Social Recommandation that Does NOT works

A few days back a family friend couple came to me with the proposal of exploring a "Business Opportunity using Social Network". Quickly I figured out that they are also telling me the Amway story of Multi Level Marketing (MLM) business.
Image Courtesy: First Class MLM

I am hearing Amway's presentations for about 15 years now and have seen them changing over the time. Typically, the presenter tries hard to convert me into another member in the chain and as soon as s/he feels not happening so s/he leaves.
I have already told this couple that I am not interested in MLM businesses so this couple was just doing their practice with me rather than insisting me to purchase. So, we started discussing more on why there is poor adoption of Amway products.

My wife's first concern was that the products are generally very costly as compare to the products available in the local market. 
They told that Amway says because of higher price point local shopkeepers are not able to keep the products in shops and they are sold only through the agents.
They also told that the products only look costly while actually they are not because they come in very high concentration and are directed  to be used after a lot of dilution.
Then they started sharing their own experience of the products they are using.

Both of the families had to take care of the kids and other household stuff so we stopped the discussion at some point, but I thought a bit more on two things they said:
  • MLM sales channel is better than the traditional channel of distributers and retailers because the consumer is directly purchasing from the manufacturer. In this way company saves the commission of the retail chain and shares the saving with the consumers (i.e. the agents).
  • We anyways recommend products to our friends. In this case we get some incentive on the recommendation.

My mind got puzzled because the social recommendation theory is actually correct. We are following the same in our company ShopSocially and it is giving us good results. This has been proved in multiple researches including the latest Forrester research that the product recommendations by friends and family are most trusted. Data at ShopSocially also suggests that the revenue of all our partner merchants increase after their customers start recommending the products via social media channels.

Social Commerce Strategy : stuff that really works

Then the big Question is why social recommendation works adversely in case of companies like Amway. Why people start creating distance from the friends recommending Amway products.

As soon as incentives come into picture, trust goes down dramatically. Amway products are appreciated only by the people in Amway network. These people get direct incentive when someone purchases any product because of their recommendation. In case of traditional channel, the company or shopkeeper does not offer any incentive for recommending a product so such recommendations are much more trusted.
Image Courtesy: The Telegraph

Additionally, in case of traditional channel, the distributer and retailer take risk of purchasing a product on behalf of customer and this gives a very comfortable feeling. Another big comfort that typically all local shopkeeper provide for minimizing the risk of customers is by allowing to purchase small quantities for trial and no money-back guaranty can beat that.

Still there was a small question, ShopSocially's partner merchants also incentives their customers for sharing the feedback and comments about the products, then why the recommendations still trusted?
I got the answer when I was able to differentiate between incentivized sharing and incentivized recommendation. In when incentive comes to user just on sharing, the user is still free to write the views about the product. It does not matter if the views are positive or negative.
But if the incentive comes only when someone buys on your recommendation, you have to write positive. It does not matter that you really like the product or not. This is why everyone connected to a MLM company speaks the same language. And this exactly why such social recommendations, even by well connected people, are not trusted even after 50 years.

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