In the nearly three decades since its birth in 1994 as an online bookseller, Amazon has expanded into a multitude of product categories, grown its market cap to over $1 trillion and earned the nickname “The Everything Store”—apt when you consider that Amazon has over 353 million products listed on its marketplace, 12 million of which are sold by Amazon itself.
Among the array of Amazon’s many notable accomplishments, a few stand out, like launching the first of its kind online marketplace or introducing discounted shipping thresholds to the world of e-commerce. The launch of Amazon Marketplace in 2000, allowing third-parties to sell goods through Amazon’s platform, effectively established a new standard for what is now known as modern e-commerce. Amazon’s introduction in 2002 of free and discounted shipping ultimately led to, as we have today, consumers expecting, even demanding, low cost and free shipping on most everything. Yet, Amazon’s most profound innovation is likely neither of these. Rather, upon historical re-examination, the company’s most consequential accomplishment may prove to be its effect on the fundamental way products and services are marketed in the first place.
THE RISE OF SOCIAL PROOF
In 1995, Amazon began letting customers post reviews of products. While initially seen as an offbeat idea, reviews have long since become key to success on Amazon. Today, there are approximately 250 million reviews on Amazon and they are in large part the criteria by which many consumers decide whether or not to shell out their money. Of course, this is not just true of Amazon. It’s well known that consulting product reviews before making a buying decision has become standard in online shopper behavior, which is why most online stores work so hard to get people to review products. According to a survey by Brand Rated, 95% of consumers read reviews and 58% say they’d pay more for a product with good reviews. Bottomline, reviews engender a level of consumer trust that drives sales.
Seeking validation for a purchase decision is inherent to consumer behavior. It’s the whole reason brands exist. In the past, validation came from the choice of brand. But in those days, brands had total control over the brand message. No longer. Nowadays, much of that control is in the hands of the consumer and more and more, validation comes from the opinion of another consumer. In fact, per Nielsen, 92% of consumers worldwide trust recommendations from friends and family more than ads, which takes us to the definition of Social Proof.
“Social Proof” is a term coined by Dr. Robert Cialdini that in essence means relying on other people’s opinions or actions to inform our own. In online shopping, social proof relates to the influence someone else’s assessment of a product has on my choice to buy, hence the power of Amazon reviews. But the impact of social proof can apply to more than just lower funnel decisions (to buy or not), it can influence our feelings and choices throughout the marketing funnel from brand awareness to consideration to purchase decision and post-purchase satisfaction and loyalty.
THE ROLES OF COMMODITIZATION + TRUST
Why does this matter? All marketing strategies seek to accomplish two fundamental things, avoid commoditization and build trust.
Simply put, commoditization is a competitive dynamic in which products in the same category become so similar—with respect to perceived features and benefits in the minds of consumers—that they are left to compete on price alone. A brand’s response to commoditization depends on a couple variables, including the complexity of the product in question, the economics of that market and how willing and able the market leader is to invest in protecting its advantage. But traditionally, companies have looked to avoid commoditization by investing in innovation and/or investing in brand. With the former, a company might try to keep improving upon its product with the hope that consumers will continue to see value in, and be willing to pay a premium for, each new generation of the product. However, the proliferation of low-cost manufacturing, giving rise to less expensive copycat products, makes costly R&D to support perpetual improvement cycles harder to justify. The other approach, brand building, involves driving brand loyalty via a heavy investment in advertising and marketing; an investment which made today, without other marketing support, is far less likely to generate a great ROI because consumers place as much trust (if not more) in social proof as in brands.
And how big is trust in marketing? In short, people buy from brands they trust. In times past, consumers trusted advertising far more than they do today. Nowadays, older Americans still tend to rely on brand reputation whereas younger generations are more skeptical. Younger folks generally put their trust in other people before brands.
According to one Nielsen study, trust in traditional advertising in more developed markets appears to be waning. “Globally, trust in advertising is lowest in North America and Europe—up to 20% lower than in Africa, the Middle East and Latin America.” Conversely, the credence of social proof is on the rise. In fact, per a different survey, while 61% of those surveyed said they’d trust a recommendation on social media from someone else, only 38% said they would if it came directly from a brand. Another survey by Clear Channel and JCDecaux found that while 80% of those surveyed think that trust is essential when making a purchase decision, only 34% said they actually trust the brands they commonly use. Generations of brand marketers are rolling over in their graves. Plain and simple, the influence of social proof in business today can’t be overstated. When it comes to brand trust, the route to building it with younger consumers is by way of social proof.
WHERE ARE WE HEADED?
Of course, no one knows for sure but what we are seeing is the growing significance of social proof. Typical examples are Amazon reviews, Trustpilot and Yelp. Amazon’s launch of the “Amazon Choice” label is another. However, there are many more ways in which businesses leverage social proof to drive results—including, case studies, testimonials, showcasing awards and accolades, compensating Influencers to shill a brand, among many others.
If the last few years are any indication of where marketing is going, reviews and social proof may just speak louder to consumers at the cash register than Madison Avenue’s best efforts. Who knows, in the future, social proof might completely transform what we consider marketing and advertising today. I’d argue that companies shouldn’t jettison the tried and true just yet, rather they need to approach the problem in a more nuanced way. When a business case can be made for it, invest in innovation and in tandem, invest in brand building. Brand loyalty will be the only sure way to see a return on investment from your product improvement efforts. And in every case, invest in building social proof. This is the world we live in; today, the best way to develop a sustainable level of consumer trust in your product and brand is by way of social proof.