Let us start with a typical bias—The bandwagon effect.
We will come to it later in the article, but here is what to keep in mind: because of human beings’ social nature, other people often influence our behaviors.
While there are many factors associated with our social disposition, this article will merely discuss the potential business implications.
So, what do human social attributes have to do with word-of-mouth, trust, and customer retention?
Let us explore the core of the matter—Trust.
Given its numerous implications, giving a single definition would not encapsulate the comprehensive meaning of the term but we will use a simplistic definition as explained by the Google dictionary
Google noun: trust 1. firm belief in the reliability, truth, or ability of someone or something. 2. acceptance of the truth of a statement without evidence or investigation.
It appears that trust and truth are not mutually exclusive, and even more so, business practitioners often regard trust as one of the most crucial success factors.
Looking at the notion of trust from the neurological perspective, it appears that when we trust, our brain releases oxytocin—the same chemical released when we experience romantic attachment, sexual arousal or mother-infant bonding.
In my experience, I know a company that adopted a trust-based policy toward its suppliers instead of a contract-based approach, which was the case with its competitors.
That did not prevent the company from thriving; in reality, it turned out to be an excellent strategy as the company has been able to develop a solid and long-lasting relationship with those suppliers and continue growing to date.
It is fair to say that even contracts are predicated on trust because the underlying premise is that our trust breaks when you do not deliver— “I trust you (for now)”.
It is even more apparent given that our most recent technologies try to solve this exact problem: think of the blockchain technology at large or NFTs in particular that help in creating authenticity.
There is no doubt that trust is a determining factor that governs not only our interactions with the individual, but also how we conduct ourselves in society at large.
Trust and Decision Making
So, why is trust such a big deal, you might ask? The answer would be something like this: we need trust to complement our lack of perfect information.
Because under complete information, we merely make rational decisions.
Usually, there is no such thing as ‘perfection’.. Thus, in an imperfect world, humans, with all our imperfections, need trust to support our decisions and reduce the burden of choice.
Back in 1970, Alvin Toffler wrote in his book Future Shock the following passage:
Ironically, the people of the future may suffer not from an absence of choice, but from a paralyzing surfeit of it. They may turn out to be the victims of that peculiar super-industrial dilemma: 'Over choice.
Making a decision is already hard on its own, and it is even more complex to decide within complete information.
Given the many decisions we take on a daily basis, we want to be right most of the time (or at least with some humility, less wrong).
Given our social nature, our decisions often get influenced by external factors as we live among others. And when individuals are closer socially, trust and trustworthiness rise, a study by Harvard University shows.
This study suggests that we tend to rely on what the majority accept, agree with, or have a positive proclivity toward(which is not necessarily a bad thing per se).
This, in turn, makes us vulnerable to our own biases.
Remember the bandwagon effect mentioned earlier? It is one such a bias.
The bandwagon effect is a psychological phenomenon that explains our tendency to do something primarily because others are doing it, believing in it, or accepting it without necessarily considering our own judgment.
The bandwagon effect can have significant implications in business, particularly in terms of marketing and decision-making.
For example, I am certainly going to walk on some toes here; when we see people in our close circle purchase the latest technological gadget (think iPhone), we might feel the urge to do the same, even if it is not the most rational decision to make.
If many people trust the product, the remaining few might follow suit, and for these people to trust the product, it certainly had to start somewhere—with someone.
And what happens when people have trust in your product or service is that they will likely purchase it—do business with you.
When they do, their ability to broadcast that trust gets others to want to follow collectively, and this can be done by both verbal and non-verbal means.
My opinion is that the most efficient way to broadcast this trust is through storytelling, and that alone can take many forms.
We like stories because they connect us; perhaps this is the consequence of our social structure. But regardless, they have the power to bring out the best(and the worst) in us, speak to our subconscious or dormant self, and even take us to places we want to be that are yet to exist.
Stories are brought to life through the combination of past, present, or future information. They are made interesting through the polishing and extraction of the relevant parts of that information.
Our ancestors used various methods to pass stories down to generations through drawing in caves, written scripts or even music.
Stories are powerful and essential in perpetuating and maintaining our social structure.
In oral traditions, word of mouth remains one of the oldest ways to transmit information.
In the realm of business, word of mouth marketing (WOMM) and, more recently, with the rise of the internet, eWOM, have positively influenced how businesses connect with customers.
Their primary goal is to shape consumers’ behavior towards a product or service by exchanging information among consumers.
Word of mouth marketing is a loud strategy, conceivably the most effective form of advertising. Ultimately, all marketing efforts should lead to word of mouth.
Research regards word-of-mouth as one of the most influential factors in customer decision-making and purchase behavior.
Here are some numbers to support this view.
A study from Nielsen shows that 92% of consumers believe recommendations from friends and family more than advertising, and 74% of the customers consider word of mouth a key influencer in their purchasing decisions.
These stats reinforce the notion that being sociable and interacting with other people affects our trust behavior, which would consequently influence our purchase patterns.
Word of mouth has the potential to generate exponential results because we individually live in a network.
In the first two chapters of his book, The Human Network (a must-read, in my opinion), Matthew O. Jackson throws light on the power of human networks.
He illustrates our influence on others, even when we do not have any direct contact with them, taking Gandhi and Martin Luther King Jr as examples.
He explored the concepts of networks further by delving into what made Google an innovative search engine.
There is a theory that better illustrates the human network on a more extensive scale, known as the six degrees of separation
According to this theory, you are at most 6 degrees away from anyone on earth. That is, you can literally connect with any person through a chain of acquaintances.
Simply put, there are no more than six people between you and [insert the name of any famous person alive].
We can even assume this number to be lower if we consider social media. In any case, this is to say that we are closely connected, which makes information travel easier and faster. And credibility with it.
It means that trust is a non negotiable. It is the fundamental marketing currency and business at large.
It allows you to connect with your audience in a relevant way while delivering value.
By building trust with consumers, you can ultimately sell to them and stand the possibility of gaining their undivided loyalty.
But it is not enough to bring customers to your business; you also need to retain them because, for many companies, the sell-once business model is not sustainable.
You need customers to keep coming(new and old ones) for your business to grow and scale.
Fundamentally, customer retention is a measure of loyalty. It shows the ability of a business to constantly solve customer problems and develop trust over a long period.
Consumers are the fuel to your business; if they stop coming, your business will not progress.
You can tell a lot about a business by its ability to retain its customers.
Standard metrics such as churn rate, customer lifetime value, or customer retention rate are significant but often poorly understood or analyzed to support decisions.
We often interpret them at the surface level as either good or bad, negative or positive.
And often miss the opportunity to look into core issues such as customer behavior, change in a company's offering, or poor customer acquisition and onboarding.
The following infographic by Method CRM illustrates the importance of retention.
The Bottom Line
To sum up, as a business, building trust with your customer is an essential step to improving retention. Business is based on relationships, and trust is built on shared values and a sense that all those involved want good things for each other.
To build trust, you need to consistently provide customers with value and fulfil their needs. And when you help them, they are more likely to help you back by spreading the word—they will feel somewhat naturally inclined to do so.
Building trust provides you with an opportunity to embrace transparency while simultaneously boosting your brand reputation. With the growing trend toward sustainable and responsible business operations, businesses can no longer allow themselves to hide their actions.
Ultimately, business is about the people. The products or services you offer are the tools to support and grow that relationship.Follow on LinkedIn
- REISCH, L., & ZHAO, M. (2017). Behavioural economics, consumer behaviour and consumer policy: State of the art. Behavioural Public Policy, 1(2), 190-206. doi:10.1017/bpp.2017.1
- NPR Cookie Consent and Choices. (2022). https://www.npr.org/sections/health-shots/2020/04/11/815573198/how-stories-connect-and-“ersuade-us-unleashing-the-brain-power-of-narrativ”
- Electronic Word of Mouth: What Marketers Need to Know. (2020). Retrieved 14 June 2022, from https://www.hec.edu/en/knowledge/articles/electronic-word-mouth-what-marketers-need-know
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- The Six Degrees of Separation theory. (2017). https://www.hackerearth.com/blog/developers/theory-six-degrees-of-separation/
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- Settle, R., & Golden, L. (1974). Consumer Perceptions: Overchoice in the Market Place. ACR North American Advances, NA-01. Retrieved from https://www.acrwebsite.org/volumes/5647/volumes/v01/NA-01
- Foorman, James L. “Trust and Contracts: Are They Mutually Exclusive?” Business & Professional Ethics Journal, vol. 16, no. 1/3, Philosophy Documentation Center, 1997, pp. 195–203, http://www.jstor.org/stable/27801031.
- Toffler, A. Future Shock. New York: Random House, 1970, 263-283.
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