I want to teach you a magic trick: how to mint your own money. Don’t worry – below, I’ll explain what this has to do with marketing and the web.

Let’s say I have a tasty sandwich I value at $4.00. You have $6.00 cash in hand. The world, as far as we are concerned, has $10.00 of value.

I’d like to make some money for buying beer this weekend, so I’m willing to sell you my sandwich for $5.00. I’ll be a whole $1.00 richer.

You value the eating of tasty sandwiches at $6.00, so you’re ecstatic to buy my tasty sandwich for $5.00. You’re going to have something you value at $6.00, plus $1.00 left over.

So we make the exchange: I now have $5.00, and you have $1.00 plus a sandwich you value at $6.00. The world has $12.00.

Holy shit, we just committed a felony by minting $2.00.

Value is in the Eye of the Beholder

There is an important difference between believing things have inherent value (wrong), and understanding things only have perceived value (right).

I only bought my Meucci cue because of the value I anticipated from playing pool with it, or the sandwich I just sold you because of the value I anticipated from eating it.

Dollars are just the way we store imaginary value – I actually can’t do anything with a dollar except trade it for things with made-up prices. This is the case for any fiat currency.

Why is this interesting? Because the way I value all of these different things is particular to me. You value them differently, and that’s why we have commerce. We can have mutually beneficial transactions.

Buyers buy products because they value the product higher than its price. If they didn’t, they wouldn’t buy. The same applies to sellers – the seller values the product at less than the price, otherwise they wouldn’t sell it.

I’ve talked about using economics to think about marketing before.

You’d think that a transaction would always occur when a buyer values an item higher than a seller, but there are a few reasons why that isn’t the case. For instance, a third party can affect the transaction – hello taxes!

The reason a transaction might break down we’re talking about today is information asymmetry. What? I said information asymmetry

What is Information Asymmetry?

In economics (specifically contract theory), information asymmetry is a transaction where one party has better information than the other.

This can lead to adverse selection (the customer getting a bad deal) or the transaction breaking down (the seller getting a bad deal).

Information asymmetry makes markets inefficient – it’s like all that money you could have printed disappearing into thin air. It hurts buyers and sellers alike.

Right… What’s this Got to do with Marketing and the Web?

Marketing is just the business word for what is called signaling in economics. Marketing/signaling is the sharing of information.

It’s how businesses get rid of information asymmetry.

You know the value of your product, and you know buyers value it higher than what you’re selling it for. But your buyers don’t know that. They might think you’re scamming them, that they could get a better deal somewhere else, or just that it’s not as valuable to them as you think it is.

Your marketing’s purpose should be to act as a signal to correct this incorrect information. But we all know it’s not that easy – customers don’t believe you because talk is cheap.

Your marketing signal has to be credible. The more “expensive” – which can represent dollar cost or difficulty – your signal, the more credible it is.

  • Saying “our product gives total satisfaction” is easy. Bad signal.
  • Giving a 100% money back lifetime guarantee for any reason – no questions asked – is hard. Credible signal.
  • Sending a form sales email can easily reach many people with little effort. Bad signal.
  • Snail mailing a form letter costs a little more money. Better signal.
  • Mailing a personal, hand written note takes significant time and effort. Credible signal.

You get the picture.

The Web and Cheap Communication

The Internet and all of its children – from email to social media – have made communication easier and cheaper. In a lot of ways, this makes using the web for business valuable. You’re able to reach more people.

But as we just learned: the easier the communication the less credible the signal.

Don’t get me wrong. I’m a web strategist, and I think the Internet is right up there with the most important things to ever happen. But you have to be careful.

When I talked about choosing marketing tactics that work, I said you had to beware the bandwagon. You’re better off going “narrow and deep” than “wide and shallow” in your ability to develop competency and your ability to achieve success with prospects.

Markets aren’t totally efficient – we know that – so in the short term you can get away with all sorts of tricks and gimmicks that take advantage of people. This isn’t a defensible long-term strategy. You have to be credible, in so many ways.

Plus short term gimmicks are immoral. Don’t be an Internet marketing asshole.

If you’re running a business, you can see this clearly. If you’re a marketer who has numbers to hit this month, don’t fall into another negative economic consequence of information asymmetry, moral hazard. You don’t need a definition to figure that one out.