The ROI of WOM
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:
- Barak Libai, MIT Sloan School of Management and the Recanati School of Business in Tel Aviv
- Eitan Muller, NYU Stern School of Business and the Recanati School
- 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!
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