Here’s an example of how powerful word of mouth is. I recently watched a documentary about Bernie Madoff, the convicted operator of the Ponzi scheme which fleeced almost $65 billion from investors pockets. The following is an excerpt which demonstrates the power of trust and recommendation:

Ripped Off: Maldoff and the Scamming of America

“My family unfortunately had all their Money with Bernie Madoff. I was as surprised that Bernie Madoff had been arrested as when the Japanese bombed Pearl Harbour.”

Retired stockbroker Joyce Greenberg’s father began investing with Madoff in the 1970′s.

“I did not feel that Madoff’s 10% was unreasonable. If it had been 20 % or 15% I would definitely have been suspicious, but not at 10%.”

Greenberg’s family had heard about the opportunity through an early Madoff investor, a typical example of the power of social feedback.

“People are making money. They tell other people about it. That makes it safe. That makes it attractive. Then people put money in. So the social media feedback loop is very important.”

Social feedback loop, a fancy term for word of mouth, helps explain the herd mentality behind all investor manias. Even ones that are not fraudulent like the Dutch Tulip Mania. In 1636 speculators drove the price of tulip bulbs to six times the average salary. Even buying shares in a single bulb. More recently in the 1990′s, word of mouth about new dot com companies drove stock prices to stratospheric highs. To investors in the loop all these opportunities looked too good to pass up.

“That’s part of the human psychology here. There’s one side of our brain that says this is too good to be true. And there the other side says this is too good to miss.”

How much trust do your consumers have in you? Have you balanced their perceptions so that there is genuine excitement while retaining trust in the offering? It’s a fine line. However, if achieved it can reap huge rewards. Or huge punishments… such as 150 years in jail.

Related posts:

1. Slactivism: Can social media actually cause social change?
2. Getting To Fourth Base In Social Media Relationships
3. Social. To Be, Or Not To Be?