3 Theories That Can Make You Rich! (Part 1)
Remember sitting through high school and college classes where the instructor droned on about some obscure theory you were certain would never make any difference in “the real world”? Sometimes it seemed like you were learning a lot of nothing…and that was before the days of social media marketing, rapid technology innovation and the “information age”. Imagine how much less relevant some of those same old theories must sound today; many literally haven’t changed for decades. Since 90% of all jobs that will be popular in 50 years don’t even exist today, it often seems like education is outdated by the time it makes it to the textbooks. Well today we are going to do something a bit different. We’re going to present three well established theories with real-life applications that can actually make you rich. But don’t worry – this will be short, sweet and to the point. No dull, lifeless lessons here. Only great information able to transform your social media marketing strategy into a profit creation powerhouse.
Before we get started, take a few moments to reflect on your favorite theories and formula from back in school…done yet? So, how long is your list? As a social media management firm, we aren’t embarrassed to admit, ours is painfully small. How small?
Whoops! Did you miss our list? Yeah – that small! So, we understand that not every reader will be immediately excited about the idea of a theory, formula or other vague academic sounding concept. Bear with us; this really is different. You see, these three theories can make or break fortunes especially when combined with the potential of social media marketing because they provide a method to understand the madness behind behavior and marketing. This is important because social media marketing and management is SO new it doesn’t yet have a large body of knowledge available to researchers. It’s one reason few other social media management firms even attempt to inform readers about advanced topics such as this. On the other hand, it is possible to generalize or draw conclusions from other behavioral marketing fields in order to maximize social media marketing impact. Today we are going to do exactly that.
Profit Theory #1 -Prospect Theory
Can you identify a good prospect when you see it? Can your clients? This question is of more than a passing interest to social media marketing firms; most people “think” they can spot a good prospect or deal but in reality, the results are much less impressive. Prospect Theory essentially states that people hate losing money. In fact, they hate to lose money (or anything else they own) even more than they like making money. This relationship is so strong that researchers have been able to quantify the exact level of dislike; on average, people hate losing money twice as much as they like to make it. So, what does this mean for social media marketing? The implications are stunning!
1. Given the choice, most people will opt to forego something profitable in order to save or retain what they already own. This behavior can be seen in many different settings or situations. For example, as a social media marketing firm, we frequently encounter small business owners that are interested in maximizing profits and expanding their reach with social media but are reluctant to switch from an SEO, email or even direct mail strategy because it worked in the past. Preserving the status quo even in the face of a declining standard is often evidence of the Prospect Theory at work.
2. Reject Risk. Another commonly encountered example is the tendency of social media connections to reject risk in order to preserve existing value is the reluctance to take advantage of any offer perceived to be based upon probability or “risk”. To put this into a practical example, let’s say there was a $10 surcharge for shipping an item…researchers have determined it would take a $20 discount to entice most buyers into believing it was worthwhile.
3. Underestimate Opportunity. Last but not least, buyers tend to over-estimate risk but severely under-estimate opportunity leading to a double whammy of missed potential. The same people that might happily plunk down $20 to buy lottery tickets will balk at the idea of spending the same amount to buy a product or service designed to inform or educate them to make hundreds or even thousands more profit each year. This shows both tendencies in their full “glory”…first, the client or buyer doesn’t want to “risk” their $20 on an unproven product therefore demonstrating the basic premise of prospect theory…the desire to protect what they already own. On the other hand, the perceived reward associated with winning the lottery makes them actually believe there is a “chance” they might win big. That risk/reward ratio is well established leading to a tendency to plunk down ever larger sums of money on ever decreasing levels of chance. Ever notice how ticket sales for a lottery tend to go stratospheric as the jackpot (and number of participants) increases? It’s the same concept put into action.
When viewed as a whole, Prospect Theory provides a strong foundation for understanding consumer behavior especially when coupled with social media marketing. It is necessary to create a high perceived value/reward with a low perceived risk in order to compel people to take action. Tune-in tomorrow to read the 2nd theory that can make you rich!