In 2009, I coined the term Social Currency. I defined it as the extent to which people share brands or information about brands as part of their everyday social lives. I became convinced that consumers’ willingness to share has great brand-building potential.
Back then, we weren’t far off with our convictions. Social currency indeed has become a really important concept. More than 2.56 billion social media users exist today. When it comes to younger consumers, one out of every three millennials prefers social media to interact with brands and companies.
I’d like to describe some of the most prominent impacts of social currency on brands, companies, industry and consumers.
First, the impact on brands and companies: Nearly every company and brand today invests in social media, and some companies have seen outstanding success—think Burberry in luxury, GoPro and its amazing Hero action cameras or Red Bull.
That is, social media has a strong impact and significant role in brand-building efforts.
It even has a measured impact on sales. A landmark study of online and offline consumer conversations and recommendations found that they accounted for 13 percent of consumer sales, on average, and 20 percent of sales in higher-price-point categories.
Second, the impact on consumers and what catches on in culture: In the book Contagious, Jonah Berger tells us that six factors make products contagious or make ideas viral. The first factor is social currency. The professor explains why pictures of cats or dogs go viral, or why Justin Bieber reaches the top of the Billboard charts.
One of the most interesting phenomena of social media is powering something from the fringe and making it mainstream. The “clean eating” movement is a good example. Its basic and strict tenet is not to eat anything but “whole” or “unprocessed” foods. It is not just a diet, but a belief system that stands as a challenge to mainstream ways of eating.
Social media enabled this movement to build a mainstream following with large audiences and large numbers of influencers, blogger and experts. One, Jordan Younger, took it to such an extreme that it caused her to suffer from serious eating disorders and orthorexia.
Social media is so powerful that it can even make us do things against our own best interests.
Third, the impact on companies, categories and even entire industries: Economists and business strategists have studied this impact with intense interest over recent years. They refer to demand-side economies of scale or network effects, which represent a new source of economic value creation and which occur when a product or service becomes more valuable to its users as more people use it.
In plain English, Apple’s iPhone becomes more valuable to consumers the more people use it. It helps people connect via FaceTime, for example.
Uber or Lyft are more valuable to people the more riders or demand there is. This is because the more riders there are, the more drivers Uber or Lyft attract, which makes the ride more available. This minimizes the estimated time of arrival of a car for riders.
Business has now noticed that the most valuable companies in the world are all built on these powerful network effects. The most valuable startup in the world did so, which is Uber at nearly $70 billion. The most valuable and disruptive companies—FANGA, or Facebook, Amazon, Netflix, Google and Apple—are all based on these effects.
What these companies do have in common is one simple requirement for its success, and that is social currency.
There is no value creation unless there are consumers that are willing to share. And in this way, the future welfare and prosperity of industries and consumers depend on social currency.
Erich Joachimsthaler’s opinion piece was originally published in Adweek.