BSI Assessing The Real Value of Customers Word-of-Mouth

Marketing 2.0 Conference, Paris 2010
Join the conversation
MARKETING 2.0 CONFERENCE
      www.marketing2conference.com
ASSESSING THE REAL VALUE OF
CUSTOMERS’ WORD–OF–MOUTH



             Prof. Barak Libai

               Tel Aviv University...
By 2010, most mangers are informed about the power of
               customer word of mouth




                       Pro...
We also know that assessing the economic
     contribution of word of mouth is critical

   Planning and valuing WOM
    ...
Yet for many, the way WOM turns into ROI
             stays a mystery




                  ?Prof. Barak Libai
Here are I will argue that:

   The issue is not trivial. No “one number” or “one equation” you
    need to know

   We ...
The “regular” value of a customer


   Customer Lifetime Value (CLV) - The Net Present value
    of cash streams associat...
The “social value” of a customer ?


   How much money they bring the firm due to their effect
    on others’ lifetime va...
The complexity of calculating person A’s social value

                                   D



                           ...
The complexity of calculating person A’s social value

                                  D



                           A...
The complexity of calculating person A’s social value

                                   D



                           ...
The complexity of calculating person A’s social value

                                 D



                          A

...
So, it is not only how many friends they have, or
                     even how much they talk.


   It is all about Net ...
Conceptually, the social value of a customer
            (or a group of customers)


   Is the change of the net present ...
Can it really be calculated?


   We are working on it !

   I’ll next present a possible approach.




                ...
Stage A- Collect data on real social networks




                     Prof. Barak Libai
Stage b: Based on these networks create
      simulations in which products are sold to
                connected customer...
Stage 3: Conduct experiments


   What is the profitability (NPV) of the system

       If person A is there, or is not ...
Some recent results on the social value of WOM
             “seeding” programs


   WOM programs create a real pioneering...
Thank you

           Merci beaucoup !




   Questions? libai@post.tau.ac.il

                           Prof. Barak Lib...
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Assessing The Real Value of Customers Word-of-Mouth

  1. 1. BSI Assessing The Real Value of Customers Word-of-Mouth Marketing 2.0 Conference, Paris 2010
  2. 2. Join the conversation MARKETING 2.0 CONFERENCE www.marketing2conference.com
  3. 3. ASSESSING THE REAL VALUE OF CUSTOMERS’ WORD–OF–MOUTH Prof. Barak Libai Tel Aviv University Marketing 2.0 Conference Paris, March 2010 Prof. Barak Libai
  4. 4. By 2010, most mangers are informed about the power of customer word of mouth Prof. Barak Libai
  5. 5. We also know that assessing the economic contribution of word of mouth is critical  Planning and valuing WOM campaigns  Should we target opinion leaders?  Understanding the value of advertising Valuing investments in social networks and social media in general Prof. Barak Libai
  6. 6. Yet for many, the way WOM turns into ROI stays a mystery ?Prof. Barak Libai
  7. 7. Here are I will argue that:  The issue is not trivial. No “one number” or “one equation” you need to know  We need to “speak CRM”. The WOM value measure (“social value”) should be monetary: the change of the expected value of the cash flows from other customers  We needs to see the network. Because word of mouth creates a complex effect, its impact should take into account the whole social system, and not only close neighbors  We are making progress. While current measures are often simplistic, advancement in computer software and algorithms (“agent based models”) and the availability of social network data, will make a more comprehensive assessment of social value a reality Prof. Barak Libai
  8. 8. The “regular” value of a customer  Customer Lifetime Value (CLV) - The Net Present value of cash streams associated with one customer  Customer Equity – The sum of the firm’s CLV Prof. Barak Libai
  9. 9. The “social value” of a customer ?  How much money they bring the firm due to their effect on others’ lifetime value  A straightforward way: the value of the products I convinced my friends to buy. Prof. Barak Libai
  10. 10. The complexity of calculating person A’s social value D A B C  If person A helps to acquire his neighbors, we need to know their regular lifetime value to calculate A’s social value Prof. Barak Libai
  11. 11. The complexity of calculating person A’s social value D A B C  Person’s A word of mouth may create a “chain effect” beyond its close friends Prof. Barak Libai
  12. 12. The complexity of calculating person A’s social value D A B C  If A would not talk with B, C may do it in a later time  Is social value about “customer acquisition” or “customer acceleration”? Prof. Barak Libai
  13. 13. The complexity of calculating person A’s social value D A B C  Can we add the social value of A and B ? Prof. Barak Libai
  14. 14. So, it is not only how many friends they have, or even how much they talk.  It is all about Net Present Value (NPV) of cash streams  Social value is about changing the regular lifetime value of other people  For example, if you have friends with low lifetime value, you may have lower social value, even if you affect more!  It needs to take into account the network structure  People in different positions in the social network will have different social value  For example, if you happen to connect different networks, your social value is higher!  It needs to take into account the fact that if it not that person, someone else may Prof. Barak Libai later substitute
  15. 15. Conceptually, the social value of a customer (or a group of customers)  Is the change of the net present value of the whole social system if this person were to disappear !  Like a “shock” to a system Prof. Barak Libai
  16. 16. Can it really be calculated?  We are working on it !  I’ll next present a possible approach. Prof. Barak Libai
  17. 17. Stage A- Collect data on real social networks Prof. Barak Libai
  18. 18. Stage b: Based on these networks create simulations in which products are sold to connected customers  For example: what would happen if a new product would begin to grow on such networks  Individual level simulations in which a “would be world” is created are sometimes called agent based models Prof. Barak Libai
  19. 19. Stage 3: Conduct experiments  What is the profitability (NPV) of the system  If person A is there, or is not there  If we target “influentials” or random customers  If competition is strong or not Prof. Barak Libai
  20. 20. Some recent results on the social value of WOM “seeding” programs  WOM programs create a real pioneering advantage. The social value of a program can be five time as much when a competitor does not have a program  Much of the value of seeding programs can be obtained from random targeting, yet targeting “influentials” can raise social value by 45%  The social value of a program is larger for a weaker brand than a stronger brand Prof. Barak Libai
  21. 21. Thank you Merci beaucoup !  Questions? libai@post.tau.ac.il Prof. Barak Libai

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