Information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can cause complications in the transaction, known as Adverse Selection.
This concept from economics can also be applied to Social Media Marketing, where buyers and sellers have asymmetric information such that the seller has the relevant information which is being sought by the buyers. This situation may lead to there being untapped value. It is in the best interest of both the brand as well as the consumer to extract this value, which will lead to more sales for the product and also lead to consumers’ needs being fulfilled.
Adverse Selection can then be resolved by sharing or soliciting information via Signaling or Screening. Signaling is nothing but transmitting information to the other party, thereby resolving the asymmetry.
Screening: Screening, on the other hand is the process by which the uninformed party can induce the other to reveal information. This generally goes in multiple steps where the uninformed party asks for more and more information, providing the other with choices. The more powerful party then, needs to decide how far it is willing to go, and grant the information. Buyers here also need to be cognizant to allow only truthful information, and screen out errors and misinformation. This is effectively an attempt to filter helpful information from useless information.
An example of these phenomena can be the Twitter account for a particular company or brand. Here, the presence on Twitter and the tweets could be Signaling employed by the brand to communicate the brand image to the consumers. Whereas, the number of followers could be used by the consumers to screen the product.
When there is asymmetric information in the market, screening can involve incentives that encourage the better informed to self-select or self-reveal. For example, people who are sure they will use insurance find deductibles more of a burden than those who do not expect to make claims. Hence, insurance companies use deductibles to sort policyholders into different risk classes and charge accordingly.
There can be a number of ways that a brand can withstand the inclination of buyers for screening. Building a powerful brand image, and high quality products may help in achieving this end. Also, brands could:
Get people to fear: Giving people the feeling that they are losing out on something that everyone else is a part of can limit the need for consumers to take the effort to extensively screen the product. For example, the Gillette NoScruf Campaign video which was put on the website and then removed. The content of the video was not given much importance by the buyers when they got the feeling that this is something everyone else is watching and they need to be a part of it. Eventually this had seven million media impressions!
Don’t let buyers feel cheated: In the Gillette Campaign, people initially did not know that the video is for a razor brand, but even when they found out, they did not feel cheated. Companies need to take care of this as well in order to effectively withstand screening.