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About a year ago I wrote about the fact that people have two evaluation frameworks – a market framework and a social framework – and how rewards are not a good idea when looking for community feedback on products.

Authors Ori Brafman and Rom Brafman, in their latest book Sway: the irresistible pull of irrational behavior, describe a research project at the National Institutes of Health (NIH), that confirms the same paradox through neurophysiology.

The NIH researchers placed participants in an MRI machine fitted with a monitor and a joystick to allow the subjects to play a game. At the beginning of each game a circle, a square, or a triangle would appear on the screen. A circle meant that if you succeeded in completing the upcoming task – zapping a figure as it appeared on the screen – you’d earn a monetary reward. Different circles meant different size rewards. A square meant that if you failed to zap the figure you had a penalty of either 20 cents, $1, or $5. A triangle meant that no money was on the line.

When the researchers monitored which part of the brain was active in the various stages of the game they found that every time a circle or square appeared, that is every time there was money to be gained or lost, the pleasure center of their brain lit up – the same center that is associated with the high that results from drugs, sex, and gambling, and which can result in addiction. When triggered, that part of the brain releases dopamine that creates the feeling of contentment and ecstasy – and as addicts will tell you, you need increasing doses of dopamine to achieve the same result over time.

In a separate study, subjects were asked to play the same game, but instead of making or losing money, the participants were told that the better their score, the more money would be donated to charity. Now the MRI revealed that the pleasure center was completely quiet, but instead the “altruism center” of the brain lit up. That is the part of the brain responsible for social interactions – how we perceive others, how we relate, how we form bonds.

The book also describes other case studies of people evaluating things in either their social framework or their market framework. A fascinating one is when the Swiss government was looking for places to dump nuclear waste after World War Two. When they selected two towns and tried to convince the town members to take one for the team by accepting to live near a nuclear dump, 50.8 percent of the voters agreed with it. Thinking that this was still too much opposition, the government instead offered a monetary reward to live next to the dump – the equivalent of $2,175/year. What happened is that after the monetary reward was offered, only 24.6 percent of the population agreed with it. And when the government upped the reward to $4,350 and then $6,525 per year, only one voter changed his mind.

This all proves that using rewards is really bad for marketing. People get addicted to it and they expect it in increasing quantities. This also explains why the SAP developer community had some bullying in the community when they offered individual rewards, and how that all went away when they changed the program so that the overall number of points within the community triggered a donation to a charity.

It is a recurring theme now – people often ask us: why are you doing what you doing? Why are you doing the CMO 2.0 Conversations, why are you doing the Marketing 2.0 communities, the Marketing Intelligencer, and what’s up with the Tribalization of Business Study?

The simple answer – we’re practicing what we preach.

We do not interrupt people and try to convert them into clients – rather we engage them in conversations that they want to have. And we make sure that we package the content that comes out of those conversations in such a way that they want to reuse it with their friends and colleagues (several CMO’s have now told me that they tell every single one of their team members to listen to the CMO 2.0 interviews). These offerings and activities also allow us to reach members of marketing industry associations who see benefits in sharing that content with their members.

Or take another example: our Marketing Intelligencer newsletter in which we are not trying to exclusively push our stuff, like most marketers do, but rather add real value by being trusted curators for what’s most important for marketers to read on the web – even if it means pointing them to content from competing firms. The Tribalization of Business Study is a lot of work – but it got thousands of people to download that information and pass it along. And our Marketing 2.0 Communities have almost 15,000 members – what push marketing program would give you this amount of attention you think?

We do not try to buy attention from people – we try to earn their attention.

Just as important as getting all that attention from people we may want to engage with commercially at some point is the learning that we get from doing these programs. We get to fully understand the issues that marketers are facing in today’s economy, and how they frame those issues. And equally important is that we have fun doing it!

Words and metaphors are great when used properly – they can also severely limit our views and thinking around certain topics.

Look at marketing as an example. There are a ton of words that we use as part of our jobs that are actually limiting our capabilities to think differently and to innovate. Let’s take a look at a few of them:

Market.

By definition, a market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.

So by thinking about markets we are automatically focusing on the transactions, and forgetting about the behaviors that causes people to buy products in the first place.

As I said in previous posts, a better alternative is tribes.

Consumer.

As I was talking with Joel Rubinson yesterday, the Chief Research Officer for ARF, he said “Your focus on the human, and the emphasis on tribes rather than segments caught my eye.” continuing “We do not like the word “consumer” since that is really a state of being in the context of what you (the marketer) care about.” BINGO!

If you think about your prospects as consumers, you are thinking about it in a way that is way too narrow. If you can expand your view and think of them as humans, people with other needs, wants and problems besides the need for your product you may be in for some surprises.

Let’s use the the real estate market with consumers for rental units as an example. Thinking about it that way will lead you to match an apartment with the needs of the renter. Thinking about the consumers as humans, with their specific ethnic backgrounds, family configurations, love for animals, and history, you will recommend a rental unit within a specific neighborhood that has neighbors who love animals and is located within an area that has the right school system – a much richer match.

So the alternative to consumers is humans or people.

Social Media.

This is a new one, and most people focus on the media part of social media. Doing so automatically triggers thoughts around a channel for communications, a way to reach people, and other spam-like activities. What is really important about social media is of course the social – how the social with all its messiness is invading all business processes but also offering tremendous opportunities to those who can harness what emerges from this chaos.

So don’t think about social media, focus instead on social media.

There are other words like that which are causing us to have blinders when we think about marketing. Another obvious one is product, which automatically makes you focus on the features of the product instead of the human who might buy it from you. A much better term would be solution, which includes the buyer as part of the thinking.

Do you know of other words or metaphors that we should try to change in the world of marketing?

I enjoyed attending the 2009 IDC Directions Conference in Boston yesterday. By listening to marketers who attended the conference, I realized that many tech marketers are still solidly grounded in a Marketing 1.0 world – a marketing world with few leverage points, and one that is increasingly hard to sustain.

Statements like “We look at how many new names we have in our database,” or calling social networks “the digital marketplace,” or just the fact that they lament that only 20% of all content developed by marketing gets used by sales, illustrate my point.

Let’s take them one at a time.

When someone measures success of a marketing program by looking at how many new names there are in their database they are only concerned about one thing – having a one way monologue with that prospect. You know the routine, after that comes the qualification process – spamming everyone in that database so that the ones who are not about to buy can be ejected from their prospecting funnel. Those marketers do not realize that the most important conversations in the marketplace are those among prospects, customers and detractors – not the ones that happen between companies and those people. They need to develop content that will become part of those conversations and set up ways to attract only those prospects who are ready to engage with the company.

Calling social networks a digital marketplace is not only wrong, it also shows the mindset of marketers – always focused on the transaction part of customer relations, not the relations (in a very broad sense). It is wrong to confuse the two because the underlying driver in social networks is the social, while the underlying driver in marketplaces is the economic transaction. You can have a marketplaces with social networking capabilities (i.e., eBay), although most marketplaces do not have social networking, and most social networks do not have marketplaces.

Only 20% of content produced by marketing gets used by sales. That is a shame and should be corrected, but focusing on that again exposes the mindset of the marketer 1.0 – empowering sales to interupt and catch that prospect and turn them into a customer. Based on the conversations I heard yesterday nobody seems to be concerned about the percentage of content that actually gets used by prospects. Which brings me back to the first point – the most important conversations are those among your prospects, detractors and customers, not the ones you intend on having with them.

An interrupt-driven Marketing 1.0 world has no leverage points.

Most marketers embrace the economists’ worldview – we are rational people who buy products to fulfill our needs and when confronted with choices we make rational decisions.

Unfortunately that is not always the case – if ever.

Our buying behavior is very much influenced by our social behavior, which in turn is mostly determined by hardwired reflexes. That is what makes it so hard to predict what will sell and what will not. We buy things because they make us look cool, intelligent or well informed. We buy things because our mirror neurons drive us to want to imitate others. We buy things even though we know they are not good for us, and we do not buy things that are proven to have a positive effect on our condition. We buy things without the latest bells and whistles because we hate change. We buy things because we want to belong.

When we buy things, we do not act as rational beings.

Sure, we buy things based on recommendations from others, and avoid things that people badmouth. But it goes further than that – we buy things based on the behavior of the people who bought the same product, and more importantly based on the behavior of others who are observing the original buyers. That is true for personal fashion items as well as for enterprise software solutions.

On the one hand, that makes it a heck of a challenge to predict winners and losers in the marketplace. On the other hand it provides marketers with an opportunity to incorporate expected social behavioral reactions to new products into the product innovation process…

What do you think? Have you seen good examples of that? Hindsight of course is 20/20…but who does it well as a predictor of success?

Ok, so you have a vibrant community. People are submitting ideas for your next generation products, they seem to be having fun, they are engaged and keep referring new members. Your community is growing at a healthy clip and you are happy.

Be careful – your chances of failure are still fairly high.

Let’s look at a couple of reasons why vibrant communities may not achieve the goals they were set up to deliver.

1. You are getting the wrong ideas from your community

There are all sorts of reasons why you could get the wrong ideas from your community. One of them is the use of wrong incentives. If you pay people $10 for 10 ideas you will get 10 ideas – but are those really the ideas that will make a difference in your new product innovation?

Dan Ariely, the author of Predictably Irrational would argue that by tapping into people’s social framework instead of their market framework, which is what you do when when you pay them, would deliver better results. The Economist argues a similar point as it relates to customer reviews (h/t Matt Rhodes).

2. You are getting too close to your community members

There is such a thing are listening too closely to your customers. First off, your customers may not know how to express their needs in a way that would let you help them. They may complain about group scheduling issues, but that does not tell you whether they need a group calendaring or a group task management solution. In new product innovation, there is a huge difference between what is being said and what is being meant.

Second, it is a known fact that innovations based on direct customer feedback leads to incremental innovations at best, not the breakthrough innovations that allow you to steal marketshare from your competitors.

Lastly, and as the late Peter Drucker once said, for most companies a majority of their future revenue stream has to come from people who are not yet customers (Drucker estimates that to be 70% across all industries). If that is the case, then listening too closely to your existing customers may result in products that will stand in the way of acquiring first time users.

So yes, communities are a must in today’s economy. And getting communities to work is hard – really hard. But once you have it working, it may still not deliver what you are looking for. Communities have to be fully integrated with the business processes they are intended to support and need to be driven by the same common sense principles (not that all real world processes are driven by common sense).

If you are trying to leverage communities as part of your marketing, there are a few things you need to approach differently. Some of them have already been described in other posts but I wanted to reiterate them here as part of a bigger picture.

1. Think consumer tribes – not market segments

As I described last week, the most important thing to know about your potential community members is how they behave with one another. That is much more important than to understand the market segment to which they belong based on market characteristics. That does not mean that traditional market segmentation will not allow you to discover tribes in some cases. As someone pointed out last week when we presented this concept at the BRITE conference, traditional market segmentation might have uncovered the stay-at-home moms as a segment in the health market. While true, traditional market segmentation would have described them by age bracket, income level and other such characteristics – and not by the behavioral characteristics that are so critical to understand how to structure the initial community.

2. Think network – not channel

Many marketers consider social media as another channel through which to push stuff to their customers and prospects. What they do not yet understand is that the conversations that are happening between those customers and prospects are much more important in making buying decisions than the conversations that they might have with those same people. So of the essence are the people networks through which the most influential conversations and recommendations are flowing, not the inner workings of social media as a communications channel.

Related to that is how marketers create and distribute content. Instead of creating lengthy white papers and long in-depth case studies, successful marketers are chunking up their branded content, or as my partner Lois calls it “social mediafying” their marketing content, so that it has a higher chance of being picked up and redistributed as part of the network conversations that matter.

3. Think customer-centricity – not product/brand/ or company-centricity

To be successful in today’s marketing 2.0 world, marketers need to rethink many other traditional marketing concepts as well. In most cases all it takes is to recast those concepts in the context of the consumer instead of around your products, brands or company. Examples of concepts that need to be reevaluated include:

• Value proposition – instead of being product-centric, a value proposition needs to become consumer-centric. Look to position your offering as a customer-centric solution, not as feature, function, benefits.
• Brands – most brands are product or company-centric. They need to become customer-centric. How do your customers feel about themselves in the context of your brand? Do they look cool, smart or informed? That is what really counts.
• Focus groups – are usually “focused” on your products or company. They need to become customer centric. Get insights from ongoing customer communities instead of having focus groups, and don’t run those communities as focus groups.
• Product platforms are important, but in addition to that companies now need to look for customer platforms. When a company as diverse as GE can find consumer platforms, that means that most other companies can find it too.

So recapping – every community-based marketing 2.0 activity you undertake needs to have the customer at the center of the activity. When you think about how to engage with those customers and prospects, think behavior, not market characteristics. And remember to always focus on the networks that matter.

If you are running communities, make sure to participate in the 2009 Tribalization of Business Study. You can take the quantitative survey here or you can visit the new companion web site at http://www.tribalizationofbusiness.com.

(Cross-posted from the CMO 2.0 Conversation site)

Today’s CMO 2.0 Conversation with GE’s CMO Beth Comstock was packed with interesting insights. On a personal note it was certainly neat to get a one hour personal marketing tutorial from the CMO of one the largest companies in the world. By working in a real marketer’s laboratory, Beth must be one of the luckiest marketers around.

We touched on three main topics: the role of a corporate marketing group in a large diversified company with strong operating companies, how to foster innovation at GE, and general changes in marketing.

As a central corporate marketing group, Beth’s team is responsible for sales growth, innovation, and the GE brand platform. Even though the company has very diverse operating companies, her team has also been able to find opportunities for developing a customer platform (i.e., cross-sell accross business units), as well as product platforms (i.e., ecoimagination, the GE green platform, and a cross-operating-business battery project).

On the innovation side of things we touched on the importance of having a robust pipeline of innovations and on the need to have the right resources deployed across the right portfolio of innovations. We also discussed the need to kill ideas faster and the opportunity to create an innovation marketplace for ideas that may not be a good fit for the company. Beth described GE’s robust innovation process, and how they have both a formal process that very much resembles an in-house venture process as well as an online imagination network that relies much more on the wisdom of the crowd – in this case their employees. Other innovation related topics we covered include:

• how they use outside coaches and customer discovery sessions to bring outside insights into their innovation process
• the importance of including detractors in the innovation process
• how innovation is not just about technology innovation, but also about commercial innovations – and how they are constantly looking for new ideas around product, space, and business model
• the cultural changes required for fast-paced innovations and the creative tensions between being a process-driven organization and the inherent messiness and chaotic nature of innovation
• how in some cases you need to step away from traditional metrics to measure progress and success of ideas that are being incubated

We also talked about the changes afoot in marketing and how the new marketing challenge is in fact a knowledge management challenge – knowing enough about your customers so you can feed them data that will make them smarter.

On the need for new marketing skills Beth listed what she is looking for in marketers – people with new world skills, people who can simplify things and engage in customer communities, and people who can curate an experience for the customer. She also described how they set up a team of “rogue marketers” within the company, whose job it is to come up with rogue marketing techniques. It would be really interesting if at some point they would publish their findings in rogue marketing innovations.

You can listen to the podcast over at the CMO 2.0 Conversation site, in the near future we will also post the transcript from the interview.

Most marketers have been trained to use market segments as part of their strategy to approach certain groups of people. Unfortunately when you try to leverage communities as part of your business that no longer works.

Marketers need to move away from market segments, which are based on characteristics, and instead embrace consumer tribes, which are based on behavior.

To understand the difference, let’s use a hypothetical example. Imagine a large health club chain which decides to leverage communities as part of their business. They could target health conscious people, who want a good quality of life and  believe in balance between mind and body, as a basis from which to build a community – that would be using market segmentation. Alternatively, they could look at the tribes that typically hang out at health clubs – such as weightlifters or stay-at-home moms. Weightlifters like to show off and enjoy an audience, they are competitive, they like talking about how much they can lift and what their goals are. Stay-at-home moms prefer fewer people at the gym when they go, preferable women, and like to talk about children issues and community issues.

Now which communities will be more successful in this case? Those designed around the market segment or those designed around the behaviors of tribes?

Reminder: If you leverage communities as part of your business and have not yet taken the survey for the 2009 Tribalization of Business, please do so now, or visit the new Tribalization of Business Site.

You have thousands of followers on twitter, hundreds of friends on Facebook, hundreds on LinkedIn, and maybe some in other places. Surely you do not have enough attention to stay in touch or interact with those? While social networks and social media have enabled the social that distinguishes us from other species to scale – there are still limitations to the amount of attention we have.

That is what some researchers at HP found (download pdf here) when they studied twitter and what actually happens on that network. What they found is fascinating. Here are some of the findings:

• The number of posts increases with the number of followers but saturates at around 300 followers
• The number of posts increases with the number of friends you have (defined as people who sent a direct public message (with the @ sign) to another person at least twice) but does not saturate
• The number of friends you have increases with the number of followers but it does saturate at around 400 followers
• Reciprocity is clearly present in twitter – with 90% of a user’s friends reciprocating attention by being friends of the user as well.

The authors conclude that since the ratio of friends to followers is so small, there are really two different networks at work – a very dense one made up of followers and followees and a sparser one of actual friends.

The latter proves to be the more influential network in driving Twitter usage…

So what does this mean to word of mouth and to how one should engage in those conversations?

Clearly the network of friends is more important that the broader network, but when someone like Guy Kawasaki (see here how he uses Twitter compared to the NYT), who has over 60K followers, posts something, that does drive traffic to the link he posts.

It would be interesting to see how much value people attribute to recommendations from friends versus that of followers.

(hat tip Brian Solis)