Our Hidden Economic Engine: The Recommendation Economy

And oh yeah; I am fine with my friends and family making money from their trusted recommendations.

We’ve been recommending things to one another for Millenia. It is the oldest form of marketing. Think about it; everyone, including you, recommends products and services to purchase to their friends and family. As many as 50 per cent of all purchase decisions are influenced by word-of-mouth, according to Lithium. And for good reason. We trust our friends and family more than any brand, salesperson or ad for that matter. Research from AC Nielsen shows that 92 percent of us trust those recommendations more than any form of marketing including advertising.

And guess what there are big numbers behind those purchases. A study released in late 2015 for the first time revealed that word of mouth recommendations drive $4 Trillion in sales each year. Not social media, but actual conversations between people. You know the kind we have at coffee shops, in bars, at the trailhead or hanging with friends and family.

In his best selling book, To Sell is Human, Daniel Pink revealed a survey of over 7000 working Americans found that they spent 41% of their time convincing or persuading people to give up something they value for something they offered. The reality is we are each a walking, talking economic engine that drives sales for products and services we believe in, and most often match our values. And that is a good thing.

Each of us is responsible for driving sales to our favorite mechanic, dentist or restaurant with our recommendations. It could be a brand of car, beer, electronics, food or clothing that you believe in and recommend to others. It could be a small startup organic clothing brand or a behemoth corporation that we recommend. But the bottom line is we all do it because we enjoy the fact that our loved ones trust us. And, oh yeah, we know the tastes and values of our friends and family. They know that. But beyond that intrinsic trust we have in our friends and family not to steer us wrong, we also have a very powerful force driving us to seek the recommendation of people we trust — it is in our DNA. It is called social proofing, and dates back to our days in the cave. Seeking the advice of others was originally programmed into us as a means to keep us safe. Not eaten by a bear or dinosaur. Today we use the same behavior to protect ourselves from being taken advantage of by misleading advertising and shoddy products or brands whose values don’t match our own. That is why we turn to one another so readily.

Look all around us there are examples of the recommendation economy. The leading reason for discovering an App is that a friend or family member told us, not a social media post. I mean actually told us.

The funny thing is the Facebooks and Twitters of the world would have you believe it was social media that was driving the lion share of those recommendations. Nope. Research by AC Nielsen reveals 77 percent occur face to face, and 13 percent over the phone.

Combine our biological imperative to seek advice with the ever increasing pace at which we lead our lives. It is no surprise we are turning to one another for help making purchasing decisions. Who has time to research the best phone, mountain bike or cold weather gear? The likelihood that we seek the advice of someone we know and trust is only logical. It makes common sense.

The next leap in the collaborative economy from sharing our resources be they cars, skills or shelter for monetary gain may be we all begin reaping rewards from brands and retailers beyond the intrinsic good feelings for helping a friend or family member. Might the idea of each of us being an individual walking retailer with a digital storefront being in the palm of our hand and our physical storefront might be the geo-location around our physical being? We believe so.