Is social media a product status trap? What is the price to stop using TikTok?

This week is a little turn away from my typical analytics discussion. We are going to talk about product economics and how consumers get value out of social media. While reading, you can ask yourself questions about the products in your business and how the buyers think about value.

TikTok is a status signaling product. Basically, being one of the cool kids – as seen by your social network – has value. 

Generally speaking, consumers like status signals. They pay for them.

Take a platinum card or better yet a black card from Amex. The consumer who opts into the black card, also known as the Centurion Card, wants to signal success, wealth, access, among other things. This simple black titanium card holds sway over the owner of it because it signals a status and the owner is willing to pay for that status. Amex does give major perks in return, so it’s not just an expensive stamp of metal. Still, the user gets tremendous emotional value out of the status it signals. 

(Funny anecdote – in a flex of status signal deflation, a friend of mine once bent and folded his brother-in-law’s brand new black card at a bar after he paid for drinks. Takes some strong fingers to bend a titanium card. I wonder if Amex delivered a new card that night as part of their lux service?)

Back to TikTok. 

Consumers use social media to signal status. Again, the cool kids. Now, you might say it is free, but it costs a consumer time and ownership of their data, generally speaking, so it does have a cost. 

The social media signal itself has value because everyone in the group values being seen by communicating the right signals about how great their lives are. Not dissimilar from the black card, except that almost anyone can generate some social media status.

At the same time, social media has its haters. I suppose the Centurion Card does too, but social media is ubiquitous, so we hear more about those haters.

As it turns out, based on some recent research, most social media users probably would opt out of their social media shackles – for a price. But, who is paying whom might surprise you.

Imagine getting paid to free yourself from the habit of social media. Admit it: It’s an attractive proposition. Get paid to not have to worry about creating status. What a relief.

Recently on Freakonomics radio, I listened to a podcast (“Are You Caught in a Social Media Trap?”) where host Stephen Dubner interviewed two economists, Leonardo Bursztyn, professor of economics at the University of Chicago and Benjamin Handel, professor of economics at the University of California, Berkeley. The pair of academics studied the effect of payments on social media use. 

Now, economists tend to be mathematical types using experimentation that has definitive outcomes. For example, I pay you a $1 in an experiment and either you do something or you don’t. To understand the social media trap and its value they had to use surveys which are not transactional and definitive but hypothetical. (The costs were too high to actually pay people in a large research group, I suppose.) Regardless of the this fact, the respondents attitudes on payments to shut off social media had consistency and logic to them.

Before we delve into the results, ask yourself this: How much would I have to pay you to stop using TikTok or your favorite social media?

Now ask yourself: How much would I have to pay you to stop if everyone that matters to you on social media also stopped?

Chances are if you want to breathe a permanent sigh of relief from the social media pressure you feel, you probably would accept less to have everyone in your social circle dump the platform you use. To me, having my whole network exit at once has more value and less individual pain so it’s easier to accept at a lower price. Get rid of the FOMO. Get time back in your life. Delay myopia.

The economists surveyed college students across different campuses to find out the hypothetical value of cutting off from social media for a price. They chose this group because of the ubiquity and usage of social media and they focused their questions on TikTok.

So what were the magic numbers? According to Handel and Bursztyn, the interviewees an average would accept $50 to deactivate their own TikTok account for a month. I can’t say if $50 sounds low or high, but there is a price to get these students to stop for a month.

So how much less would the college students accept to take themselves and their social media group off TikTok for a month? It should be less than being the only one to accept exile for pay. After all, if everyone is off, the social status signal doesn’t really exist anymore. No FOMO.

Now, it turns out that these same respondents did not want any payment to turn off TikTok, if their social group also went off the TikTok.

Instead, the average respondent would pay for this to happen. I didn’t expect that. The surveyed students said they would pay $30 to have their friends’ accounts and their own account deactivated for a month.

So, there is a social media product trap. You need to be there to signal status and have to suffer through the FOMO if you are not there. You want to get paid for excluding yourself.  But, when everyone one else disappears with you, there is no harsh reality of exclusion and on average the surveyed students would be willing to pay for that freedom.

Status signal products have a cost and consumers can feel trapped inside them. If there were no trap, these alternative scenarios would have no value to the consumer and they wouldn’t consider taking money (or they would set a very high price) for behavioral change.

How do other products you use fit into this paradigm? Luxury products in general have some form of a status trap. What about in your business? Are there products or features of products that buyers would rather do without? Does a product have an embedded aspect that actually decreases its value and therefore price?

Some things to ponder….

Listen to Are You Caught in a Social Media Trap?

Visit the researchers Leonardo Bursztyn and Benjamin Handel.

Visit Freakonomics radio.

FAQs:

1. Why do people pay for status-signaling products like the black card from Amex or engage in social media to signal status?

Answer: People pay for status-signaling products or engage in social media to signal status because it fulfills their desire to be perceived positively by others. Status symbols like the black card convey success, wealth, and exclusivity, while social media allows individuals to showcase curated aspects of their lives to gain social approval and validation from their peers.

2. Is there a downside to using social media for status signaling?

Answer: Yes, there can be downsides to using social media for status signaling. While it offers a platform for self-expression and connection, it also comes with the pressure to maintain a certain image, leading to feelings of inadequacy, comparison, and addiction. Additionally, concerns about privacy and data ownership are prevalent in the digital age, raising ethical and psychological considerations.

3. How do economists measure the value of cutting off from social media?

Answer: Economists often use surveys to measure the hypothetical value of cutting off from social media. While direct experimentation may be challenging due to practical and ethical reasons, surveys provide insights into individuals’ attitudes and willingness to accept compensation for behavioral changes. By examining responses across different demographics, economists can gauge the perceived value of social media use and its implications on consumer behavior.

About me
With a focus on strategic financial leadership, my role as a Fractional CFO has been pivotal in guiding companies through periods of growth and transformation. My proficiency in analytics and data science empowers me to drive informed decision-making and optimize financial performance. Let’s connect on LinkedIn to discuss how my Fractional CFO expertise can contribute to your company’s success with CFO PRO+Analytics.