A peer-to-peer (P2P) economy is a decentralized model whereby two individuals interact to buy sell goods and services directly with each other or produce goods and service together, without an intermediary third-party or the use of an incorporated entity or business firm. In a peer-to-peer transaction, the buyer and the seller transact directly with each other in terms of the delivery of the good or service and the exchange of payment. In a peer-to-peer economy, the producer is usually a private individual or independent contractor who owns both their tools (or means of production) and their finished product.
What is peer-to-peer marketing?
Peer-to-peer marketing, also known as P2P marketing, is a type of word-of-mouth marketing where your customers recommend your business or brand to their peers. It essentially turns your brand’s stakeholders (customers, partners, employees, etc) into marketing channels.
It’s a known fact that consumers hate being sold to, and people are more likely to buy products from those they trust. These two ideas combined forms the basis for P2P marketing. With 56% of consumers being influenced by their peers while shopping, peer-to-peer marketing encourages new customers to purchase, builds long-lasting relationships, and strengthens brand loyalty.
P2P Marketing vs. Influencer Marketing
While P2P marketing is based on the influence a friend or “peer” has on our buying decisions, influencer marketing is based on the “famous” factor.
Athletes and movie stars have captivated our hearts and minds for more than 100 years.
Fifty years ago, athletes sold everything from shaving crème to nylons to cars. Michael Jordan and Tiger Woods became media darlings with unworldly athletic triumphs and collected unimaginable fees from Gatorade, Nike, and McDonald’s.
Today, there’s another group of celebrities who may be famous only for being known. They aren’t athletes, they aren’t actors, but they sure can sell products.
They are influencers who swing their followers toward products they are also paid to endorse.
The main difference is that influencer marketing flourishes on social-media platforms, not TV.
And while the product seller might highlight their connection with the “influencer,” they count on the oh-so-famous one to post an endorsement on their personal websites and social media pages. And no, it’s not that subtle.
However, the most significant difference between P2P marketing and influencer marketing is that P2P can grow naturally, organically (and still go viral) without any prompting from a company.
In contrast, influencer marketing usually happens when the influencers get paid endorsement fees not to appear in ads but to spread the word to their followers via social media.
Examples of peer-to-peer marketing
- Word-of-mouth: This is where your customers mention your business to their friends, family, or coworkers, and talk about your product or the excellent service they’ve received. For example, if a customer contacts a customer service department and their call was answered immediately, they may be pleasantly surprised as they’re often left on hold. Then, if their query was dealt with in a helpful and friendly manner, they may be impressed with the customer service they’ve received and mention this to their friend. This recommendation could then encourage the friend to purchase from the brand themselves.
- Referrals: Another type of peer-to-peer marketing is to create a referrals program. Also known as a refer-a-friend progam, this marketing method offers rewards to your existing customers for sharing your brand with their network. You then reward them with an incentive, such as loyalty points or store credit, to thank them for bringing in new customers to your business.
Why peer-to-peer marketing is important
Peer-to-peer marketing is an effective form of marketing that relies on your customers recommending your brand to their network. It’s important and effective because people trust the opinions of those closest to them, with 93% of consumers trusting friends and family over all other influences. So, if your customer recommends your brand to their friend, it’s likely that friend will look into your business and consider a purchase. This is because you are more likely to trust the opinion of someone close to you compared to a company’s own advertising, as they are less likely to gain anything from the interaction and therefore seen as more honest.
FAQs
What is Peer-to-Peer (P2P) Economy?
A peer-to-peer economy is viewed as an alternative to traditional capitalism, whereby organized business firms own the means of production and also the finished product. Firms act as centralized intermediaries, selling finished goods and services to customers and hiring labor as necessary to carry out the production process.
A P2P economy can exist within a capitalist economy. Open-source software (which is P2P) co-exists with retail and commercial software. Services like Uber or Airbnb serve as alternatives to taxi and livery services or hotels and inns, respectively. These companies act as hybrids between traditional capitalist firms and true P2P activity by providing intermediary services, including a network to connect buyers and sellers and process payments, but using private contractors to deliver services directly to customers.
What is Capitalist Economy and P2P Economy?
Several factors influence the advantages of organizing economic activity into capitalist firms versus P2P economy. In capitalism, workers often do not own the means of production, nor do they have any rights to the finished product they have helped make. Instead, they are paid wages in return for their contribution to the firm’s output, which then sells the product to customers. A capitalist system based on third party firms has advantages over a P2P economy in the form of generally increased productivity and efficiency of the production process due to economies of scale, management of the transaction costs of coordinating the activities of buyers and sellers, specialization and division of labor with respect to managerial ability and entrepreneurial judgment, and the transfer of risk and uncertainty from workers and customers onto business owners, who have greater resources to absorb potential losses.
These can represent advantages over a P2P system. A P2P system will be less efficient than traditional capitalist firms to the extent that it restricts production to less efficient scale; incurs higher informational or other transaction costs; limits the division of labor between business managers, entrepreneurs, workers, and customers; or limits the efficient distribution of risk and uncertainty. This extent is based on the physical technology, social institutions, and characteristics of the population in an economy.
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