Re: ISORG pyp question

[William Toh]

Your framework comprises a lot of good points, but your challenge is to put them altogether cohesively to address the question.

It is interesting that you did not mention the specific search, contracting and control costs at all, but instead used the underlying

factors of OB and BR.  Nothing really wrong with that, but using the specific costs can provide a better framework to answer the

question.

Social networks constitute very large communities of users who come together to contribute to and share in some common objective.

The social media platform performs a very critical role of match-making participants so that consumers can easily find the content

they need, and for producers to be able to find consumers of the value they generate.  Hence social networks are leveraging the

electronic brokerage effect of ICT to reduce search costs of the participants in the platform.  Also, due to the perceived altruism

that social media platforms generate (that users produce content without expectation of any extrinsic rewards), user-generated

content (UGC) is generally regarded as "genuine" and is hence accepted with less cynicism compared to marketing messages

that come direct from merchants themselves.  Hence, word of mouth accounts and recommendations in the form of UGC (eg.

reviews and ratings) can effectively reduce bounded rationality arising from information asymmetry.  This effectively reduce

contracting costs, and when the reviews and ratings are about the sellers themselves, they can reduce potential control costs.

This is how social networks can reduce transaction costs.  The key condition, is of course, the quality of UGC.  Some merchants

may indeed masquerade as satisfied users to post good reviews for themselves or badmouth their competitors.  This is the

current reality, as demonstrated by the recent attacks by the Russians on the 2016 US Presidential elections by targeting social

media users with fake news regarding the candidates.  In this case, social networks actually increased bounded rationality,

since users must now spend more effort themselves filtering real from fake news.  Hence social networks may actually increase

transaction costs.

On Wed, Mar 28, 2018 at 11:41 PM, KEK FONG YEE (GUO FANGYU) <fygfk...@mymail.sim.edu.sg> wrote:

Hi sir,

i would like to ask for some advice on my framework for this essay for ISORG.

"discuss why and how social networks can reduce b2c costs. Theoretically justify your answer"

 

1.What are social networks

• Platforms that allow users to communicate with each other by posting messages, photos, comments and information etc.
• Many large social network are mediated by internet technologies , so can take advantage of malone effects of ict to reduce cost of finding and exchanging info with like minded people
• B2c e-business can make use of these networks by creating an account on these platforms to market their products or services
• Therefore, social networks can be used as a form of e-marketing ,create brand reputation .
• Lack of information is the main reason while market transactions may fail because high costs might be incurred when looking for resources to overcome these uncertainties.

2.Link btw social networks and TCM

 

• TCM views technology as a means to reduce transaction costs so that exchanges can be made more efficient and encourage more economic activity
• Social networks as a form of e-marketing  can be thought of as the IS to reduce search and contract costs for companies looking for and engaging with customers.  e-marketing is more efficient than traditional marketing because of the speed and wide range of people that the internet platform and reach out to. it is also more efficient in targeting and capturing specific customers.
• Strong bonds within members of the community allow word of mouth exchanges where opinions are take quite seriously by others in the community, this creates a viral effect where information can be exchanged very quickly hence reducing transaction costs.

 

3.How social networks reduce transaction costs

• Use hashtags/keywords in your posts: people who look for the hashtags are most probably interested in your products. This helps to target buyers who are most likely to buy the products/services. This increases ROI from the investment in marketing. This helps to reduce search costs of looking for customers . Eg. On instagram, use hashtags relating to your products
• Sponsored adverts: eg facebook show sponsored posts to relevant users, by using the data on your facebook account
• As there are strong bonds between members of social network and this facilitates word of mouth exchanges, where opinion of members are taken seriously, business can use this feature to transmit quickly information about their products. For example, can pay bloggers/influencers to post your products on their page, give reviews. They have many followers and people who read their posts. This can help to increase the return on investment in marketing  as their fans would want to buy the same products and also contract costs of buyers as the influencers who most likely recommend using the products that are sponsored to them.
• Viral effect of social networks: if customers like your products they would spread it and due to the viral effect of the internet, news of your product will reach an even larger group of people, even globally.  This reduces contract costs for businesses as they get free advertisment and affirmation by happy customers.
• Can make use of social network platform to interact with customers, understand more about their needs and likes. Use this knowledge to market products or produce products with features that are in demand, decrease demand uncertainty,
• Examples: bloggers post reviews about products, social media such as facebook and instagram sponsored ads

4.How social networks may increase transaction costs

• Viral effect: if some consumers do not like your products and post bad reviews, bad news travel very quickly and make take a toll on business. Actions taken to counter this can be very costly as information or news on the internet can never be undone
• Sponsored reviews may not be true increasing contract costs of consumers as they have to do more research  on the products and increase BR due to information overload
• Need hire people who know how these social networks work, mostly the younger generation, or need training for existing workers hence increasing the operational costs

 

 below are some questions are have regarding social network:

I do not understand the following statement: social networks can also reduce the risks of OB as they facilitate the exchange of info between buyers  and therefore reciprocal trust which ultimately reduces the need to monitor the exchange.

-how does social network reduce control costs for consumer and businesses

-what are the contract costs incured by businesses.

Thank you for your time.

cheers

fong yee