The ROI of WOM

[#1]

The Social CRM Virtual Summit is almost upon us - and I am getting ready to take part in two expert chat sessions tomorrow on the Science of Social Analytics, and How you can build Brand Equity through community. This last topic is particularly relevant as last week we published a whitepaper on the value of using your customer network for word-of-mouth (WOM) marketing. This is joint research I conducted with renowned professors in the field of marketing science, including:

1. Barak Libai, MIT Sloan School of Management and the Recanati School of Business in Tel Aviv
2. Eitan Muller, NYU Stern School of Business and the Recanati School
3. Renana Peres, The Wharton School, UPenn and Hebrew University of Jerusalem

This whitepaper is a particularly hot topic, so I will be joining our VP of Product Marketing, Phil Soffer, and chatting on the topic of WOM at 6:15am and 11:15am PST - I look forward to talking with you.

That leads me into my topic for today's post. As I've alluded in previous blog posts, the value of WOM is not particularly tangible. Estimating the ROI on WOM is nontrivial and it is still a research topic for academics.

In a network of hundreds of thousands of customers, the value of WOM really comes down to how we estimate a customer's lifetime value with the effect of WOM and without it. Let's consider the Lithosphere community as an example.

If I told PaulGi about Lithium's mobile community product and he subsequently buys it, then a small fraction of the value that Lithium gains from PaulGi's purchase should be attributed to my WOM interaction. However, if I didn't tell PaulGi about the product, maybe ScottD could have told him about it. Then that small fraction of WOM value should now be attributed to ScottD, instead of me. To complicate things, maybe we both told him about it, and who's to say that people I've spoken with listen to me instead of Scott. So the conundrum is, how should we estimate my WOM value to Lithium?

Working with academics, we use a simulation methodology, which I will refer to as "impact upon removal." In essence, my WOM value to Lithium is the value that Lithium would have lost if I did not tell anyone about their product. So a user's WOM value is the value lost if we blocked all of his interaction with other community members, essentially remove him from the social network. It's like the saying that "You don't really know the value of someone until you lose him/her." In a nutshell, this technique is what allowed us to study the effect of WOM in a customer network.

Now that you know some of insights to our research result, I hope it will encourage you to find out more. If you are intellectually inclined, you can get the details from our whitepaper. Better yet, come by and ask me question during the Virtual Summit tomorrow. You can still register at http://www.bit.ly/vscrmreg. I hope to see you 'virtually' and talk to you tomorrow!

[#2]

Michael,

It is great to see Lithium making strides beyond its reputation for support community leadership. This whitepaper materially addresses some of the needs of a marketing practitioner. Some things to note from this perspective include the following:

1. A marketer can leverage an existing support community to identify influencers and target them for a WOM campaign. Identifying key influencers in the community by name is critical. We all look forward to seeing a report like this in the future.
2. WOM defensive is a defensive play for a strong brand when the competition has moved first -- what is the time factor in your research where a defensive play would still have an appreciable effect?
3. Identifying that the Responsiveness and Interaction health factors are key requisites to a strong WOM campaign is critical -- How do you feel about someone focusing on improving these two health factors prior to embarking on a campaign?
4. Finally, that acceleration is the key benefit in a competitive situation and acquisition is the expected result when no competition is involved. This point is very informative when establishing objectives and measurements for a program.

I look forward to future blog posts and further research along this track.

Neil

[#3]

Hello Neil,

Yeah, we found that communities have lots of applications in a marketing organization as well as a support organization. However, the ROI is not as well quantified. So we move forth with this study.

To address your questions:
1. We can definitely identify influencers in the community by user name and enable community managers, moderators, admins, or whoever has the right permission, to contact them.
Moreover, we can identify different types of "influence," by different centrality measures. For example, users who are most well connected are not necessarily the same as those who are most well respected. Depending on your marketing needs, we can identify users who are most relevant for propagating WOM for your community.

2. In general, there isn't really a time range beyond which defensive WOM becomes negligible. The worse is probably not trying at all.

3. Personally, I would not wait until the community has reached a healthy level of responsiveness and interaction before embarking on WOM. Because in this study we found that time is really an inelastic resource that has dramatic effects on people's enthusiasm, and therefore their ability to propagate WOM. I would start immediately to keep the enthusiasm going, and then improve the responsiveness and interaction health factor to boost the results.

4. Yes, but keep in mind that the gain from customer acquisition is zero only under the assumption that the 2 brands have equal strength. This is the assumption of our study. Because for everyone customer that brand1 acquired from brand2, brand2 can do the same to brand1 for a different customer. If one brand is stronger than another, then the gain from customer acquisition would be non-zero.

I hope this address your questions. Thanks for asking questions and commenting on my blog.