Tuesday, September 23, 2014

Getting advocacy on to the balance sheet

If you've read many of my previous posts you'll know of my views about the role and value of social media - its effectiveness as an exercise in relationship building and therefore its value as a one-to-one relationship marketing tool (which you'll find emphasised in my book The 10 Principles of Open Business).

Its job is to create advocates. But what does advocacy mean on the spreadsheet?

To make such a calculation you need five things:


  1. A clear and measurable definition of advocacy
  2. A behaviour change which can reasonably be defined as identifying a shift from standard customer to advocate.
  3. A cash value which can be reasonably attributed to that behaviour change
  4. A robust 'number of friends' each of us could influence.
  5. A mathematically robust formulation of transmission of positive influence in networks.

Let's tackle the difficult one first. Number 5. How do we calculate pass-on in networks. Well, it happens that there are some very clever people with massive brains and even larger computers who have been working on this exact problem for many years. And they've come up with their 42 (look up Hitchhiker's Guide to the Galaxy if that's confused you).
Dr Martin Nowak - himself a professor of maths, biology and evolutionary science at Harvard - quotes a very useful ratio (in his book Super-Cooperators) discovered by Nicholas Christakis of Harvard Medical School and James Fowler of the University of California, San Diego. It suggests we are swayed by the good mood of not only friends, but of those indirectly related - through second and third degree iterations.
In the first generation the chance of them displaying a positive response is 34% . In the second (friends of friends) it is 10%. And in the third (friends of friends of friends) it is 6%.
It turns out this is a function of the structure of human social networks - not of the nodes within them... And it dries right up after the third iteration. This seems to me a very reasonable proxy for advocacy. You have to be happy with what you've been provided with in order to advocate it to your friends. Very happy.
This is very useful indeed.
It means that if we know the value of the behaviour change (X) and the number of friends (Y) we can use the transmission formula to understand the network effect - in real cash terms - of creating one advocate. We can put a price on the value of over-delivery - of creating happiness...
Here's the formula:
Pass on to friends (F) = Y * .34 * X
Pass on to friends of friends (FF) = Y * .1 * X
Pass on to friends of friends of friends (FFF) = Y * .06 * X
Add them together (F+FF+FFF) = Value of advocacy in a network.
Still with me?
Now we have to start reducing the number of variables. The most important is the value of Y: number of friends.
Again, we are indebted to the canon on peer-to-peer relationships. The number of friends who could typically be called 'close tie' at each iteration is just six. It's the typical number of people you text, for example; Facebook offers you 'six friends' when looking at someone's profile - based on close ties; in Britain only six friends will last your whole life through. Philosopher's of friendship think you can only maintain 6-12 friends at a time.
Six may sound low when you look at the number of twitter followers and facebook friends you have - but it turns out about right if you take a closer look at the number of people you maintain daily contact with. Remember - we aren't trying to make a case for reach here but for the ability to create behavioural change through advocacy.
Let's bring this to life with an example.
Let's say we can track the value of a group of customers. Let's call them group A.
On average they spend £300 with us. But we take a subset of these, group B, and provide them with exceptional customer service.
We find that group B end up spending £100 more on an average transaction with us than with their peers in group A.
The additional spend is the behaviour change we have identified as a marker of someone who is happy enough with us to advocate us to their peers.
This £100 then is the financial representation of a behaviour change which illustrates someone has changed status from customer to advocate.
Just to be clear, it doesn't matter how many times this person spends more money with us - that isn't their advocacy value, that's repeat business. In other words another impact of treating a customer well may be a rise in that customer's lifetime value, but that's not what we are calculating here; that increase in total spend will be recorded directly in your sales figures.
What we are seeking here is the impact of that person's "happiness with us" on others - their close tie friends, their friends of friends, and their friends of friends of friends.
Ok - so - if you will indulge me - we have numbers 5-2 on my list covered. How will we define advocacy in a way it can be identified and measured?
Advocacy is the act of publishing (posting/tweeting) about a positive customer experience.
Those of you thinking a few steps ahead will already have noted that the formula for calculating the amplifying effect of advocacy in networks must be a consistent number.
We'll work through a simple example taking our formula and using real numbers (in which £100 uplift in spend is the value ascribed to the behaviour change which indicates shift from customer to advocate) to illustrate why:
Here's the formula:
Pass on to friends (F) = (6) * .34 * £100 = 204
Pass on to friends of friends (FF) = (6*6) * .1 * £100 = 360
Pass on to friends of friends of friends (FFF) = (6*6*6) * .06 * £100 = £1296
Add them together (F+FF+FFF) = £1860.
And if we divide by the base behaviour change figure (£100) we end up with 18.6.
So - if you know the value you can ascribe to a behaviour change which indicates a shift from customer to advocate (such as an increase in the amount they are spending with you) you can simply multiply by 18.6 to give you the advocacy value of an advocate.
Calculate the number of instances (as defined by someone publishing their positive experience) and you are able to put a very reasonable number on the value of inspiring advocacy. In my view at least.

I'd be interested in your views on the methodology I've used.

I believe I have erred on the side of conservative assumptions. But they seem reasonable. If I rave to six of my friends about a great customer experience I had with X, the assumption is that the next time (at any time in the next five years) these guys have an option on which brand to choose a third will recall my positivity about X and give it a try... and so on to 2nd and 3rd generation ties.

This is less that perfect I'll grant, but for every challenge that can lower the output (will a third of your peers buy or just think nice thoughts?), there's another to consider to raise it (is six really a big enough number of friends to consider at each iteration?, what about all the advocacy that happens face to face but not online).

My response is this is the best I've got to so far, it ploughs a reasonable and conservative middle course, and it is based on the summation of much of the best of thinking, theory and testing in network science.

Using it allows me to set realistic and accountable KPIs and steer social media and social content strategy in the right direction.

Wednesday, September 10, 2014

Don't read this if you should be doing something else

Image via: http://www.newmediaandmarketing.com
"Multi-taskers often think they are like gym rats, bulking up their ability to juggle tasks, when in fact they are like alcoholics, degrading their abilities through over-consumption."

That's from Clay Shirky's latest piece on Medium about why he is banning his students from using laptops, tablets and mobiles in class (wearable tech, too, no doubt).
Give it a read - but only if you aren't trying to concentrate on something else right now...
My own experience is that if I want to get something done I have to close everything else down - even to the extent of putting earplugs in to avoid the distraction of the office I usually work in.

Students, even in the 21st Century, tell me the same when they have a deadline due.
Connect to learn, connect to share, connect to develop, connect to grow. Disconnect to do?

What do you do when you want to get something done?

Monday, September 08, 2014

The Amazonisation of Everything

The hard-to-say-but-easy-to-understand term 'Amazonisation' is proving very useful to me in conversations with business leaders.

But how do you understand it - and how can it be delivered?

Don't expect all the answers in the body of this blogpost by the way. That's the point of blogging (something I've been doing way too little of recently). So, I'm reminding myself: It's a conversation starter - an opportunity to think out-loud (and have others join in - that's your role).

Transformer. Wouldn't be complete without Perfect Day...
What makes Amazon special?
Amazon's ambition is to become the most customer-centric business on earth which means eveything they do is focused on better serving the customer. And what we mean by that is that they are driven by a desire to provide an ever more excellent customer experience.

Note - this is not just about how they respond when things go wrong; it is about knowing enough about you that mistakes aren't made in the first place. No one wants great customer service, they want great customer experiences.

In previous posts and discussions I have talked about the top down and bottom up creation of trust (trust defined as knowing that the other party has your best interests at heart).

The bottom-up version is illustrated by moments of over delivery against expectation, delivered by real live humans: The guy in the Disney store who takes back the obviously dropped and broken salt and pepper shaker with the words "Gee, I'm sorry, I didn't wrap that well enough"; The bespoke booking service a car rental company delivers in response to expressed need on twitter. These are the moments that wow us and inspire us to become advocates to our peers (the most powerful marketing there is|).

Amazon delivers its wow at scale by knowing us. That's the data. That's delivered by systems of Enterprise Data Management (EDM) and Customer Relationship Management (CRM). But crucially it required Amazon to be customer-led in all its business processes (and management thereof - BPM) to deliver the experience so many now aspire to.

I say customer-led because 'centricity' implies they want to do something to the customer, led means they work in partnership with the customer, and that is the real key to building trust. Partners have each other's best interests at heart.
It's not just about the data (not even just the social data), it's not just about the CRM, it's not just about the EDM. It's not even just about the BPM. And this, I think, is critical for our understanding: A business that wants the advantages of Amazonsation (the almost psychic ability to match supply with demand, to anticipate need, to build a relationship of trust with its customers, to populate the world with wow-moment stories) requires a piece of big picture, vision-led thinking.
Of course firms need help to work out how best to fix the problems they have. But they don't just want a repair. They want to be taken to the next level - beyond what the best delivers today. That's just hygiene in a world operating at the pace we see around us. So if you find yourself moving to solutions; listing out the tactics to deploy, pause and ask if you've spent enough time working out if this is the right problem to solve.
Those of us engaged in trying to build a better future know that this is not just to fix the problems we see around us now, it is also to provide a vision of what's that better future looks like.
No senior exec buys a CRM program or invests in BPM. They buy a better company. They care more what that better company looks like than about the tactical and technical tools you will use to deliver it.
So assuming we can take all that as read it seems to me we should be spendng more time helping create visions of the perfect customer (or other stakeholder) experience, their perfect day, and only then starting work on the tools and processes which take us there.

FasterFuture.blogspot.com

The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?