The Science of Social 2


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Your social customers can and should be some of your most valuable corporate assets. Find out why and how - download the Science of Social 2 eBook preview from Lithium Principal Scientist, Dr. Michael Wu

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The Science of Social 2

  1. 1. the scienceof social 2social strategies for long-term business advantage—and the science behind how they work.based on research, strategies and insights from the deskof Lithium Chief Scientist, Michael Wu, Ph.D.foreword by Geoffrey Moorefullreleasesummer2013
  2. 2. foreword iforewordAs we look out at the world in 2013, it is hard to overstate the impact digitaldevices and services have had on human culture over the past two decades.Three waves stand out in particular. The first is the wave of Access. Largelyenabled by the World Wide Web, all citizens everywhere effectively becameconnected to all information anywhere. One might quibble about this at themargins, but compared to any other time in history, more people have accessto more information—by a lot. The second wave is Media. Massive growth innetwork bandwidth coupled with deeply compelling end user devices broughtus a digital experience with an emotional dimension equal to its intellectualcounterpart. No more was computing just for the mind—now it was forthe heart and soul. The third wave was Mobile. An explosion of wirelessconnectivity combined with dramatic reductions in device manufacturingcosts made digital truly anytime, anywhere, and as this decade unfolds, foranyone. It is an amazing time to be alive.But not for the faint of heart. Disruptive innovation of this scale wreaks havocon established industries. Banking, publishing, travel, hospitality, media andentertainment, retail, and advertising are all being re-engineered even aswe speak, and we can only hope that government, health care, education,and public safety are not far behind. In particular, the consumer economyhas been upended entirely by virtue of one simple fact: consumers arepacking digital hardware 24/7, and they expect to be able to use it whereverand whenever it’s convenient for them. This is an expectation set largely bymegabrands like Apple, Google, Facebook, and Amazon, but it’s one whichmust be met by everyone else—despite the fact that they haven’t a fraction ofthe technology or engineering resources.
  3. 3. ii The Science of Social 2The good news here is that a fourth wave of change, Cloud Computing, isdemocratizing access to these capabilities. The bad news is, most executiveteams haven’t the foggiest idea how to use them. Simply put, we haven’t asyet had enough time to transition from pre-digital strategies, tactics, andsystems, to post-digital. It’s a mad scramble, and while it’s exhilarating forthe innovators, it’s frustrating for the pragmatists, and downright scary forthe conservatives. We need some ordering frameworks here, and we needthem now.At my end, I have been working on one such framework, called the FourGears. It deconstructs digital consumer marketing into four core activities:acquisition, engagement, enlistment, and monetization. The first and thelast of these are driving an enormous amount of direct response marketingonline, with substantial short-term success, but potentially with a negativeimpact long-term on the consumer experience. That is, if all we do is acquire,monetize, acquire, monetize, eventually we wear out our welcome.This is where the other two gears come in—engage and enlist. Engaging isall about creating user experiences that make people want to come back.Enlisting is all about them going out of their way to tell their friends. Whereverwe can authentically engage and enlist, we add to our credit with consumers,gain permission to monetize in the future, and gain invaluable allies in ourefforts to acquire the next cohort of end users.In sum, acquisition and monetization are the performance gears. They reapthe rewards sown by engagement and enlistment which are the power gears.At any given time, if one of these gears is turning more slowly than the others,and turning one’s attention to gears that underperform is the key to achievingthe next stage of growth. That brings us to the fifth and final wave of change toconsider here, the impact of Social on each of these gears and the consumerrelationships they drive.In this context, it has been my privilege to engage with the team at Lithium,to join their board of directors, to work with their Chief Scientist, Dr. MichaelWu, and to watch and participate in the evolution of what he and they call theScience of Social. For social does indeed need a science. We need to be ableto map the dynamics of human behavior to the programs and systems of
  4. 4. foreword iiidigital consumer marketing, commerce, and support. This is the path out ofthe forest, the one that lets us leverage the extraordinary reach and frequencyof digital access while building equity with our target customers instead ofconsuming it. The Science of Social 2 provides a very good roadmap for thisjourney. It uses the Four Gears to frame a set of marketing challenges andthen applies the science of social to solve for them. How do you leveragesocial to acquire new prospects? How do you leverage it to engage and enlistthem? How does this interface with how you monetize your business model?What are the best practices to follow? What are the pitfalls to avoid?These are the questions I hear every day. If these are your questions too, thenyou will definitely want to read on.—Geoffrey Moore
  5. 5. 4 The Science of Social 2
  6. 6. introduction 5introductionSocial isn’t new. We’ve been social since the Stone Age. Commerce isn’t neweither. We’ve been trading since we made the first hand axe. But layer a newand powerful technology (social media) on top of these age-old behaviors,and it gets complicated.Today, we can easily socialize with mind boggling numbers of peopleon Facebook. We can jump on eBay and sell our first edition Tom Sawyerto a collector in Buenos Aires or buy an eBike from a family cycling shopin Hamburg. Social media has turned our age-old goods and servicesdistribution infrastructure on its head and it’s put an enormous ultimatum tobusinesses: adapt or die.That we are social isn’t new, but because of the Internet, how we behave asconsumers is radically new. Social media has transformed how we consume,assess and share our reactions to brand experiences—and what we expectfrom brands in return for our loyalty. Because our praise and complaintsstand on public record, forever, we’re more empowered to make real demandson the brands we do business with. And so we do—in spades.Social media technologies haven’t altered the social principles behindhuman behavior. But they’ve utterly transformed our habits and powers of
  7. 7. 6 The Science of Social 2communication—and, as a matter of course, revolutionized what we expect asconsumers. Today’s social customers have changed business-as-usual, forever.How well your company answers its social customers’ demands will defineyour bottom line. Consumers today expect nearly instantaneous service fromwhatever channel they happen to be using—an enormous challenge tocompanies who can’t possibly scale their internal teams to meet thesegrowing demands. Meanwhile, most companies are still using traditionaltwo-gear methods in a new world: acquire customers and monetize them,just as they’ve always done offline.In the social era, when a simple acquisition-to-monetization strategy works at all, it’s justnot sustainable. The reason is that a simpleacquire-monetize model commoditizes theproduct. That leads to an offer-based businessmodel of constant discounting. While thismight work short-term, it’s ultimately notprofitable in the long run.The pressure is on to find sustainable answers to the social media revolution.After all, it’s not exactly news. We’ve lived with social media for some time now.Yet the paradigm shift social media has brought on is truly unprecedented andthe ground has far from as disruptiveas it getsYou might not feel it yet(though it’s likely that you do).If you’re reading this book,odds are your company is atan inflection point. You’ve heard the famous quote from Erik Qualman, authorof Socialnomics, “The ultimate ROI of Social is whether your business willacquiremonetizesource: Forrester Research, Inc.‘ok’, ‘poor’ or ‘very poor’ onthe experience they delivered64%of companiesranked
  8. 8. introduction 7still exist in five years.” You need a response to social disruption and you’researching for adaptive insights and guidance on the very best way forward.Though we might have grown weary of constant adaptation and secretlywish it would all settle down, it’s important to remember that revolutionarytimes are fleeting times. Revolutionary times offer a small window ofopportunity for grabbing a competitive position in the emerging order. Thosewho figure it out first and best are poised to take the lead in the new socialera and keep it for a long time. Unlocking the codes to winning tactics andbest practices in the new era is whatthis book is about. The Science ofSocial is for those who intend tosurvive this period of disruption, adaptand gain a lasting competitive edge.Starting as strategic as it getsThe social marketplace is hugely complex and our very survival depends onhow well we navigate it. To many, the task feels insurmountable. It’s easy toslap up a Facebook page, call your business social and call it a day (i.e. buryyour head in the sand). But if that approach hasn’t held you back with thisera’s social customers yet, it will. Count on it.The good news is that even across the vast complexity of social media, the waypeople behave socially and commercially is, in fact, highly predictable—with alittle help from science. That’s great news for brands trying to finesse a socialstrategy. It’s also the discussion we began in The Science of Social: influence,superfans, gamification—how to build and strengthen relationships.Technology has changed, but humans haven’t. That’s a very useful insight forbusiness. Because while new technologies make adaptation necessary, thesocial and psychological principals at work with your audience make effectiveadaptation possible—if you know the science behind how it works.leaders in customerexperience outperformtheir peersby 22.6%source: Forrester Research, Inc.
  9. 9. 8 The Science of Social 2A social strategy—a real one—is an adaptation to the new social customer,plain and simple. Doing business in the new paradigm requires a newparadigm for your business as well. That shift begins with building strategiesfor deeper engagement and enlistment of your customers.This book is about adapting your business to survive, and thrive, througha permanent disruption of the traditional business model. Success todayis more complex and more sophisticated. Lasting competitive advantageis no longer possible with the old two-gear acquire/monetize paradigm.In the age of social media, businesses must build a viral loop wheresocial customers are fully engaged and happily enlisted to makebrand experiences better for everyone. Successfully engaged customersplay new and vital roles in the business, enlisted to help solve problemsfor other customers andshare their passion forthe brand. No less thanfour gears are neededfor long-term competitivesuccess today—acquisition,engagement, enlistment andmonetization.Before we expand upon theFour Gears Model, let’s takea moment to look back at TheScience of Social and talk a bitmore about the impetus behind TheScience of Social 2.customers who engage with companies over socialmedia are more loyal and spend 20% to 40% morewith those companies than other customerssource: Bain and Companyinterestawarenessdesireactionacquireengageenlistmonetize
  10. 10. introduction 9the science of socialThe Science of Social unpacked strategies for how to scale, lower costsand improve your customer experience by cultivating superfans—that mostinfluential, knowledgeable and prolific 1% of your customer base who makegoing social so hugely worthwhile. Along the way, we dug into the basicsof forming and strengthening relationships, and we considered somekey behavioral theories of what shapes human motivation, influence andengagement. Finally, we introduced some general strategies for gamification,in which all those insights and theories get put into action.The Science of Social 2 connects the discussions of The Science of Socialto the bigger economic picture in order to drive more holistic businessstrategies. Here, we bring you the latest insights and research fromLithium’s chief scientist, Dr. Michael Wu, laid out on the structure of theFour Gears business model devised by business and technology strategist,Geoffrey Moore. This social strategy not only addresses the acquisitionand monetization of customers through social media, but also the criticalengagement and enlistment tactics that result in that all important viralloop—when customers acquire more customers for you. As complex associal media is today, it’s crucial that businesses keep their eye on the realprize—using social to create a reliable, predictable and sustainable enginefor economic success.The Science of Social 2 considers the business implications of exactly howsocial media has changed customer communication, the customer journeyand customer relationship management (CRM). Most notably:1. Customer relationships—peer-to-peer and customer-to-company—are crucial.2. The only way to win on loyalty is to understand the science behindrelationships and think long term.3. Business advantage will go to companies willing to adapt to the callof social with fundamental changes in technology, strategy, internalstructure and cultural philosophy.
  11. 11. 10 The Science of Social 24. It takes the healthy motion of all four gears in the Four Gears model—acquire, engage, enlist, monetize—to get a viral loop spinning that willpersist and keep you in it for the long run.The Science of Social 2 is the deep exploration of that final point above. We’lldevote a full chapter to each gear and examine each up close. We’ll lookat the science behind how they work and along the way talk about how todevelop sustainable strategies for keeping all four gears in motion.First, let’s dig a little deeper into those business implications—of justexactly how the rise of social media creates that need to re-think ourcommunications strategies, how we motivate customer behavior and howwe manage the customer relationship.communication in the social eraIn The Science of Social, we talked a lot about social customers and howthey differ from traditional customers. Social customers are impatient,empowered, connected and sophisticated. They always do their homeworkand they do it socially.We know social customers trust oneanother more than they trust companyspokesmen. They go to customercommunities to learn the real deal aboutyour products, and they validate yourmarketing messages through peer-to-peer interactions over social channelslike Twitter and Facebook. There arehuge and important differences in theway communication works in a traditionalmarketplace (print, TV, radio), and the onedescribed above. Social communicationis born, lives, breathes and dies in a manner quite different from the waytraditional communication does. Here’s how.63%of consumers searchonline for others withsimilar problemswhen they need help—only 19% of brandsthink that’s the casesource: CMO Council
  12. 12. introduction 11Traditional communications are:transient. Communications between a company and a customer areusually not recorded.opaque. Even if they are tracked, they are not easily retrievable, andtherefore not visible to other customers. Opaque communications aremuch easier for businesses to manage and control.unidirectional. Traditional communication is not two-way. Also, it’stypically handled by siloed departments. For example, customer-to-company communication is usually handled via the support/servicedepartment. Company-to-customer communication generally goesthrough the marketing/PR or one-to-many. Traditional communication is seldom(if ever) many-to-many. Because customers don’t know who or whereother customers are (owing to the transience and opacity of traditionalcommunication channels), coordination between customers is difficult.Now let’s look at the characteristics—and consequences—of communicationchanges in the social era.Social media communication is:persistent.Socialcustomershavemegaphonesforpraiseandcomplaintsalike. Once they use them, the record of those statements on your brandis permanent. Customers can say absolutely anything about you and youcan’t erase it.transparent. What customers say about a brand is public, searchableand visible to all, enabling communication and coordination betweencustomers. This gives customers much greater control of theirconversations with brands. And that empowers Unlike traditional channels, social media inherently allowscommunication to go both ways—i.e. customer-to-company andcompany-to-customer. With everyone in the company talking to any one
  13. 13. 12 The Science of Social 2of your customers, the siloed model becomes an enormous obstacle. Thenew problem of “who owns social?” now arises with different departmentsvying for control.almost always many-to-many. Thismeans the sheer number of potentialconversations grows really big, reallyfast. Specifically, with N customers, thenumber of potential conversations is~ N(N-1)/2 ~ ½N2.It’s easy to see how the volume of socialmedia conversation quickly becomescolossal. Companies can’t possibly scale internal teams enough to respondto the tsunami of social customer conversations out there. Here’s how themath works:If you have one superstar agent who can handle 1,000 social conversations onaverage, 10 such agents would be able to handle 10,000, 100 would be able tohandle 100,000. As we can see, that’s not nearly enough.If you have one superstar agent who can handle 1,000 social conversations onaverage, 10 such agents would be able to handle 10,000, 100 would be ableto handle 100,000. As you can see, that’s not nearly enough to keep up withcustomer increases.source: Forrester Research, Inc.of those who havea dissatisfying seviceexperience share iton social channels29%10kcustomers~50M potentialconversations100customers~5k potentialconversations1kcustomers~½M potentialconversationsonly social can scale social
  14. 14. introduction 13If you have 1000 customers, you’ll have only 1000 customer-to-companycommunications, but there will potentially be 499,500 customer-to-customercommunications. That difference gets to be even more dramatic as yourcustomer base grows. You can see that it can all get very out of control very fast.Because you have many more customers than employees, the only way tobuild the infrastructure to meet that level of demand for interaction is toenlist the help of your customers. Only social can scale social.Because social media communication is many-to-many, the relationshipbetween the customer and the brand has fundamentally changed. This canbe a death knell or a game-changer. Those brands slow to adapt to the neworder are doomed. Those determined to figure out social first and best arealready reaping enormous benefit and gaining huge competitive advantage.This is the sort of adaptive paradigm shift we’re talking about: scalingsocial with social. It means inviting customers to play an entirely new andactive role in the business. We’ll discuss how to do exactly that, and more,in Chapter 4: Enlistment. First, let’s look at the second biggest implicationof social media—it’s impact on consumer behavior, and in turn, thecustomer journey.the new, non-linear customer journeyIn a product-centric, sales-based economy, the traditional customer journeyis linear: Marketing → Sales → Support.As businesses scramble to both scale for the global consumer and gainoperational efficiency, a goods-dominant logic must give way to a service-dominant logic. That means, the traditional product-centric, sales-basedeconomic model must become a service-centric, subscription-basedeconomic model. As more businesses move to this service-dominant logic,we find that more of the products we buy are really services to which we’resubscribed (e.g. mobile services, app stores, Zipcar, software as a service,infrastructure as a service, etc).
  15. 15. 14 The Science of Social 2supportcompanyadvocatesEND OFPROFITABLERELATIONSHIPlinear vs. non-linearcustomer journeyleadsprospectspotential customerslinear non-linearsalesmarketingcustomers
  16. 16. introduction 15In a subscription-based economy, social consumers expect this operationalefficiency from brands. So the personal service expectation is service nearreal-time, at any time—the business hour is meaningless. They know theirpurchase comes with no obligation. They can discontinue service at anytime,defect to whatever is cheaper and pay only for what they consume.Moreover, they trust their peers more than they trust brands—so when theyneed that personal service right now, they turn to their fellow customers.Social media makes that very easy.Today’s social customers have exponentially more connectivity and influence.It’s easy for us to find a dinner recommendation on Yelp! from a fellow foodie,or tap our Facebook friends to help decide which movie to see this weekend.The subscription-based economy has fundamentally changed our customerexpectations, resulting in a non-linear customer journey that is quite different.Non-linear doesn’t mean there’s no more purchase funnel. What’s notlinear about the new customer journey is that the point of sale is now onlythe beginning of a long-term customer relationship. There’s no limit to howmany times loyal customers—and those they influence—might pass throughthe purchase funnel.Here’s what it means for business:1. In non-linear customer lifecycles, customer lifetime value hasthe potential to be far more profitable than the initial point of sale.That’s why customer relationships become critically important,because relationships are what keep them loyal and continuingtheir subscription.2. Because of the transparency of social media, service experiencesinfluence future purchase events more than ever.3. Because social media allows for many-to-many communication,an organization’s relationship with its customers—and between itscustomers—can be a game-changer.Lastly, let’s take a look at how social media has changed the relationshipbetween your brand and your customers.
  17. 17. 16 The Science of Social 2the social customer relationshipIt’s easy to bolt social media onto your traditional channels and continuemanaging your customer relationships as usual. But, as we discussed inThe Science of Social, social is not just another channel. Simply being thereis not enough.The changes brought about by social media are infrastructural, cultural,pervasive, profound and permanent. The smartest business response is inkind. Successful management of today’s social customer relationships means:1. addressing what social media has done to revolutionize patternsof communication,2. adapting to the new non-linear customer journey, and3. using open, transparent, peer-to-peer experiences to developan entirely new kind of relationship with the customer.And that means programmatic changes to strategy, technology, structureand culture.
  18. 18. introduction 17support/servicemarketing/PRsupport/servicemarketing/PRtraditional channelstraditional channelstraditional channelstraditional channelssocial channelssocial channelssocial channelssocial channelssocial as justanother channelpre-socialthe fullpower of socialbidirectional/socialcompanycompanycompanystrategyYou’ll need to develop strategies forworking with advocates and influencers,and for cultivating superfans (that 1%of customers who create most of yourcontent). The goal is to get to a pointwhere you are co-creating value with allofthem.Whetherit’sansweringtechnicalquestions about your product, helpingto spread your marketing messageor defending your brand, these non-corporate affiliates are not only crucialfor scaling, they are far more effectivethan any company voice. We’ll talk moreabout inviting customers to play thesenew roles in the business when we talkabout the Four Gears model.technologyObviously your technology has to beup to the challenge of today’s socialmarketplace.Oneofyourchiefchallengeswill be to deal with the sheer scale ofsocial media conversations. Insteadof just managing single conversationswith N number of customers, your CRMsystems must track and manage roughly½N2 conversations among thosecustomers. Since these conversationsare unstructured, these systems alsohave to be intelligent enough to interpretand understand the conversations,prioritize them, route them to the properresponder and integrate with existingworkflows.
  19. 19. 18 The Science of Social 2structureSocial customers see your company as a single corporate entity—oneTwitter account, one Facebook fan page, just like any other user. Theydon’t see you as a conglomerate of different departments.Your company’s internal structure must reflect how the new socialcustomer sees you. When setting social strategy, facilitate interactionsbetween support, marketing, sales and product development. Breakingdown some of the organizational walls not only provides a more seamlesscustomer experience, it will also increase satisfaction and loyalty in thelong run.cultureLastly, it’s essential to rally the organization around becoming morecustomer-centric. As conversations become more transparent, companiesmust engage social customers with authenticity, transparency, honesty andhumanity. You may have scores of employees watching the social streamfrom the inside, but from the outside, the entire world is watching.putting it all together: the Four Gears modelSo far we’ve looked at how social media changes communication in waysthat challenge the traditional business model. We’ve looked at how socialcustomers, their expectations and their behavior demand new reactions fromevery department in your company. The problem is that brands scramblingto respond to these pressures often try to herd customers straight fromacquisition to monetization.Focusing on just the acquisition and monetization gears may work in theshort term—in fact it’s so tempting that most companies are doing just that. Itis, after all, the traditional model most of us are used to, where the profitablerelationship with the customer ends at the point of sale. But it’s also hugelyinefficient in the new subscription economy. It ignores the enormous powerand benefit of re-casting social customers as agents of acquisition. Not to
  20. 20. introduction 19mention what a two-gear models does to margin compression (we’ll get tothat—how to avoid the Box of Death—in the monetization gear).The overarching message is that a focus on the acquisition and monetizationgears alone won’t justify your investment in social because it isn’t sustainable.The traditional model simply misses everything that social offers anddemands. You need four gears to win on customer experience in the long run.the Four Gears: acquire, engage, enlist, monetizeThe Four Gears model was devised by leading market development andtechnology strategist, Geoffrey Moore. Moore is a Lithium board member,founder of the Chasm Group and author of several best-selling books onrevolutionary business strategy including Crossing the Chasm and EscapeVelocity: Free Your Company’s Future from the Pull of the Past.Moore’s Four Gears model reflects his decades of experience advisingdisruptive technology companies on innovative market strategies. It’s asimple, but visionary model for what it takes to achieve lasting businesssuccess in today’s marketplace. It also serves as a fitting framework for thedeeper exploration of The Science of Social—Dr. Wu’s strategic and tacticalinsights on influence, relationships and gamification.The basic idea behind Moore’s Four Gears is that in order to drive a viralfollowing online—that is, a lasting influx of increasingly loyal customers thatkeep you in business for the long run—your social strategy needs four “gears”moving together as follows:acquireThis is your starter gear, the mechanism that enables you to attract andcapture new consumers. The key challenge for the acquisition gear isthat the social web is huge, complex and getting more so every day.
  21. 21. 20 The Science of Social 2engageThis is your power gear, the gear that nurtures prospects and customers,and cultivates long term loyalty. The key challenge with the engagementgear is the problem of sustaining interest and attention in a crowded,noisy, competitive social marketplace.enlistThis is your turbo gear, the gear that invites your customers to participatein the business in a whole new way—helping you to acquire newcustomers, support other customers and generate new product ideas.The enlistment gear is the loop of the viral loop, the drive-train of theFour Gears engine. The key challenge with the enlistment gear is theproblem of securing, motivating and sustaining participation.monetizeThis is your performance gear, the part of the machine that helps youconvert, deliver, satisfy and up-sell. They key challenge with monetizationin social media is that it’s easy in the short-term, but impossible in thelong term without all the other gears.Which gear is most important? A common question. But that’s like askingwhich wheel of your car is most important. If you’re missing one (or more)you won’t get far. Some gears may spin faster than others or require differentcommitments,butnoonegearismoreimportantthananyother.Asustainablesocial strategy needs all four gears moving in concert to get a viral loop thatcan persist in the long-term.Done right, you get social customers who buy more, are willing to pay apremiumforyourproducts,stayloyallongerandrecruitother customers. Thatmeans increased sales, higher margins and lasting competitive advantage.Over the next four chapters, we’ll explore each of the Four Gears and, in turn,lay out the science behind why and how they work. As you dig into each, thinkabout your own company and which gear is performing best—and worst—foryour own business objectives.
  22. 22. introduction 21acquirestarter geardrive awarenessand interestenlistturbo gearbuild advocacyengagepower gearbuild relationshipsmonetizeperformance geargenerate revenue
  23. 23. coming early summer 2013get serious results from socialwhatareyouwaitingfor?see what we mean about serious resultsin our customer success