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What do you think? Research based on eBay support communities that was published in the Harvard Business Review a few years back seemed to indicate that it did.

Some of those same researchers, including Utpal Dholakia who helped us with the writing of our book, The Hyper-Social organization, went back and re-examined the eBay support communities – this time making sure that they corrected the results to account for self-selection bias. The results – community participation could actually have a negative impact on buying and selling. The recent study was published in an article titled “Impact of Customer Community Participation on Customer Behavior,” in the Journal Of Marketing Science, and can be accessed online here. What they found is that community participation has mixed effects on customers’ likelihoods of participating in buying and selling behaviors. In fact, they found that community participation had a negative impact on the number of listings and amount spent, suggesting that people who participated in the communities were educating themselves to be more efficient.

That does not mean that you should do away with online communities! Even the authors of the paper say so themselves.

There is also other research that looks at the impact of peer buying on buying behavior in communities. What this study found is that people with high status within the community would buy less than average – suggesting that they have nothing to prove by buying anymore. Those with low status were not very well connected to the community and peer buying did not influence them much at all. The middle tier – those with medium status – were very much influenced by peer buying and made up amply with their buying for the other two groups.

So while education may lead to short term efficiencies and less revenue from the buyers and sellers in eBay communities, they could also lead to increased customer satisfaction and higher lifetime customer value – which was outside of the scope of this research project. It could also lead to more customer acquisition through word-of-mouth, another metric that felt outside the scope of this research.

What do you think?

It used to be that the company with the better product won. Then came the age when the company with the better message about the product won.

Very few companies still win with on the basis of having a better product. Apple is probably one of the few that can still achieve that. Their products are cool and we buy them because coolness used to get us better mates.

Most companies can no longer win that way. Coming out with products that have new features no longer gives us a sustainable competitive advantage – either users don’t care, or if they do, competition catches up in no time.

It’s also much harder to differentiate your offering based on the story you might craft about it – as customers and prospects are now increasingly owning that story.

But so – how do companies win today?

The way companies win these days is by delivering services on top of their products that make customers go WOW.  The reason why exceptional service is the new competitive differentiator is not just because it’s easier for competitors to catch up product-wise, but because the news about exceptional service travels fast in the networks that matter – peer and friend networks where the buying decisions are increasingly being made. When people recommend products to friends, colleagues, and acquaintances, they do not focus on the features, functions and benefits the way many marketers have been trained to do – they focus on the overall experience of adopting the solution, and the exceptional qualities of that “whole” offering.

So if you are like most companies and operate in a market where it is really hard to differentiate  based on the product alone, you got to focus your attention on WOW service offerings.

What do you think? I would appreciate your input and feedback.

I recently attended the customer reference forum, which was a great event. It has been awhile since I was directly involved in managing customer reference programs, but let me tell you that this is big business – over 150 employees dedicated to the effort at Oracle, over 50 at SAP, divisions at Microsoft having 8 figure budgets just to write reference stories, some large companies having Customer Reference Officers, etc.

As I immersed myself into the issues facing customer reference managers, it dawned on me that like many other marketing processes, this one is badly due for an overhaul.

Here are two takeaways from the conversations I had at the event.

Customer Reference Programs have to be focused on the buying process, not the sales process

Most customer reference programs are standalone programs that are squarely focused on supporting the sales process and specifically the sales organization. Sure, they sometimes support PR and product management efforts as well, but those are all company-centric processes. What companies need to realize is that people increasingly buy products based on what peers, opinion leaders, and friends are telling them, and not information coming from their company. So the customer reference program needs to be focused on the buying process, and not the sales process – it needs to become customer-centric, and not company-centric.

It also needs to be fully integrated with any word-of-mouth (WOM) activity the company is trying to foster. Since customers who are acquired through WOM are much more profitable than those acquired by traditional marketing programs, companies should make that a high priority. And with customer references being the biggest asset in such efforts, the customer reference program needs to move front and center to those efforts.

The Customer Reference Program process needs to be turned into a social process.

As buying decisions are increasingly made based on information that does not come from your company, moving forward you will need an increasing number of customer references – not less. And that increasing number is not linear, it’s exponential – those with the highest number of people buzzing positively about them in the marketplace will win. Unfortunatelly, and considering historical marketing budget trends, the budgets needed to scale your customer reference programs will not allow you to scale those programs to the point where you need them. In order to reach an acceptable scale you will need to turn the whole process into a social process – one in which customer references, other employees, and non-customer references or even non-customers can get involved. You see, there are many more people who are buzzing about you than you have in your customer reference database. And there are many more employees talking with happy customers than you have in your customer reference department. You need to get them involved and let them help one another tell a better story in the marketplace – their story that is, and not yours.

So in summary, Customer Reference Programs may be more important than ever, but they need to move to the center of all marketing activities and need to be focused on the buying process, not the sales process. And in order to scale the program to where it makes a real difference, you will need to turn it into a social process.

Let me know your thoughts.

What do you expect from your marketing department – to be your brand advocates in the marketplace or to be your customer advocates within your company. Chances are that you will say both but only empower and reward them to be brand advocates in the marketplace.

And therein lies a problem.

You see, most buying decisions happen when your people are not in the room – not part of the conversations that lead to buying decisions. So for them to be brand advocates is to a certain degree a waste of time. What you need is for your customers and prospects to be your brand advocates. They will be more effective as they participate in the conversations that matter.

Brand advocacy among your customers and prospect is a naturally occurring phenomenon – as long as you do not screw up in the marketplace that is. The question is, how can you increase the volume of brand advocacy among your audiences? The answer is not by adding company-employed brand advocates to the mix. The answer lays instead in turning your marketing employees into passionate customer advocates within your company. By having them become customer advocates they will gain a higher level of trust among your customers and prospects – giving them a more prominent  seat at the table where the real buying decisions are being made. Not only that, but by turning them into customer advocates instead of brand advocates you will also break the “groupthink” mentality that often occurs within new product innovation teams – allowing you to build better products and reduce your new product failures.

So by setting up a reciprocal relationship with your customers as it relates to advocacy – I scratch your back if you scratch mine – you will end up with a higher level of influence in buying decisions and in the long run perhaps with better products.

There is no question that customer reference programs do work. Long employed to support sales and marketing (you cannot talk to an analyst without having customer references) efforts in the B2B space, they tap into one of the age-old Human 1.0 characteristics – the drive to mimic the behavior of others, especially of those who are perceived to be successful within our tribes.

The problem with many traditional customer reference programs is that they are based on the old marketing principles – designed for interrupt-driven company-to-prospect communications, product-centric, and non-reciprocal. It’s no surprise that in a Hyper-Social world they no longer deliver the expected results.

So what are marketers to do? As is usual in the Hyper-Social world, the answer is pretty straightforward. Here are 5 things that marketers should consider when developing Hyper-Socially enabled customer reference programs.

1. Let go of control and empower customers to tell their own stories
   At the risk of sounding like a broken record, it’s important to understand that the most important conversations are no longer the ones that happen between your company and its customers/prospects, but instead the conversations that happen among them. They’ve come to distrust the information that comes from your company, and with the advent of social media and communities they have much more opportunities to get information from unbiased sources (e.g., colleagues & acquaintances) that carry much more credibility. A majority of the customer stories that lead to buying decisions no longer come from your company but are instead originating within your customer tribes (online communities, industry associations, etc.). When I explained this to a marketing agency owner who also owned a print shop, he was originally skeptical, but then remembered how he had made a multimillion dollar press purchase decision not based on any information that came from the press manufacturer, but rather based on a trusted fellow print shop owner within his industry association. So if you want a successful customer reference program, you need to find ways to help your customers tell their own stories within their own networks. You don’t want to control or help them shape their story, you want to provide them with information that will help them strengthen their story and improve their status as opinion leaders within their network.
2. Make sure all your customer stories are customer-centric to a fault
   Most customer references are product- and company-centric. They are focused on confirming the features and benefits of certain product attributes more so than the customer pains and tribulations associated with successful product deployment and adoption. For the minority of customer references that will originate from your company,  you need to ensure that they are customer-centric to a fault. Not only will they carry more credibility, they will also travel better as “retellable” stories among your customer and prospect networks.
3. Think tribes, not market-segments
   It is true that in a majority of cases people will only accept customer reference stories from withing their own industry – thinking that anyone outside of their industry does not understand the issues specific to their environment. That does not mean that you should develop customer stories only around market segments. See if you can also develop them around tribes – groups of people within your industries that tend to hang together based on common behavioral characteristics. So instead of documenting a customer story for pharmaceutical CIOs, see if you can develop one for CIOs who are passionate about sustainability.
4. Don’t pay for your customer references
   On more than one occasion have I written about the cons and cons of paying people for any kind of feedback. The same is true for customer stories. If you have to pay someone for a story, it’s probably not a very strong story – definitely not one that your customer would be willing to tell his friends without being compensated for it first. So don’t put it out there. Of course, that does not mean that you should not base your customer reference program on reciprocity – you should. Allow the customer who recommends your product to give a gift to those he is recommending the product to – a small discount, or a special free feature – or make everyone feel warm and fuzzy by having reference program metrics trigger donations to worthwhile charities.
5. Forget information channels and think knowledge networks
   Most customer reference stories are written like brochures – they have the facts, the benefits (including amazing ROIs), and information about the company and its products. They are information rich and lack real knowledge. They are built to be distributed through information channels like email newsletters, traditional media outlets, and customer story aggregation web sites. The problem is that when your customers talk to colleagues, friends, and acquaintances, they do not transfer information, they transfer knowledge and stories. If you reference stories don’t have those, they will not travel along the knowledge networks where buying decisions are increasingly being made.

Customer reference programs should not be set up as standalone programs – they need to be part of your overall Hyper-Social efforts, including your word of mouth activities.

What do you think? I would appreciate your feedback on this as I will be leading a conversation on the topic at the upcoming customer reference forum.

There has been a lot of research on the value of acquiring a customer though Word of Mouth versus Traditional Marketing. One recent project, which was published in the Journal of Marketing this past September, found that the long term elasticity (defined as the percentage of change in new customer acquisition to the percentage of change in the corresponding marketing driver) for Word of Mouth is 20 times higher than the elasticity for for events and 30 times higher than the elasticity for media appearances. Another study, this one from last year, found that the lifetime value of a customer acquired through word of mouth can be twice that of the lifetime value of a customer acquired through traditional marketing. And they can bring in twice the amount of additional business through their own positive word of mouth compared to those who were acquired through traditional marketing programs.

There is no question that customers who are acquired through word of mouth will be buzzing more and longer than those who are acquired through traditional marketing means. Some companies are actually able to quantify the value of a word of mouth referral. Unfortunatelly, the knee-jerk reaction of many marketers who quantify that referral value is to use it to calculate the financial incentive that they are willing to pay to stimulate word of mouth referrals.

That is where the system breaks down.

If you give me a pure financial incentive to make a referral, I will evaluate whether it’s worth spending some of my social capital for the amount of money that you are giving me (and chances are it won’t). As Dan Ariely calls it, I will evaluate the referral transaction in my market framework. If you do not give me any financial incentive, I will evaluate making a referral in my social framework (e.g., I am actually helping the person who I am referring this product or service to? Or I am helping the company person who was helpful with me in dealing with my problem by bringing her more business?). While there is no research data that I am aware of to back this up, I believe that the financial incentive-based word of mouth will look a lot like traditional marketing-based customer acquisition programs – resulting in a lot less buzzing and lower customer lifetime value.

Now what if you were putting incentives in place that were social in nature rather than financial. Don’t give me an incentive that would trigger the evaluation of what I do in a market framework, but allow me to give a valuable gift to the person who I am referring to you. If I like your offering and you increase the value that I deliver to my friends or colleagues by referring them to you, then you have a winner.

The key to success is not by commercializing the social – it’s by making the social stronger.

What do you think?

Some pundits will tell you that you should do away with brand messaging and positioning all together, since you cannot control it anyway. Not so fast! People need to know what bucket to put your offering in, and if they can’t, they won’t know how to assign value to what you have to offer. Tivo ended up in that pickle, with consumers not quite sure what category of products to compare the offering with. Was it more like a DVD player or was it more like a computer?

Knowing that a good positioning will impact your revenue and profits, and realizing that you still have a seat at the customer decision making table (it’s just a much more crowded table and your share of voice has significantly been reduced) you need to develop a point of view about your positioning and try to get it co-opted by your tribe. Like in most social interactions, your chances to get someone to adopt your point of view are going to increase if you involve them early on. The more say you give them in the process of co-creating your products and services, and the earlier you get them involved (preferably at the product concept stage) the more they will embrace a shared view of the brand and product positioning. An added benefit of co-creating products with your customers is that those who are involved in the design of new products will typically pay higher prices for those products .

Marketing executives have come to understand, sometimes the hard way, that brand perception is only as good as the last interaction the customer had with it. When I spoke with Mark Colombo, senior vice president of digital access marketing at FedEx he described the challenge as follows: “In the 50’s and 60’s, brands used to be built on a set of attributes. Now brands are built by customers, one experience at a time, and those experiences are, obviously, more and more online experiences.” So you cannot just convey a brand’s promise or a product’s positioning through advertising and packaging anymore, you also need to deliver against that promise across all your other customer touch-points, and at any time. That becomes especially challenging when you have complex product distribution channels, high numbers of people involved in your service delivery, or a high level of interaction between your customers and your customer service and support center. It gets further complicated by user generated touch-points that people will encounter in the form of online reviews, blogs, and online communities. All those touch-points can make or break your brand, product, or service promise and position. Like many other things in marketing, this is not something new; it’s just something that we used to get away with because our customers, prospects and detractors could not behave Hyper-Socially and hold us accountable for our actions.

The way you control a brand promise through multiple touch-points is not through elaborate process manuals that we have grown accustomed to in business. The way to do it is by embracing Hyper-Sociality and all the messiness that comes with it and allow all the people involved in the process to behave like humans. Some companies like Zappos and JetBlue achieve that through a shared values-based culture that creates a common sense of belonging among their employees. Others like Western Union achieve it by becoming customer-centric to a fault. Still others, like IBM, are doing it by encouraging all their employees to set up communities with whomever they want, wherever they want, and about anything they want.

The key to success is to embrace all four tenets of Hyper-Sociality: think tribes, knowledge networks, customer-centricity, and be willing to accept some of the messiness that comes with Hyper-Sociality.

What do you think? I would appreciate your feedback.

Many senior sales executives are still looking for a predictable flow of leads at the end of a lead acquisition and nurturing “funnel.” And while many marketers have been struggling with expectation settings around predictable lead delivery for more than a decade, their sense of panic and angst around this issue has risen to alarming levels.

So what’s going on?

First of all, the funnel metaphor is broken. People no longer make buying decisions in a linear fashion. Second of all, people no longer listen to companies, but instead they turn to advise from their peers, friends, and other users of those products. Third of all, the potential number of choices they can have in their product consideration set is much larger than it ever was before, and the information sources that can get products into a buyers consideration set has grown exponentially.

A new study published in McKinsey Quarterly (requires subscription) reports that 2/3rd of touch points in a buyer’s active evaluations process are now consumer-driven marketing touch points: user generated reviews, word of mouth, and in store interactions. Only 1/3rd of the touch points are still company-driven. DID YOU HEAR THAT? You still control 1/3rd of the touch points!

So how should you think differently about lead generation?

First of all, ditch the funnel concept, and educate sales why the funnel no longer works. Second of all, make sure that there is uniformity among all the different customer touch points that you control: in-store display, packaging, attitude of your customer service department, online product information, educational information, etc. Third of all, position yourself to be findable for when customers can be influenced during their buying cycle – and in many cases that includes post sales as well.

One of the best things to happen to marketers is that most buyers leave a digital trail as they move through their journey. When they ask friends on twitter, you can see it. If they ask peers in communities, you can see it. And when they read or contribute to online reviews, you can see it if you want to.

You just need to make sure that you are there and generally helpful when those interactions happen. You also need to make sure that your branded content can travel as part of word of mouth, not just sit idle on your site. As the McKinsey Quarterly study says, you need to give prospects reasons to switch to you instead of excuses to stay with what they have – and you need to make it super easy for them to progress through their buying cycle.

I know: easier said than done. I am hoping that in the next few weeks we can expand on some of those concepts with some real case studies.

If you follow behavioral economists like Dan Ariely, who I recently interviewed as part of the CMO 2.0 Influencer Conversations, you will know that there is such a thing as anchoring when it comes to pricing. Basically you can set an anchor for the value of a good and then have people judge all offerings within that space against that anchor. Anchoring is especially important for new product offerings – the ones for which people do not have an assigned value for – like the iPhone when it came out or the Amazon Kindle.

Let’s take a look at the differences between the product pricing strategies for those two products. The iPhone was introduced at $600, only to be reduced two months later to $400. Of course $400 looked like a great deal – when the anchor had been set at $600. And as Dan Ariely explains in a recent MIT Sloan Management Review interview $200 iPhones today look like an even better deal.

The Amazon Kindle on the other hand was announced with books at $9.95 – a subsidized price as Amazon is paying publishers more than that. But that set the anchor for the value of a book on Kindle in the mind of consumers. Now that they raised many books to $15 and up, it does not look like a good deal anymore – in fact it looks like it’s not worth switching to electronic versions of the book anymore. And the Amazon Kindle boards are full of protests by angry customers who are calling for boycotts.

Would Amazon have sold fewer Kindle’s if it had set the price of a book at $15 to start with, and tout some of the other benefits of reading on a Kindle – like searchability, note taking, etc.? It’s hard to prove of course, but I do believe that I would have bought the two Kindles that I bought so far with books at $15 and not feel as bad as I did when they increased their price. Subsidizing prices in a new product category is as bad a strategy as having free offerings to stimulate usage in a new category.

For my first CMO 2.0 Influencer Conversation, I spoke with Rob Kozinets, a professor of marketing from York University in Toronto, about communities, consumer tribes and word of mouth marketing – not surprising considering that Rob was the editor of Consumer Tribes, a collection of research papers on consumer tribes, recently finished a book on word of mouth, and is one of the few researchers looking at the practice of business through the eyes of an anthropologist/ethnographer (among other things).

We started the conversation by talking about the disconnect between the world of academics and the world of business, especially as it relates to marketing. It is an unfortunate fact that many mistakes could be avoided if marketers were making informed decisions based in part on some of the recent findings in the fields of behavioral economics, anthropology, complexity theory, sociology, and psychology.

One of Rob’s main themes is that consumer learning, opinions and transmission of influence happens in smaller groups – hence the idea of tribes. Today’s tribes have looser affiliations and are more hedonistic in nature than ancient tribes. They are nomadic by interest, rather than geography, and centered around expertise and commercial culture. Consumer Tribes are also not typically focused on a single brand but rather on a whole group, a whole culture or lifestyle, or a set of activities. Another challenge for marketers, according to Kozinets, is that consumer tribes don’t typically develop long-lasting relationships. Even some of the stronger tribes, like the Star Trek groups that were so popular in the 90’s, aren’t as active anymore – people move on as they get more options. It would actually be interesting to see if the Harley community is still as strong as it used to be. People move in and out of consumer tribes, and the tribes seem to have a natural life and death cycle – including a revival stage sometimes.

Of course, most marketers don’t think of their customers as tribes yet, or don’t realize the enormous impact that successful customer communities can have, so for many of them this is an non-existent problem.

According to Rob, one of the big problems with communities is that companies are setting them us expecting fixed ROI. In reality the measurement of the the impact of communities is very hard. They are hard to set up, take time to take off, and are challenging to maintain. And, as Rob points out, a lot of the successful community marketers have had their communities formed for them by their customers – much like Harley.

We also talked about the proliferation of special interest communities sponsored by various companies – e.g., small business focused communities, of which there are dozens. Obviously members will not want to belong to multiple small business communities, so what then? Consolidation, with most members gravitating towards the most successful small business community, or further fragmentation, with more user-driven communities aggregating around micro objectives? It’s hard to predict where we will see consolidation vs. fragmentation of communities as we do not quite understand how people move in and out of those spaces.

An interesting concept which Rob brought up was “share of community time,” which, in a way, is a measurement related to John Hagel’s Return on Attention (John has also agreed to conduct a CMO 2.0 Influencer conversation with me – stay tuned for a date). The problem with calculating share of community time is that there is a huge spread in the estimated number of people who participate in communities – between 100M and 1b.

Other things we talked about include:

• The role of payments and incentives in communities
• Whether online focus groups are stretching the possibilities of online community environments
• How to engage with your detractors as well as your champions
• How, if you are going to open things up, you should have a strategy to deal with criticism that will come
• The pros and cons of having a neat classification system for communities based on the different needs that they are trying to solve
• How community organizers need to think about members first and brand second

We also touched on word of mouth and how most marketers expect word of mouth to amplify their message, when in reality most word of mouth will transform your message.

As usual, you can listen to the podcast on the CMO 2.0 site, and we will be releasing transcripts soon.