Businesses use to have one objective, to make a profit. It was comparatively simple; make a profit, keep shareholders happy, and issues about climate, carbon footprint and social responsibility were ignored, or at least of lesser importance than profitability. To a large degree, previous generations of shareholders were prepared to forgive, or at least look the other way, if environmental damage occurred in the pursuit of profitability.
In meeting profitability objectives, businesses often modelled themselves on the principles of Game Theory. At its simplest, game theory is figuring out the optimal solution while determining the costs and benefits of each participant competing with each other. The recent Netflix series “Squid Game” is a serialised version of the game theory that focuses on the losers rather than the winners. As the writer & director Hwang Dong-hyuk states “without them, can there be any winners”? In each game played, the participants must determine the costs and benefits of competing or cooperating.
While game theory came to prominence in 1994, when three pioneers were awarded the Nobel Prize, it began in 1944 with a mathematician, John von Neumann, and economist Oskar Morgenstern. They develop a systematic way to understand the behaviour of players in situations where their fortunes are interdependent.
In game theory, the fortunes of the client and the business are interdependent. Hence, to be successful, companies need to understand their clients and assess their value to their customers. Customers are seen as rational beings who will always decide in their best interest. As a result, it gave rise to the belief that a single solution represented the best outcome for reasonable players, i.e., businesses, and customers.
However, the world is messier and more complex than the neat models of game theory serialised on Netflix. One of the limitations of game theory is the very assumption people are rational beings who are self-interested and act to maximise their benefit. In life, people are often willing to cooperate with others, even at their own expense.
Customers are social beings, and as community members, we are concerned with the welfare of other people and the broader community. An example of this is the increasing concern and action taken by communities around the issue of climate change.
Concern about climate change impacts consumer buying habits; people are willing to pay extra for environmentally sustainable products. Consumers have more scrutiny on the environmental practices of businesses, and customers are paying higher prices for products to support organisations that are doing the right thing.
The suggestion that there is one solution or that customers will act in their interests can no longer be substantiated, particularly when technology is increasingly influencing consumer decisions. Today, the situation for businesses can be more akin to another theory of mathematics, the theory of chaos.
Chaos theory is a branch of mathematics that deals with complex systems whose behaviour is highly sensitive to slight changes in conditions. Small alterations can give rise to more significant consequences.
How do businesses keep pace?
To keep pace businesses are using the tool of social listening. Social listening is the practice of monitoring online conversations to access critical insights about your business, brand, competitors, and clients.
Social listening is different to social media analytics. For example, social media analytics is the data businesses collect about their campaigns and the number of clicks on their ads. Social listening is gathering the conversations customers are having about your business and your brand.
Like in any conversation, listening is essential to understanding the perspective and viewpoint of the other person. So, businesses that engage in social listening come to understand their customers better; they can pick up when trends are changing.
Social listening is essential in B2C companies because it allows them to understand what products are being discussed and collect relevant, up-to-date demographics. In B2B companies, social listening will enable them to gather relevant demographics on customers and understand and keep track of the latest developments. Even in the not-for-profit sector, social listening is essential as it gives insight into the work being done and potential donors.
Game theory may no longer be the most relevant model for businesses in the 21st century, and the construct of a rational, reasonable client who acts in their self-interest may no longer apply. However, utilising the tool of social listening allows businesses to be successful in a time of chaos while balancing customer demands and their social responsibilities.