While attending the Enterprise 2.0 conference and hosting a great dinner with 28 thinkers in the space on Monday night (the dinner was sponsored by Clearvale, which is our client), I got a chance to reflect on what social CRM actually means, and how many people are thinking about it in a way that is too narrow.

Let’s start off by one of my favorite quotes from Peter Drucker: “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” Ok, so creating a customer and managing the relationships with those customers should be the heartbeat of a company – we can all agree on that. That is also why Customer Relationship Management should be one of the most important processes within a company.

In the research leading to the writing of our (award winning – sorry couldn’t resist the chest thumping) book, the Hyper-Social Organization, we found that those companies that are successful in leveraging the social as part of their business, turn their business processes into social processes. So turning your CRM process into a social process makes a lot of sense.

The question is – How Do You Turn CRM Into a Social Process?

In order to answer that question, let’s peel back the various layers of the onion that make up the CRM process. And to do that it may be useful to categorize the parts of the overall process into the following elements – the actors, the processes that make up the CRM process, the places, and the data.

The actors are the people that should play a role in your overall CRM process – they don’t just  include your customers and prospects, which most companies will consider as part of their CRM process. They also include your detractors, your employees (those that interact, and those that should interact with the customers – e.g., those that share a passion with your customers), your suppliers (if you run on tight inventories and a supplier has an delivery issue, that will impact customer relationships), and your partners.

The processes that make up CRM include not just sales, marketing, and customer support, but also the buying process (most products are now being bought, not sold), the recommendation process, and the relationship management process – processes that have already gone social and been fundamentally transformed in the past decade.

The places refer to those places where you interact with your customers, or where they interact with one another while making buying decisions and sharing recommendations. They include face-to-face encounters, email, telephone, and social media environments.

The data refers too data that typically will reside in systems of record like CRM systems and financial applications. The data you keep about your customer relationship process should include customer data, transactional data, legal data, financial data, and increasingly social data.

Some people say that a CRM system that contains social data is social CRM – but when you look at all the parts of the social customer relationship process, you realize how myopic this view of social CRM is. Some consider the act of managing customer relationships in social media social CRM – an equally myopic viewpoint.

Social CRM needs to encompass all the different parts of the Customer Relationship Management Process – the Actors, the Processes, the Places and the Data.

That of course is not an easy task, and will not happen by deploying technology applications alone. Social CRM is about culture, people, and processes supported by technology.

What do you think?

I would also like to thank the people with whom I had good conversations on the topic: @elsua, @pgillin, @billives,@dankeldsen, @scratchmm, @mkrigsman, @mingk, @marklazen, @sameerpatel, @denispombriant, @absolutezero, @pitosalas, @rawn, @crmstrategies, @jyarmis, @_richardhughes, @skwilder, @debyang, @mjayliebs.

Everyone knows what word of mouth means (WOM) – it means a positive or negative recommendation about a product by another user, a friend, a trusted resource, or a stranger. Observational learning (OL) is another phenomenon that influences our buying behavior and relates to observing others use a product or service. Observational learning works on us because we are a herding species that tend to copy others. So if you have a lot of information about a restaurant and you go there, only to find a line at another restaurant across the street, you are likely to go stand in that line and use the observation of others preferring that place instead of your own data.

This new research, Online Social Interactions: A Natural Experiment of Word of Mouth Versus Observational Learning, published in the April 2011 Journal of Marketing Research, has some interesting findings and quotes, including:

• 71% of US adults who purchase online use consumer product reviews for their purchases (according to a recent Wall Street Journal Survey)
• Negative WOM  information is more diagnostic, and researchers have found it to have a greater impact on consumers’ adoption decisions than positive WOM information
• Both WOM and OL  have a larger impact on buying decisions early on in a product lifecycle
• There is an asymmetrical impact of OL on sales - meaning that a lot of OL will drive a lot of sales while a lack of OL for niche products does not hurt sales of those niche products – so while negative WOM is more influential than positive WOM, positive OL is more influential than negative OL
• The amount of WOM strengthens the impact of OL information (i.e., they are complementary)

So what does that mean for your business? Try to encourage as much WOM as you can and if you can show potential buyers OL from others, do it in conjunction with your WOM efforts.

Groupon, the so-called social buying site (even though there is very little social going on outside of the manipulation of basic human behaviors like their reaction to a situation where there is sense of scarcity) and the fastest growing company in history, is bad for your business.

It’s bad for your business for a number of reasons.

1. It destroys the profitability within your market
   Coupons trigger people’s pleasure side of their brain, that is the site that gets addicted to things and that requires more over time in order to get the same satisfaction.  So if you run a 50% off campaign in your local area or in your industry it will be very hard for anyone in your sector to come back to the pricing levels that you used to get. In effect you destroy profitability not just for you, but for all involved. If you don’t believe that, check out Utpal Dkolakia’s recent study on Groupon. 32% of companies said that the Groupon campaign was unprofitable with only 25% of redeemers buying additional products beyond the ones offered through the coupon and only 15% of coupon users coming back.
2. Over time discounts will affect service levels and customer satisfaction
   Even if you can withstand a one time coupon offer where you only get 25% of what you normally get, sustained couponing has to affect your profitability and  thus your service levels. With decreasing service levels, customer satisfaction will go down and you will lose not only the unprofitable coupon users, but all your clients.
3. You destroy all customer loyalty
   It is a well documented fact that coupons destroy customer loyalty.  It is the one differentiator that can easily be copied by others. So if you shift your business to one where the differentiator is price (or coupons), you destroy customer loyalty – not just for you but for all parties in your market.

Instead of focusing on discounts and coupons companies should focus their efforts on longer lasting competitive differentiators like service levels, or uniqueness of their offering.

At the recent 2010 CIO Summit – The Year Ahead – Tony Scott, the CIO from Microsoft asked the audience the question: “who here is best friends with their CMO?” Only about 1 in 5 hands went up, to which he made the comment that by next year everyone should be friends with their CMO or risk to no longer be in their role.

That struck a chord with the audience. CIO’s should be best friends with their CMO counterparts and here is why:

1. Changing processes will require a different infrastructure
   Whether companies pro-actively embrace the social wave that is currently hitting businesses or not, most marketing and sales processes have already profoundly been affected by the social. People no longer listen to companies and instead make their buying decisions based on recommendations from peers. The funnel disappeared and is being replaced by a messy, swirly social buying process. Innovation and support can now be turned into social processes involving customers and employees whose job it is not to design and support new products. The CMO cannot enable his team to support these new processes without the CIO and the CIO’s team cannot build the right infrastructure without thoroughly understanding the new processes. They need one another to succeed in this area.
2. Cultural environment conducive to high technology adoption rates
   CIO’s need to find pockets of culture within their company that are ripe for social technology adoption or enterprise 2.0 adoption. In many companies the marketing department may be that department. Most marketing departments are being forced into adopting social tools by their customers, prospects and detractors. So for CIO’s to get a win under their belt with social tools, they may benefit from befriending the CMO.
3. Together create an opportunity to regain senior strategic roles at the executive table once again
   Many CMO’s and CIO’s have lost their strategic place at the executive table. At a recent large investment banking portfolio company retreat, the three execs from the portfolio companies that were invited to represent the  executive team were the CEO, the CFO and the Exec in charge of Human Resources. Look at many executive teams on company web sites, many of them don’t have a CMO or CIO reporting all the way to the top. The CMO and the CIO can team up together to regain a strategic seat by representing the voice of the customer within the company. That will require for the CMO to stop thinking of their role as the company advocate in the marketplace and instead become the customer advocate within the company, and for the CIO to stop thinking about how to build hard walls around the company and instead to find ways to extend the edge of the company to encompass customers, prospects and detractors. 

There are many other reasons why CIO’s and CMO’s should be best friends, but those three alone should make for the divide that exists between them to disappear now.

[self-serving ad coming up]That is also the reason why the upcoming Hyper-Social Mini Summits are now focused on both CIO’s and CMO’s – which should make for a great brainstorm session.[/ad]

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?