How Hits Happen: : Forecasting Predictability in a Chaotic Marketplace

Citation

Robben, H. (1999), "How Hits Happen: : Forecasting Predictability in a Chaotic Marketplace", Journal of Consumer Marketing, Vol. 16 No. 4, pp. 1-4. https://doi.org/10.1108/jcm.1999.16.4.1.7

Complexity is the study of complex adaptive systems ‐‐ our markets ‐‐ that contain so many interactions that it is impossible to describe them with simple principles. Managers need to engineer product introductions and marketing decisions in ways that are incompatible with what they have done before ‐‐ there is a necessary change to make from linear to nonlinear thinking and acting.

The goal of the book (p. 7) is “to open the eyes of businesspeople everywhere to the world of synthetic customers, a world of consumers who behave as unpredictably as real people, and how these artificial worlds can revolutionize the way we look at the behavior of real consumers like you and me. Specifically, (the author hopes) to show how even a basic understanding of the principles of complexity can in fact become an invaluable tool for managers and leaders in any organization in any industry′′.

Through eight chapters, we learn the necessity of applying complexity theory, and the potential consequences of (not) doing so. The book seeks to answer a simple question: why are certain products or companies so successful, and why do some fail miserably? It is we, consumers of flesh and blood, who are the main driving force behind such phenomena. By telling our friends and colleagues how satisfied we are with a certain purchase or how uncertain we are concerning the prospects of investments, we may set off a social avalanche. That is, we can sensitize others to buy or avoid certain stock.

Such “microbursts of interaction′′ should warn managers that something is going on. This something may well develop into a hit or “an explosion of demand′′ with increasing returns, be it in a positive sense ‐‐ a hit CD ‐‐ or in a negative sense ‐‐ investors claiming their money back. A hit, then, is merely the social aggregation of individuals reacting positively or negatively to a phenomenon. As hits do not appear in a vacuum, we need to think in systems of coevolution, as the example in Chapter 3 of Sun Microsystems and Java shows. The challenge is to create lock‐in of consumers so they do not want to buy something else (the film Titanic, the Tamagotchi electronic pet).

Basically, the book provides a shell around concepts from consumer behavior, diffusion theory, and social psychology. This shell, complexity theory, provides us with an instrument to spot and monitor the state of a complex social system ‐‐ demand in a market or the market itself. It tells us to look for significant microbursts and for systems that are in a critical state ‐‐ what do they need to collapse or take off to work in our favor? The shell concerns the aggregate system, what is going on and where. The constituting disciplines, beyond the scope of the book, tell us why people interact with each other and how they choose to do that.

For hits to happen, it is essential to get people to spread word of mouth (WOM) and interact positively with their peers. This can be done by creating dynamic and exciting environments (advertising, retailing, Web sites) that motivate buyers to talk about products and services, and buy them. It is WOM and other social transactions that are key to transferring vital information. People want to be liked and admired for their accurate prognostics in fields that are important to them ‐‐ be it music, banking, or consulting. Being right leads to being cool or the proper source for information about a good deal. Of course, competition cannot be neglected: game theory is introduced to anticipate competitors′ reactions and their consequences.

How can we study complex systems? However disorderly and unpredictable they may seem, hits follow a pattern. They contain a hidden order that organizes the system′s dynamics. To understand such dynamics, studying computer simulations can be an invaluable tool. They provide us with a safe learning environment given that we cannot or are unwilling to experiment with real consumers in real marketplaces. Using real data, taken from real consumers in real markets, such simulations have ‐‐ according to the author ‐‐ succeeded in accurately describing in retrospect the success of, for instance, several music albums released in 1995.

The simulations consist of electronic agents that follow the behavior of real consumers: they can remember and learn, they have preferences, buying motives, emotions, and social relationships. And when new information reaches them, they act upon it by changing their attitudes, preferences and by informing the electronic counterparts of friends and relatives. Such simulations can incorporate real‐time data, as decisions need to be made faster and more accurately. They defy simple scenario‐based strategy formulation, as they explicitly consider the dynamic character of markets.

We do learn little about this synthetic world. Clearly, it is a nonlinear model, but what managers should do to get an appropriate level of understanding remains unclear. Also, there is little hard evidence of the success of the simulations described. In fact, managers are asked to believe in the system and in the hits they want to produce (pp. 209‐10). In this respect, the book creates an appetite for more description, explanation, and validation of the system, and on how to put the principles into practice.

Page 169 lists a number of relevant questions that executives may ask themselves, like: Do nonlinear events happen in my business? How can I detect them if they do exist? How do I respond to nonlinear events? The book does not provide the tools or a blueprint of how to answer the questions raised. It does offer the cognitive building blocks to begin to address such questions. Chapter 3, for instance, offers several principles to build and renew a manager′s view of how to behave in a complex and changing world.

The book has been written for managers, in a clear and entertaining style. One can read it for fun, and the countless number of real and recognizable business examples (most of them also for non‐US residents) from various industries make it an easy read. The biggest asset is that it triggers thinking about doing the right business right by looking at our environments through the lens of complexity theory. Things may not appear what they seem, so we cannot approach them profitably. This book shows the potential virtue of wearing a pair of complexity glasses to the office. It provides a description of concepts like nonlinear dynamics, game theory, and increasing returns, and of classical examples, and forms a nice application of complexity theory to business. It is an enthusiastic account of what complexity sciences can teach businesspeople, it offers a tool for analysis and experimentation, and it emphasizes the necessity and possible consequences of such learning. The consequences of the material that the book covers are worthwhile to consider. It may highlight to managers some levers to pull or push that they did not think were present.