The Rise of Social Marketing 'Freeconomics'
"In America, you have the watches but no time. In Nairobi, we have the time but no watches."
That's a familiar quote I heard recently from "Evans," an international student from Kenya who is currently enrolled at the Tuck School of Business at Dartmouth University. He got me thinking about the economics of marketing in the U.S., and how the proliferation of social networks has influenced media consumption and business user engagement. Although it is rarely thought of in this context, the rise of social marketing is rooted in basic economic principles. When the price is "zero," the laws of supply and demand often are ignored, but they still are relevant. Don't forget another familiar quote: "There is no free lunch!"
Back to Basics—The Economics of ‘Free'
Remember those undergraduate days, waking up from an afternoon nap seated in a lecture hall, dazed and confused by a myriad of supply and demand curves compounded by explanations of elasticity and marginal utility? Well, all that stuff is still the foundation for business behavior today and will continue to be the underlying principles of the free market economy. While there may be hype about the "chocolate rainmaker" (YouTube celebrity) and "twitters being quitters" (retention rate concerns), the basic economic principles remain essential to understanding current social marketing trends in business today. A couple of modifications to traditional variables can help explain the logic supporting the rise of marketing "freeconomics." Here's how it works in a free market.
Traditional laws of supply and demand state that increased prices are the result of decreased supply and/or increased demand; the inverse also is true. For example, with all other factors remaining constant, you can generally expect to negotiate lower mailing list prices when there is a greater supply of lists on the market and/or a decrease in the demand for list rental. This macroeconomic principle is based on perfect competition, so don't jump the gun and expect to negotiate a 50-percent net-name arrangement on a highly targeted, niche response list of 5,000 names.
Putting the traditional list industry model aside, how does macroeconomic theory relate to social marketing when the price of those services is "zero"? First remember, there is no free lunch. The variable for price simply needs to be replaced with the opportunity cost of time, which in itself can have a wide range depending on who is most engaged in the process. Within the macroeconomic context of "price," the opportunity cost of time generally will be lower as the supply of time is increased due to factors like unemployment or idle capacity. This makes the relative labor "price" more attractive and increases the demand for services that enable businesses to leverage those resources; it goes without mentioning that there are a lot of independent consultants out there trying to rule the blogosphere.
Explicitly stated, the economic downturn resulted in an increase in the supply of labor and a decrease in the average marketing budget. Therefore, companies and individuals are challenged once again with delivering more for less. Social networks, bookmarking services, free business listings and affiliate programs become more attractive when we have fewer "watches" and more time. The suppliers of these services, mostly in the form of online application service providers, benefit from the free labor and leverage the resulting assets (content) as a platform for contextually targeted advertising solutions and other innovative message delivery systems used to stimulate demand and add revenue.