One of the most challenging aspects of running a small business is knowing how your consumers make decisions. The consumer mind is complex and often difficult to accurately predict. If you want to learn more about how consumers make decisions, focus on the effects of group psychology. Applying the wisdom of the crowd in your business can help you build trust, establish expertise and increase revenue.

What Is the Wisdom of the Crowd?

American journalist James Surowiecki released his book "The Wisdom of Crowds" in 2004, which covers how groups of people make better decisions than individuals in psychology, pop culture and other fields. The concept that collective wisdom is more effective than individual intelligence can also be applied directly to business. The collective intelligence of consumers affects their decision-making skills and the success of businesses they choose to support.

However, a crowd has to involve a diversity of opinion. All people within the crowd cannot share the exact same opinion. Plus, the individuals within the crowd need to determine their opinions on their own, independently from those around them. With individual opinions within the crowd, the crowd as a whole needs to aggregate the different opinions of the diverse group into one major collective decision.

Origins of the Study of Collective Intelligence

The concept of the wisdom of crowds goes back much further than James Surowiecki, all the way back to 1906. Victorian academic Sir Francis Galton was at a country fair where there was a competition. A group of people were asked to guess the weight of an ox. Ever the polymath, Francis Galton did his own research once the contest was over.

There were 787 guesses from people at the fair, and the average guess was 1,197 pounds. The right answer was 1,198 pounds. It was remarkable to Galton that the crowd had so closely guessed the correct answer.

The problem with individual guesses is that you can never be sure which guess is right. When you create a collective answer based on the wisdom of the crowd, you have a higher chance of being right. In fact, on the TV show "Who Wants to Be a Millionaire," the “ask the audience” portion yields the correct answer 91% of the time.

Why Consumers Follow the Crowd

Groups of people follow crowds because humans are social beings. It’s in our nature to look to others to see what they are doing, thinking and feeling. How others behave influences the behavior of individuals, and this can also be applied to consumer markets. If consumers see large groups of people favoring a particular product or business, they will be more included to favor it too.

When members of the crowd have a diversity of opinion, they can still come to a collective decision. If some members of a crowd value a specific brand and others value another, they may choose to be loyal to one brand based on their internal discussions and consumer trends. If just some followers of brand A move to brand B, the rest may be inclined to do so as well.

Groups of people often believe that if others are doing it, then it has to be right. Decision making is difficult for many consumers. If they witness a crowd visiting a specific business, they may just assume that this is the best business in town because other people are going there. As a result, businesses can effectively market to crowds by showcasing how many other customers value them.

The Importance of Social Proof

Social proof is a marketing buzzword that is used frequently in business; however, it has special significance when it comes to group psychology and the wisdom of the crowd. Social proof is the reliance consumers have on the feedback of others in relation to specific products, services and businesses.

If you want to take advantage of the power of group psychology and influence your consumers to use the wisdom of the crowd in favor of your business, be sure to incorporate social proof into your business strategy and marketing campaigns. Social proof takes many different forms, including:

  • Word of mouth: A group of individuals can influence their friends and family to use a business by simply talking about their experience in a completely candid situation. For example, if someone came to your convenience store and received great customer service, he may mention it to his spouse, who would then later also shop there.

  • Formal references: In many industries, especially business-to-business ones, a formal reference to a potential customer can have a lot of value. This social influence is important in businesses with high-ticket items or long-term service.

  • Endorsements: Many businesses affect group think by getting a celebrity or industry expert to endorse their products. By seeing someone they know and trust talking about specific products, consumers feel they can trust the business by extension. 

  • Testimonials: A few words from happy customers can go a long way in fueling crowd wisdom. If consumers see that others just like them have been satisfied with your business, they may be inclined to give it a try as well.

  • Reviews: Similar to testimonials, reviews are typically published on third-party sites like Google My Business, Yelp and TripAdvisor. Consumers typically go to these sites when they are evaluating which business they want to use.

  • Case studies: For businesses that promise specific results, case studies are a form of social proof that can affect group think. Case studies typically showcase a problem the customer was having, the solution the business provided and the results the customer received.

  • Earned media: This type of promotion is any publicity that the business has gained that is not purchased. For example, if a local newspaper does a story about your small business, this earned media can help to influence those in your community to visit your business.

  • Trust signals: Google star ratings and other trust signals also help to influence collective decision making. These ratings show customers the trustworthiness of your business based on specific criteria.

  • Social engagement: Your Facebook, Instagram, LinkedIn, Twitter and other social channels show prospects what other consumers think about you. Consumers can like your posts and add comments. This kind of engagement is a signal that your business is trustworthy and offers customers satisfaction.

Keep in mind that not all forms of social proof are right for every kind of business. Evaluate for what your target market is looking and the collective group sentiment when deciding which types of social proof to use to promote your business.

Applying Group Psychology to Your Business

Using the power of group psychology in your business doesn’t mean you have to read a psychology textbook. It’s about understanding the importance of group decision making and knowing the fact that consumers are influenced by what others do. How collective wisdom shapes business is through promoting how you have helped others.

Regardless of whether you’re in the researching stages of your business plan or you're considering making a major pivot in your business, focus on what is important to your customer base. Begin with market research to understand the demographic, geographic, psychographic and behavioral traits of your target audience.

It’s critical to know what your audience values because this is what will likely influence them as a group. For example, if your target market is extremely price sensitive, as a crowd they may be influenced by sales promotions. In order to appeal to the crowd, then, it would be prudent to offer different ways they can save money at your business, such as sales, exclusive discounts and coupons.

Creating Demand for Your Business

Appealing to decision makers and convincing them to purchase from your business is no easy task. However, with the wisdom of the crowd, you can appeal to prospects in different ways in order to grow demand for your company. Generating demand involves promoting your business through traditional marketing channels, but it can also include crowdsourcing for a number of different elements. By appealing to the larger crowd and asking them for their input, you can actually get them to feel more engaged in your company.

While businesses are typically familiar with crowdsourcing for investments, there are other ways to appeal to the crowd that can still generate demand:

  • Crowdsourcing ideas: Consumers love to provide their input on products and services. By giving your audience a way to offer suggestions for new products and services, you may be able to increase demand for your business.

  • Crowdsourcing connections: Reaching out to social media and your current business contacts for leads, partnerships and other connections can be a useful exercise because you may get valuable contacts from outside your regular network.

  • Crowdsourcing employees: If you’re looking to hire new staff members, reach out to others in your industry for suggestions. This way, you get a personal recommendation for the prospective employee and may reach candidates you hadn’t thought of before.

Crowdsourcing in different ways appeals to the social nature of human beings and involves group psychology. Consumers are compelled to provide individual opinions, which businesses can then use to create a collective decision.

Crafting Marketing Campaigns to Capitalize on Crowd Psychology

Every marketing campaign for your business should be tailored to your target audience. Focus on their needs and how you can meet them. However, capitalizing on the power of crowd psychology within your campaign is also vital. Use different forms of social proof within each promotional medium:

  • Advertising: In traditional and online ads, be sure to include a testimonial from a customer, a trust signal or rating or an endorsement. This way, your consumers can see which other people value and trust your business, which will help influence their own decision.

  • Personal selling: Whether you’re doing it in person, over the phone or via email, you can use personal selling to share case studies of other customers. This way, you can discuss in detail the results you have helped others to receive. Personal selling is also a good opportunity to crowdsource connections to partners and other potential customers.

  • Sales promotion: Including an endorsement or testimonial in your promotional email, coupon or sales signage can help convince those who are on the fence about making a purchase. Not only does this provide them with a price incentive but it also offers them crowd wisdom.

  • Direct marketing: This promotion can be done via email or post mail and is highly targeted to a specific subset of the market. Be sure to include results you have helped achieve for the same type of problem this audience is facing.

  • Public relations: When holding a press conference, reaching out to a journalist or being active in your community, have a list of talking points that include social proof. Rehearse the key elements you want to communicate that are related to the topic at hand. For example, how many customers you have helped, your Google star rating or the sizes of your social media groups is good information to pass on.