Defying market forces
Competition drives prices down. And people will always pay more for high quality. Everyone knows that. Well, think again. New research from INSEAD Professor Miklos Sarvary, Deputy Dean for Executive Development and the GlaxoSmithKline Chaired Professor of Corporate Innovation, will shake your economic assumptions to the core. In an exclusive interview, he lets us into the secrets of his new book, Gurus and Oracles: The Marketing of Information.
Can you summarise the key points of your book for us?
It’s very simple. We’ve seen an information revolution in recent years – and it turns out that information is a market like no other. Information markets present many peculiarities. One of them is: the less accurate the information the more expensive it is!
How on earth does that work?!
Take a quality piece of data – let’s say an accurate, up-to-date stock quote. Both Bloomberg and Reuters offer the same information, so you’ll go for the cheaper option. In a market like that, all the sellers will try to undercut each other, with the result that the price goes down. But if you take a piece of unreliable information, for example, about what will happen to the price of the same stock tomorrow, next week or in six months time, it’s the exact opposite. You know that most predictions will be absolute rubbish! But if there are two or more contradictory reports and you know they’re independent, it follows that you can get closer to the truth by pooling all of them. So you will try to acquire multiple quotes. The sellers anticipate this and put up their prices. In practice, the prices can go higher than if they’d colluded in a cartel!
And you’re telling us this actually happens in real life?
Yes, it happens in business forecasting all the time. And we’ve checked it in behavioural-laboratory experiments, using MBA students as guinea pigs.
But that’s terrible, isn’t it?
No, it’s a good thing… honestly! I know the title sounds a bit pejorative, but ultimately ‘gurus and oracles’ reveal information that wouldn’t otherwise come out. For example, in a country like the UK, where there is a huge media bias, the press sometimes seems a bit ridiculous, especially in comparison with a country like France, where the press is relatively unbiased and very sensible. But, as a result, in the UK, outrageous but true information is allowed to escape, whether it’s about politicians cheating on their expense claims or other journalists hacking into the cell phones of murder victims. And the buyer’s assumption – that is, the more inaccurate information, the better – is perfectly correct, provided there is no available source of accurate information.
Who should read your book?
It’s not an academic book – there are no equations and formulae. But it’s not an airport book either. Although it’s not a ‘how to’ guide, the second part does go into the practicalities of the information business, such as pricing and internet marketing. I even teach some of it occasionally in INSEAD Executive Education programmes – to marketers, IT companies and consultants. Basically, it’s a book for anyone who’s intellectually curious about the information revolution and the economics of it.
Are we really living in an age of information revolution?
Yes, these are exciting times. Social media is turning the production of information into a collective process that will create a whole new economic system – just like the industrial revolution did. All of human knowledge will be Google-able in ten years. The Google algorithm is getting better and better as it learns from all our searches. It’s becoming more like the connections in human brain every day. Some time not too far away, there will be a giant super-computer that everyone can plug into… like in The Matrix. It’ll change society: we won’t need schools or doctors any more, for example. That’s scary, but it’s also cool.
Doesn’t that make you a guru or an oracle yourself?
Maybe, but I save my predictions for the last chapter of the book. The other information in the book is accurate, I promise. That said, INSEAD is certainly part of the value chain that runs from data to information to knowledge.
Finally, how would you like the book to be used?
To maximise sales, regularly in a fireplace! Read carefully before burning, though.
As well as being Deputy Dean for Executive Development, Miklos Sarvary is Director of INSEAD’s Learning Innovation Centre and teaches on the International Marketing Programme and the AIMS: Advanced Industrial Marketing Strategy.