How to measure social media
There is much talk in marketing circles about how to measure the impact of social media. Some measurements are hard, such as actual campaign response and conversion rate measures. Others are a bit softer, such as measuring campaign reaction frequency and tone (e.g., positive, neutral, negative). While both are valid measures, I do think we have been missing a broader, yet critical component of our measures—the overall financial impact of word-of-mouth (WOM) spread.
It occurred to me today that I may already have a way to measure WOM influence and the impact of social media.
Years ago, I came up with a simple equation to measure what I called, the “Residual Value of a Customer.” In other words, this is a calculation to determine value of an average customers’ impact on your business relative to their individual influence on other customers. Keep in mind that this was before the internet and social media tools, so the sphere of influence of an individual customer was generally much less—maybe 7-10 people total. However, I think the logic still applies today.
The Residual Value of a Customer takes into account the annual sales to a customer, the expected tenure as a customer, and the estimated number of people influenced. For example, if “Customer A” spends $150 a year with a company and the average tenure is three years, then “Customer A’s” value to the organization is $450. However, if “Customer A” recommends the product/service to just one other customer who follows the same spending/tenure patterns (as the average), “Customer A” now has a residual value of $1,350.
Let’s take this thinking a step further. Recent research has suggested that the average Facebook user, for example, has 120 friends. The average user may interact meaningfully with between 10 and 20 Facebook Friends within a 30-day period. Using the calculations above, let’s say “Customer A” influences 20 friends within a 30-day period. “Customer A” now has a residual value of $27,000, as do each of those 20 friends who adhere to the average customer measures. In this first circle or ripple of influence the residual value of these 21 customers is now more than one-half million dollars over the next three years, assuming the averages spending and purchasing life remains consistent.
These are significant numbers, and all brought about by one customer sharing experiences with a circle of friends.
I have used this model a number of times to demonstrate the power of WOM marketing programs to senior management. It is simple to understand, and proven using average customer sales and tenure numbers. In the majority of the cases, I’ve been successful in gaining support from senior management for at least testing WOM or now, social media, programs. I have also used the Residual Value of a Customer to demonstrate the opportunity cost for not engaging in WOM.
In the spirit of sharing, I’ve created an online version of the model for you to use here: Residual Value of a Customer Calculator. Feel free to use this model and share with others.
I’d appreciate your feedback.
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Are your customers loyal or lazy?
“I don’t know whether I’m loyal, or lazy,” tweeted a friend of mine last week as his eye doctor ran more than 30 minutes behind. He seemed as frustrated with himself for not finding another provider, as he was with his doctor for wasting his time. Granted, there may have been a patient emergency or an unforeseen situation with that caused the delay; yet, others with appointments were expected to endure without being alerted to the problem and given the option to reschedule. While this particular situation is most prevalent with professional appointments, we all know of similar situations that occur in our own businesses and organizations.
Customer loyalty, like friendship, is built on a mutual understanding and acceptance of one another. At minimum, the relationship between the customer and the organization requires:
> Honesty
> Integrity
> Consideration
> Empathy
> Respect
> Humor (maybe not required, but certainly helpful)
While the customer easily gives these qualities, organizations with which they purport to have a relationship often do not reciprocate. From an organization’s perspective, a customer relationship is all too often built only on revenue generated. Specifically, the value of that relationship is measured on the number of purchases made and the size of those purchases. When a customer recognizes that their loyalty is measured only by these factors, such as with supermarket loyalty programs, they become fickle about the relationship. Laziness creeps in and whoever has the best sale prices or is closest to home gains the customer’s favor. When this happens, the relationship becomes a commodity for the customer, as it is already for the organization.
To prevent customer laziness, organizations need to think of customers more as friends, than as dollar signs. Put yourself in your customers’ shoes and ask yourself the same questions you might ask about your friendships, for example:
Do my customers…
1. Feel like they’re “my only customer” whenever we get together?
2. Talk about our relationship in a positive light with their other friends?
3. Tell me when I’ve done something wrong and give me an opportunity to make it right?
4. Share their lives and stories with me because they know I care about them and the relationship?
5. Count on me to deliver whenever they’re in need?
6. Desire to spend more time with me and take every opportunity to do so—wherever I may be?
7. Show passion about our relationship (brand)?
8. Believe that every action I take is in their best interests?
9. Feel that they’re desired?
10. See tangible and long-term value our relationship?
If you can truthfully answer yes to most of these questions, your customer relationships—and long-term customer loyalty—are in good shape. If not, you have some work to do.
Do keep in mind social media tools make it very easy to build and cultivate customer loyalty today. You can connect anywhere at any time and have a meaningful conversation with customers. There’s really no excuse for not putting time and effort into building these relationships. Not doing so will make it easy for the customer to decide if he’s really loyal, or just lazy.
Can you afford lazy customers? No, I didn’t think so.
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Finding the edges
There’s a lot of disruption in the world.
I read today that more than 200,000 job cuts have been announced this month. Most announcements have been by big companies; we never hear about the smaller firms. In fact, many businesses have likely closed all together. We will not hear about those for a while.
These stories remind me of economic climate around the time of the dot-com bust. There was a lot of disruption then, too, but it led to great thinking and innovation in technology and in other sectors.
For those of us in the technology sector then, it was difficult time. Yet, those experiences changed technology. That disruption forced us out of our comfort zone and to the edges of our businesses where we discovered new opportunities to serve untapped markets. In some cases, we created markets where none had previously existed. We found things we never dreamt about or thought possible before someone “dropped the bomb,” forced us out, and made us look back on what had happened.
Without the dot-com disruption, we likely would not know about MP3 players, iPhones, social networks, blogs, or Twitter. Thanks to that disruption, technology makes it easier for us to keep in-touch, check our bank accounts from our mobile phones, and carry thousands of songs in our pocket.
I believe we need disruption in our lives, our businesses, and our worlds. We need to be forced outside of our comfort zone. We need to get to the edges, pull out the binoculars, and look at things a little differently. Like it or not, we need disruption to facilitate change and force us to the next level–whatever that may hold for us.
The good news is, we don’t have to wait for disruption from an external source. Scary as it may be we can create it ourselves; and, we probably should in this economy. Finding and getting to the edges may well be the only way our businesses will survive.
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