Social media is moving us closer to the economic state of perfect information. Can this kind of economic equilibrium really exist? How then will innovation occur in stasis or economic equilibrium?
In stasis, perfect information implies best products and services will satisfy all customer requirement, need and demand at optimal price. In stasis caused by perfect information, consumers will have perfect information to always make the best choice, resulting in zero buyer regret.
What Is Perfect Information
In Game Theory, perfect information is the state when a player has all the information available for all the possible moves in the game, and can therefore ensure or predict the outcome. This is easy to see in games such as tic tac toe, and even complex games such as Chess.
In Microeconomics, the state of perfect information mimics an environment of perfect competition. In this environment, everyone is assumed to be operating rationally and will always make the best buying decision. In an environment of perfect information, the market dynamics will enable enterprises producing the best products and services to prevail over those with lesser products and services.
Economists tell us that perfect information also assumes that consumers have enough information to predict probabilities for future perfect information based on outcome of future events – further driving market dynamics to reward the best providers of products and services, and punish providers that fail to meet consumer’s needs.
Advertising Value
In a world of perfect information, the cost of coordination approaches zero – as there is no need if everyone has the same perfect information, by definition. In a world of perfect information, the cost of collaboration also approaches zero – as the necessity for collaboration also becomes superfluous if the “best” can always deliver what customers want, where they want it and when they want it.
In this world, Advertising then has no value, as consumers have at their fingertips, the information necessary to make every decision. Can this really be the case?
Innovation Requires Imperfect Information
One reason that this theory breaks down is that a probability-predicted future presents a fraction of opportunity for disequilibrium. Disequilibrium means one of two primary possibilities
- Some percentage of all people is not fully satisfied with current products or service offerings.
- There is additional value (invention) to be presented to customers that upsets the status quo.
Add to this, the variability and unpredictability of diversity in human nature, and you have the perfect opportunity for disruptive innovation to incubate, hatch into ideas and develop into new products and services that eclipse the prior stasis.
Instituting Imperfect Information
If we understand that nothing stays in stasis, why not introduce imperfect information to systems in equilibrium to force innovation? Why not introduce imperfect information to force innovation in the environment overall? In fact, isn’t this precisely what qualified marketing professionals intentionally do through the use of advertising? Isn’t this precisely the value of advertising, in the broadest sense, to start our thinking about and eventually choosing alternative options over those which we are currently satisfied?
Is there a way, in a broader system or environment approaching perfect information, to plan for these changes? What role will advertising play then?
Consumer-side & Merchant-side Opportunity
I wrote on Saturday last, about Jeff Holden’s vision for the Groupon Global Commerce Operating System. In his presentation at the Illini Center downtown Chicago, Jeff indicated that one of the premises this concept approaches is that consumers will begin to have perfect information at their fingertips (through their smart phones).
Jeff went on indicating with perfect information consumers can always find the best swordfish restaurant, for example. That restaurant would then be the best place for swordfish and everyone would go there whenever they wanted swordfish. This is the clear and visible value opportunity for perfect information on the consumer side.
But, the question then becomes: How does this best place for swordfish become something more?
Why you might ask: “if that one merchant is getting all the swordfish business from all the people, what happens if the merchant wants to become something more than just “the place for swordfish?” Or, how does the restaurant plan for shortage or surplus in the supply chain? If there is a shortage, and they try to serve another entrée customers will be confused and business will suffer. If there is a surplus, competitors will learn to reproduce what the “best restaurant does” and become new competition, in a price-pressured economic climate driven by the surplus.
There are dozens of factors they must plan for in addition to the supply chain – but most significant, is the interest in diversity in their menu to cater to customer interests.
Ah Ha! This is an opportunity for driving merchant side opportunity!
Groupon+ (The “+” Is My Idea)
Groupon already has a multi-faceted business ecosystem. My suggestion in this dialog on perfect information is that Groupon has an opportunity to be the engine of innovation for the customer of its global commerce operating system, the merchant. By the use of perception and mood analytics, micro-variation in the perfect-ness of the perfect information will surface. These micro-variations can provide merchants insight into where they should innovate to prepare for larger, but unobvious shifts approaching in the market.
Merchants would find value in the micro-shifts in competitor and tangential markets to their current “swordfish” market in which they were leaders. And Groupon could help merchants identify completely under-served and completely un-served market gaps, as new product innovation opportunity to merchants.
Unified Field Theory of Analytics!
Cross-reference this market information with industry trends, technology advances, supply-chain variations, location, movement of consumers and other predictive analysis, and the Groupon+ engine becomes a driver of merchant innovation. How fast would future generations of innovation accelerate to market?
Packaging and deploying this will be fun, and inevitable. What do you think?
