a purchase (ie. Amazon’s one click shopping), reducing registration requirements, using easy payment options like PayPal, and offering in-store pickup and exchange all enhance your close rate.

Consumer psychology and analytics

Making improvements in your marketing and communication based on knowing how consumer psychology affects ROI can have a huge impact on your success.

But, what get’s measured, get’s improved. To make the right improvements requires collecting metrics on the right factors.

Consumer psychology tells us there are a wide number of factors impacting conversion (not to mention repeat purchases and average order size) that affect ROI. That means your analytics must focus on the process — the entire consumer journey, not just the end game (conversion). Enhancing metrics related to sentiment, share of voice, and audience growth, as well as your success in reaching influencers and your target market all contribute to your ROI.

Need Help?

Whether you need a complete content marketing strategy or a complete metrics-driven social media strategy, we can fill your digital marketing funnel. We can help you do your own social media marketing better or do it for you with our community managers, strategists, and account executives. You can request a FREE introductory meeting or sign up for my email newsletter to learn more about social media marketing.

As always, leave your questions or comments below and I’m happy to provide more details on how consumer psychology impacts ROI.

consumer psychology

 

 

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The Future of Facebook

facebook likefacebook likefuture of facebookWhat is the future of Facebook?

I really love the symbolism in this image because I think it reflects what the future of Facebook looks like — Zuckerberg dwarfed by the brand he created.

The future of Facebook: Advertising

Ever since Facebook went public in 2012, pressures to produce revenue pushed the social network toward a business model relying more heavily on ad revenue and less on social interaction. As late as Aug. 2008, Zuckerberg is quoted as saying:

I don’t think social networks can be monetized in the same way that search did … In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.

Yet, now, in 2014, advertising revenue appears the exact model adopted by Facebook. Despite this, the average value of each Facebook user (to Facebook) is less than $2, with women being worth a little more than men and US users worth a bit more than users elsewhere, according to AdAge.

Driving Facebook’s advertising model, organic reach on the platform is nearly wiped out and, industry analysts and Facebook insiders, predict organic reach on Facebook to disappear later this year, according to Facebook insider, Brian Borland.

Declining organic reach forces brands to buy advertising on Facebook, which is a good investment (especially giving the enhanced targeting opportunities through Facebook Ad Manager), but it’ll put tremendous pressure on smaller brands. Small brands are not only pay a higher percentage of their revenue on Facebook, but their smaller fan base likely translates into higher advertising costs as Facebook uses a bidding process similar to that used by Google Adwords meaning smaller levels of engagement result in higher bids to reach a brand’s audience.

Small businesses, who flocked to Facebook as a way to compete with the big brands despite limited advertising budgets will certainly feel the pinch under Facebooks new advertising-driven business model.

 The future of Facebook: Stores

Facebook tried Stores a while back, yet this form of ecommerce, F-commerce, never really took off because users go to Facebook to interact with their friends, not buy things. In fact, when you look at the top F-commerce storefronts, you find them heavily loaded with pop culture icons like Lady Gaga, Starbucks, Justin Bieber, and other entertainment properties, such as TV shows and movies, and sports. No big surprise there.

Smaller brands, under $100,000 have more potential on F-commerce sites than the big brands, according to the New York Times. So, while big brands are closing down their Facebook storefronts in favor of richer websites, small brands, especially those with a niche market and loyal following are doing well.

Of course, F-commerce happened by accident rather than design and it’s not clear how such sites contribute to the future of Facebook unless they support their stores with advertising.

Monetizing the future of Facebook

According to NASDAQ, Facebook’s future is bright. Facebook’s first quarter profits jumped 72% mainly due to increasing advertising revenue.

However, their recent acquisition of WhatsApp, for whom advertising is anathema, questions the stability of advertising on the platform. WhatsApp, which costs Facebook $16 billion shows no immediate signs of improving monetization at the behemoth.

And, while each change in the Facebook platform brought cries from users dissatisfied with the changes, usage is under increasing pressure as newer social platforms, such as SnapChat, eat into Facebook’s user base — especially younger users. Concerns over privacy and Facebook’s heavy handedness in forcing users to adopt products, like Facebook Messenger, and new layouts, put pressure on consumer usage and point to consumers reaching a breaking point.

Time pretends an 80% drop in Facebook users based on a contagion analysis model from Princeton researchers. Certainly the precipitous decline of MySpace, which dominated the social networking market before the ubiquitous availability of Facebook, followed such a pattern of rapid spread and an even faster decline.

So, what’s the future of Facebook. My own personal belief is that the Princeton researchers are likely right and I certainly don’t own any Facebook stock nor would I advocate purchasing any. I do, however, think the decline will not be as precipitous as predicted by the contagion model and will likely be a slow attrition rather than an avalanche of users defecting to the next big thing in social networking.

Your turn

What do you see as the future of Facebook?

Has your Facebook usage declined or increased over the last few months?

Do you find yourself spending more time or joining other, competing social networks?

Need Help?

Whether you need a complete content marketing strategy or a complete metrics-driven social media strategy, we can fill your digital marketing funnel. We can help you do your own social media marketing better or do it for you with our community managers, strategists, and account executives. You can request a FREE introductory meeting or sign up for my email newsletter to learn more about social media marketing.

Of course, Facebook controls its own future, to an extent.

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