emergencemarketing.com

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?

Having read more about reciprocity than I ever had expected, I have come to realize the importance of this ancient and simple reflex that we developed eons ago to become the only hyper-social species without all being brothers and sister, on explaining why we behave the way we do in 21st century business environments.

The most recent aha moment came when I read “How We Know What Isn’t So,” by Thomas Gilovich, in which he describes communications as a reciprocal process – saying:

Because communication or conversation is a reciprocal process, it is not surprising that many of the needs and goals of the speaker and listener are complementary. This is well illustrated by one of the most basic goals of communication, to ensure that the act of communication is “justified.” For the speaker, this means, among other things, that his or her message should be worthy of the listener’s attention; for the listener, it means that the interaction must in some way be worthwhile. To satisfy this basic goal, it is necessary that certain preconditions be met. The message should be understandable (i.e., not assume too much knowledge on the part of the listener), and yet not be laden with too many needless details (i.e., not assume too little knowledge on the part of the listener).

Of course, that is what most companies do not understand. And that is, not surprisingly,  also what many advertisers have understood for a long time. For communications to truly work, it needs to be reciprocal – there has to be value in it somewhere. Value can come in the form of warnings (i.e, don’t use that product, it doesn’t really work), useful information (which in most cases is different from product specs), and of course entertainment (nothing beats a good story or a funny one).

Throughout most of the 20th Century corporate communications’ history, however, communications was not a reciprocal process – because companies did not have to. The only information you could get about their products and services came from them, and the only thing they wanted from you was your money. They did not care whether the communication was truly based on a “I help you now, and I know you will help me later” basis – because they did not have to.

So now that we have companies with real bad habits and a platform of participation called social media that allows people to talk to other people in conversations that are truly reciprocal – it is no wonder that 2/3rds of all buying decisions are made based on information not coming from the company selling the product or service.

The other important topic that Gilovich brings up in his book which has profound implications for corporate communicators is the effect of  “sharpening” and “leveling” of messages – he says:

What the speaker construes to be the gist of the message is emphasized or “sharpened,” whereas details thought to be less essential are de-emphasized or “leveled.” Secondhand accounts often become simpler and “cleaner” stories that are not encumbered by minor inconsistencies or ambiguous details.

The message here being – keep your communications clean, retellable, and free of unnecessary details.

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.

Most social media “listening” systems have a way to evaluate the influence of the various sources in your social media ecosystem. They do that by looking at a variety of factors, such as number of incoming links, number of comments, number of unique commenters, Google Pagerank, etc.

The problem I have with these systems is that an influential person for one company may not be so influential for another. For example, a blogger could score really high on all the above metrics yet only influence other social media pundits. That might be a good influencer for one company, but not for a company who is trying to influence traditional press people or a business audience. They would need a blogger who appeals mostly to those audiences.

Does that mean that the only way to determine influence is to look at those influencers manually?

You’ve heard it before…people do not want to hear from companies anymore, they want to hear from other people. Well here comes some fresh data to back that up.

IBM recently released its new CEO Global Study, in which they also interviewed over 1,000 consumers to see how they buy. 53% of the respondents said they use the web to compare prices and features before buying – with 25% saying they do it from their mobile phone while shopping. One in 10 will text their friends and family while being in the store to get or share information about the product.

That trend will inevitably continue, and the only way for you to capitalize on this in the long run is by getting all your employees involved with your customers.

A new research study by the Society of New Communications Research (disclosure – I am a senior fellow in the society and have been peripherally involved with the study), “Exploring the Link Between Customer Care and Brand Reputation in the Age of Social Media,” found that affluent consumers are using social media to share their customer service experience and learn about other’s care experiences when making purchase decisions.

Some of the top findings include:

• 59.1% of respondents use social media to “vent” about a customer care experience (ed. note: glad to see I am in the majority…)
• 72.2% of respondents research companies’ customer care online prior to purchasing products and services at least sometimes
• 74% choose companies/brands based on others’ customer care experiences shared online

Again – proof that while positive word of mouth may outweigh negative word of mouth, and that off-line word of mouth may outweigh online word of mouth, the online negative word of mouth may have much more impact on purchasing decisions as they are found while the buyer is in active buying mode.

Based on research in the field of virtual communities, most business thinkers will agree that there are 4 fundamental pillars to successful communities – content, members, member profiles and transactions. If managed properly, these 4 dynamics can lead to economics of increasing returns that characterize most successful communities. The more members you have, the more content they will create. That in turn will increase the value to the community members and attract more members. If you capture information about your members and you make it easier for them to find stuff in the community based on their profile, the higher the value of the community to the members and the more members you will attract. It’s easy to understand the workings and to get the benefits of the dynamics of increasing returns that happen in successful virtual communities. Many of those were first described by business thinker and management consultant John Hagel in Net Gain more than a decade ago.

There are other aspects that drive and define communities, such as the social and technology infrastructures of communities as well as the business processes that they support. But none of those characteristics have the power to create the positive value creation loops that the original four can.

While most successful communities will have a mix of all of the ingredients – we can characterize communities by their dominant dynamic.

First there are content-based communities, where members interact with one another primarily in the context of content – either consumer generated or licensed/acquired. News sites or blogs are communities that would fall in this category.

Then there are communities that are primarily member-based. Member-driven communities can take on many different forms. Brand communities like the Harley or the Ducati communities are clearly member-centric communities, even though some companies mistakenly think that the brand is at the center of those communities, and not the members. Networking communities like LinkedIn and Facebook are clearly communities that have members at their core. Many developer communities in the tech world also fall within this category.

Lastly there are transaction-centric communities. eBay and Amazon.com come to mind when talking about those communities.

Of course, all of those communities have content, and all have members, and most have transactions – it’s just that they are more heavily tilted towards one of the community ingredients than another. And in some cases communities with the same end-goal can take on very different forms. Brand communities could also be set up as content-centric communities or as transaction-centric communities. Customer support communities or developer communities could also be started as content-centric communities – and perhaps evolve into transaction-centric communities.

The reason it’s important to understand the different types of communities is because of the requirements to get them started. You cannot start a member-centric or a transaction-based community without a critical mass of members or offerings – something most companies do not have. Without a critical mass of members or offerings, there will not be enough content generated (i.e., customer reviews, etc.) in order to make the interaction for the community members valuable. So if you have a total potential number of users ranging in the hundreds, you will never be able to set up a vibrant customer support community as Intuit. Microsoft or Apple can. That does not mean that you cannot leverage customer support communities, it means that you have to start them up as content-driven communities. Instead of relying on the community members to re-write your manuals and to create meaningful FAQs, you may have to hire a few people to kick-start the process on a for-hire basis.

While the economics of increasing returns may be somewhat diminished with a smaller number of members and some hired guns, they are still very much present. Most likely they will handily beat the economics of diminishing returns that most business practitioners face when trying to interact with customers and prospects in the old-fashioned interrupt-driven way.

Some of these thoughts have been triggered by the many conversations I have had the pleasure to have as part of the Community Effectiveness Study that we are conducting with Deloitte and the Society of New Communications Research. Some of the preliminary results of this study will be discussed at the Society for New Communications Research Forum in two weeks and more detailed results will be unveiled at the Community 2.0 Conference in May.

As a senior research fellow with the Society for New Communications Research I can extend a special discount to some of my friends who want to attend the forum. Email me if you want to attend at a special rate (francois [at] emergencemarketing [dot] com). Note that there are also 1/2 day flex passes available for those who can’t attend the full event.

The Online Publisher Association announced that it added Community as a category to its Internet Activity Index (IAI). So they will now measure how much time consumers spend online with Content, Communications, Commerce, Search and Community.

The OPA defines community as:

“Web sites and applications that combine user-generated content with communications in order to foster relationships between individual members and groups of members. Many Community sites are content driven, and they were previously accounted for in the Content category. However Community’s content is largely user-generated, and when merged with communication, creates a specific category of online activity.”

The IAI numbers for January show that consumers spent 42.7% of their online time interacting with content, 28.7% with communications, 16.1% with commerce, 7.5% with community and 5.0% with search.

AdAge picked up on the story, declaring “When It Comes to Time Spent Online, Content Trumps Community.”

But wait a minute here, adding community as a category at the same level as content, communications, search and commerce, is like comparing apples and oranges. Or better yet, comparing apples and oranges with air or water. Communities are combinations of content, commerce, communications and search. And communities affect the usage pattern of all the above categories and vice versa. So if I am spending time on Amazon.com, am I spending time with commerce, content, search or community? Obviously the end result is commerce if I buy something, but it could also be searching without buying or interacting with content (both user generated reviews and published content) without commerce. The fact that Amazon is a community which leverages my personal profile very well (another component of communities) is determining my interactions and time consumption on that site. The same can be said for many other sites that combine content with community. If I am spending time on the WSJ Health blog, I am spending time with content or community? If as a car buff I spend time on Carspace.com, I am spending time with commerce, content or community? Would I spend as much time conducting commerce, searching for stuff or interacting with the content on those sites if there were no community component to them?

Probably not…

Besides the fact something does not sit right with the categories, many conclusions drawn from the new numbers by AdAge and the IPA are equally flawed. Jim Nail at the Cymphony’s Influence 2.0 blog captures those flaws in detail in his post today (well worth the read). A couple of highlights include:

• The fact that page views per person in content dropped 225 pages suggests that a number of content sites were just moved to community.
• Content sites show 480 pages per month per user vs. 380 pages for community sites. So from an ad perspective, the reach may be just the same.
• Another factor not reflected in the new numbers is influence. If a third of people below 30 don’t make buying decisions before checking with their social networks, the impact of communities on the commerce is obviously not reflected in those numbers.

We should of course remember the agendas that both organizations are representing – those of advertisers and publishers.

A new survey from Bazaarvoice and the Keller Fay Group found that a vast majority of online reviewers are motivated by goodwill and positive sentiment (summary of the survey can be found at Marketing Charts).

Other findings of the survey include:

• Positive reviews outweigh negative ones 8 to 1
•  79% of online reviewers do it to give back to the review community
• Reviewers buy products online (85%), and engage in social networks (25%)
• 20% of reviewers post messages on other people’s blogs or chat rooms; 19% post on independent product-review sites such as ePinions or CNET; and significantly more post directly on a retailer’s own website.

This is great news, but it does not negate the fact that even though they are outweighed by positive reviews, negative online reviews remain “findable” for a very long time and can hurt a product or company way more than off-line negative reviews. So vendors should still do whatever they can to avoid negative online reviews.

Both Target and Wal-Mart have sponsored groups on Facebook – both of which are targeted at college kids.

Target has over 7,000 members and mostly positive comments in a vibrant set of discussions. The Wal-Mart group on the other hand has a little over 1,200 members, no discussions are allowed, and the wall postings are mostly negative.

What is the difference do you think, except for the fact that a large portion of the population believes that one of the two companies is truly evil?

The Wal-Mart home page looks like another interactive ad.. The Target home page is more inviting and enlists the help of users to co-create the experience. Any other differences that you can think of that would result in such a difference in membership and tone of conversation?

We can take the discussion to Facebook – in fact I started a thread on the subject in the Marketing 2.0 group, where we now have more members than the Wal-Mart Facebook group.

[Tags: marketing social networking facebook wal-mart target]