Hans H. Bauer and Maik Hammerschmidt wrote an interesting paper, Customer-based Corporate Valuation, which discusses Customer Lifetime Value as a component in valuing corporations. One particular part of the article jumped out at me – a section on the Reference Value of a customer (as a sub-category of Revenue).
This diagram, and the explanations below are from that article:
Net Reference rate (e.g. 3%): Average proportion of the gross contribution of a gained customer (recipient) that is attributable to references (= degree to which customers are influenced in their purchase decisions by references from relatives, friends, or colleagues); if for example references have an influence of 30% on the purchase decision of the recipient and the purchased is discussed with 10 persons (reference providers) then the net reference rate per reference provider is 30%/10=3%
Gross contribution (e.g. $500): Average annual gross contribution of a potential customer
Social Network (e.g. 15): Size of the social network: number of persons (recipients) that are involved in product-related reference discussions with the reference provider in question
Opinion leadership (e.g. 70%): Degree to which a reference provider influences the purchase decisions of others, depending on his product and market know-how
Satisfaction (e.g. +1): The reference provider’s own satisfaction determines the direction of the reference talks; while a satisfied customer encourages purchases and thus provides positive references (+1) a dissatisfied customer advises against purchases and thus gives negative references (-1)
Reference value for the “exemplary” customer per annum: 0.03 x 500 x 15 x 0.7 x (+1) = $157.50
Enter Social Media Marketing
Several components in the author’s Reference Value (RV) formula are worth considering in regards to Social Media in marketing. Social Network is obvious. The SIZE of any individual’s social network, in regards to influencing buying decisions is greatly increased with social media. On Facebook, the average number of “friends” that a person has is currently around 120. On Twitter, users typically have around 200 “real” followers (not including the spammers and auto-followers who aren’t reading anyone’s postings anyway).
Now, while the Social Network may be increased, its possible that the Opinion Leadership is considerably weaker than it might be in offline world. Although, if you have the RIGHT Opinion Leaders speaking highly of your service or product, it could have a high Opinion Leadership effect. In creating an ROI Calculation, or Customer Lifetime Value calculation, you’re just going to have to make some broad assumptions. You might, for instance, only include those users who have a high influence, or only include those ‘average’ users. It may even be feasible to determine a mean.
IF you’ve decided to use Social Media as a component in your customer service plan, it can have a tremendous impact on overall customer satisfaction. It should be reasonable to make some assumptions about a certain percentage of stakeholders being swayed from a negative to a neutral, or a neutral to a positive satisfaction.
This entry was posted on Thursday, July 9, 2009 and is filed under Social Media in Marketing.