Kevin Hillstrom at Vircomm14 - 'Mine that data - A cold hard dose of reality'

A Cold, Hard Dose Of Reality
With an Uplifting Conclusion That Proves Your Value!

Kevin Hillstrom
President, MineThatData

Kevin Hillstrom, President, MineThatData
http://blog.minethatdata.com
kevinh@minethatdata.com

1

A Frustrated Executive
“Yes, we have a Community Building team.
They’re off in ‘fun-land’ engaging with
customers, participating in conversations.
Meanwhile, I’m just trying to keep from
getting fired. I have to figure out how to save
the business so that the Community team can
get paid to have ‘fun-time’ with customers.”

2

Dell Has An Unequaled Community, Right?


3

Fun-Time At Dell
Dell Facebook Likes, Early 2013 = 4.7 Million.
Dell Facebook Likes, Winter 2013 = 6.4 Million.
Dell’s 2nd Quarter Computing Division Sales =
-5% to 2012.

How might the Community team at Dell
defend the work they do? Sales = Down.

4

Pepsi Reduces Their Super Bowl Investment


5

12 Months Later - $350,000,000 Lost Revenue
When tested in practice, a shift
from top-down interruptionbased marketing to bottoms-up
social media community
management resulted in $350
million in lost sales … and, Pepsi
fell to 3rd place, losing ground to
Diet Coke. Sales fell 8 times
faster after the shift in strategy
than before the social media
strategy was initiated.
http://adcontrarian.blogspot.com/2011/03/socialmedias-massive-failure.html


6

Communities In E-Commerce

Black Friday sales dropped for the first time in seven years. I guess Communities
didn’t generate enough value to cause sales to happen, right?

7

Communities Allegedly Generate Value

If 4.7% of our customers generate 100% of our word of mouth, then are 95% of our
efforts nearly pointless? Are the 4.7% biased in any way?
http://www.mackcollier.com/customers-social-online-word-of-mouth/

8

Communities Increase Spending By 20-30%?

If engaged, connected community members spend 20-30% more, then wouldn’t our
businesses be growing so fast, across the board, that our results would be amazing?!
http://www.mackcollier.com/customers-social-online-word-of-mouth/

9

You Can Argue That All Of Social = $0

US GDP growth the past four years is about equal to historical averages, during the
“age of communities / social” Kevin Hillstrom, President, MineThatData
http://www.multpl.com/us-gdp-inflation-adjusted/table


10

Fashion Communities Don’t Buy Anything?


11

Why Focus on Community if $ Isn’t There?


12

#OhBoy


13

Bad News – Engagement To Sales Ratio = Low

http://simplymeasured.com/blog/2013/08/15/how-to-tell-if-your-twitter-campaign-actuallyworked/?utm_source=twt&utm_medium=soc&utm_campaign=blg

14

Communities – Beyonce

Oh look, Communities works – just ask Beyonce!!

15

Communities – Beyonce

Did Communities using Social Media cause the success, or did past history, name
recognition, and a “surprise” cause success that spread via word of mouth?

16

Communities – Lady GaGa

With a community of fanatics, Lady GaGa should be able to sell tens of millions of
CDs when a new CD is released … right?!

17


The album is performing so bad that prices are heavily discounted – sales dropped
81% after the first week – a catastrophe.

18

“ARTPOP will be written about one day as a huge marketing failure, unique in every
way.” “… where are all of her fans, her ‘little monsters’? They certainly didn’t like
what they heard.”
“She directed the entire campaign, went against the advice of others, and wound up
losing a ton of money ($25 million seems severe, but lots) for herself and for
Universal Music.”
“… ARTPOP has sold just 300,000 copies in two weeks, down 75% from her 2011
album. And sales dropped 81% the following week.”
http://www.showbiz411.com/2013/11/26/lady-gaga-artpop-poops-out-second-weekdrop-of-81

Clearly, her community had nothing to do with this drop, right? I mean, she had a
huge, engaged community, right? If true, then her community, her fans, had nothing
to do with prior successes, right?

19

Communities – Who Needs Fans?

Burger King Norway gave a free Big Mac to customers to get the customers to not
like them on their new page – and most accepted the offer! What’s up with that?
http://www.fastcocreate.com/3023025/should-you-be-ditching-a-ton-ofyour-facebook-fans-heres-why-burger-king-did-just-that


20

And So What If “Brands” Don’t Participate?
In the 4th quarter of 2013, Amazon only sent
four (4) @ replies on Twitter.
Four!
Sales during the 4th quarter increased 20%.

More proof that engagement is irrelevant, and
you don’t need a community to succeed.
http://simplymeasured.com/blog/2014/01/24/the-10-most-engagingbrands-ontwitter/?utm_source=lin&utm_medium=soc&utm_campaign=blg


21

If You Participate, Do Your Sales Decline?
Nokia is lauded as one of the top ten most
engaging “brands” of Q4-2013 on Twitter.
And yet, Nokia’s sales are about half of what
they were in 2007.
Does this mean that engagement / community
causes businesses to sink into oblivion?
http://simplymeasured.com/blog/2014/01/24/the-10-most-engagingbrands-ontwitter/?utm_source=lin&utm_medium=soc&utm_campaign=blg


22

Community Experts Contradict Themselves
4 – Your desire to sell will have to take
a backseat. This is the most important
lesson to creating valuable content for
customers, and the most difficult for
most brands to grasp. The great thing
about social media is that it makes
things happen indirectly. What this
means is that you have to stop thinking
of social media and online content as a
way to directly drive sales. Instead,
view these tools as a way to directly
create value for customers, with the
understanding that doing so will
indirectly lead to sales.
Mack Collier - http://www.mackcollier.com/brands-guide-tocreating-content-that-earns-attention/

23

Describe The Sales Potential Of This Strategy

Describe to your CEO, right now, how a game of Tic Tac Toe between KitKat and Oreo
generates an increase in annual profit for either company?
http://www.slideshare.net/bengrossman/10-social-best-practices-from-the-best-social-brands-of-2013


24

Describe The Sales Potential Of This Strategy

We give any customer named “April” a free flight on April 1. How do we respond to
community enthusiasts named “June”? Or what happens if your name is “Roger”?


25

How Should Your CEO Respond To This?

“Community First, Then Business”. Why does the Community expert get to ignore
business while everybody else must focus on business first?


26

Communities: They’re Not About Selling?
“When it comes to social media, no one is looking to be sold
to. People are on social networks to be entertained … don’t
harass people with sales pitches.” Amy Hall
http://socialmediatoday.com/amynhall/1917321/3-rules-engagement-successful-social-selling

“You have to woo potential clients by being enchanting and
engaging.” Trish Forant http://www.salesforcemarketingcloud.com/blog/2011/10/socialmedia-engagement-is-the-key-to-social-selling/

“Social Media is not strictly about sales … in fact, attempting
to sell something over social media is guaranteed to
backfire.” Joe McKendrick http://www.skyword.com/blog/the-impact-of-contentmarketing-for-engagement-on-social-media/

27

A Disconnect
What is the most important metric when building a
community? Engagement!
What is the most important metric in business? Sales
and Profit.
Notice the disconnect?

Maybe if communities are designed to “not sell”,
then the result is to “sell nothing”????????

28

Kevin is just a big, dumb
“HiPPo” (Highest Paid
Person’s Opinion). He
simply doesn’t ‘get’ how
you can “harness the
power” of Communities.

29

Maybe Community Experts
Don’t Understand How
Business Works?

30

Business Success = Sell
Products / Services, Pay All
Expenses, And Have A Lot
Of Cash Left Over At The
End Of The Year.

31

Community Success =
Engage With Customers,
Build Relationships, Solve
Problems.
#OhBoy

32

New Definition Of
Community Success =
Engage With Customers,
And Build Relationships
That Lead To Quantifiable
Sales And Profit Gains.

33


34

Why Must I Prove Engagement = Sales / Profit?
Your Executive Team, regardless of your opinion of them, is
compensated and rewarded for both short-term
sales/profit, and long-term sales/profit.
Typical Executive:
• ₤150,000 per year base salary.
• ₤100,000 per year bonus, based on sales / profit
improvement.
• Stock Options or Equity that pay when future business
success comes to fruition.
The bonus, by the way, is the biggest motivator for an
Executive.

35

How does an Executive earn a bonus?
Typical Bonus Structure:
• 50% of bonus is paid if annual sales goals are exceeded.
• 30% of bonus is paid if annual profit goals are exceeded.
• 20% of bonus is paid if personal goals are exceeded.
Do you see the words “engagement”, “community”,
“customer satisfaction”, or “social” in any of the three
aspects of an Executive Bonus payout?


36

Executive Motivation:
1. Greatly Increase Annual Sales.
2. Greatly Increase Annual Profit.
3. Perform Exceedingly Well On Personal Goals.
If we want Social / Communities to resonate with the “CSuite”, then everything we communicate has to align with
Sales, with Profit, and with Personal Goals.
Otherwise, why would the Executive listen to us?


37


If you want to have success … stop
speaking the language of the Social /
Community elite … and start speaking
the language of the Executive!


38

The Language of the Executive

If Social / Communities are all about
Engaging Customers, then you must
Engage with your Executive Team. You
must demonstrate you are helping
them achieve their goals.

39

You Connect Customers To The Company!
You connect
customers to your
products / services –
yielding $ for the
Executive.


40

You Matter!
You Are Important!


41

Community Value Varies
I generate 70% of my annual revenue from my
community.
Businesses between ₤1 and ₤10,000,000 in
annual revenue, catering to a younger
customer, will frequently generate 25% to 50%
of annual revenue from their community.
Then, the relationship changes.

42

Community Value Varies
Once a business is +/- ₤50,000,000 … a
different set of dynamics occur … the
community begins to lose power as a sales
driver.
Once a business is +/- ₤500,000,000,
communities generally yield +/- 1% of annual
volume. However, 1% of a very big number is
still a big number!!

43

Know Your Customer / User
If this is your customer
… age 60 … do not
expect great results
from your community
building programs.
S/he is likely to respond
to old-school tactics.

44

If your customer / user
is +/- 45 years old,
you’re entering prime
“community” territory.
Here, communities can
be a viable marketing
strategy.

45

If your customer / user
is +/- 30 years old, it
may be that
community / social is
your marketing
strategy!


46

Know That Your CEO May Be From A Different
Generation Than Your Customer


47

Customers Have Value
Find somebody who analyzes customer
behavior. Ask this person three simple
questions.
1. What is the probability of a customer
who purchased in 2012 buying again in
2013?
2. If the customer buys, how much does
(s)he spend in 2013?
3. What % of sales flow-through to profit?

48

Example:

Customers who bought in 2012 have a 40%
chance of buying again in 2013.
If the customer purchases, the customer
spends ₤200 per year.
35% of sales flow-through to profit.

49

Simple Customer Value:
40% repurchase rate times ₤200 per customer
= ₤80.
35% flows-through to profit … 0.35 * ₤80 =
₤28.

50

We now know two important facts.

First, each customer that your community
impacts is worth up to ₤80 per year.
Second, each customer that your community
impacts is worth up to ₤28 profit per year.
These are metrics your Executive Team
understands.

51

Say your community is able to diffuse 5,000
situations where customers are angry with
your brand.
5,000 * ₤80 = ₤400,000 net sales / sales
turnover. In addition, 5,000 * ₤28 = ₤140,000
profit.
Executives love this stuff! And you paid for
your own salary!

52

Incremental Value Matters, A Lot
Say your community improves the purchase
experience for a customer.
It is common to find that community
marketing activities can improve customer
spend by +/- 10% per year. If that is the case,
then we can quantify the impact of community
management on the business.

53

Incremental Value Matters, A Lot
Say you have 30,000 customers in your
community. Assume you increase the value of
these customers by 10%.
₤80 * 0.10 * 30,000 = ₤240,000.
₤28 * 0.10 * 30,000 = ₤84,000.
Again, you more than paid for your annual
salary, and you helped the Exec reach her
goals!

54

New Customers = Double Value!!
If your community recruits new customers, you
get to “double-dip” – that’s a good thing!
You get the value of the initial transaction.
You get the value of the customer over the
next twelve months!


55

Say your community adds 1,000 customers per
year.
1st Transaction = ₤100 * 1,000 = ₤100,000 net
sales / sales turnover.
1st Transaction = ₤35,000 profit.


56

In addition to the ₤100,000 sales & ₤35,000
profit, we earn the downstream benefit of our
efforts:
1,000 new buyers @ ₤80 each = ₤80,000 sales.
1,000 new buyers @ ₤28 each = ₤28,000 profit.


57

Add It All Up!
In my example, there’s a lot of benefit to a
community – benefit that helps Executives
meet their goals.
In my example:
• ₤850,000 net sales / sales turnover.
• ₤267,000 profit.
Oh!

58

Then There‘s Product Information
Say your community recommends a new
product or service.
Say your company launches the product /
service, and generates ₤150,000 from that
product.
You (and your community) is the cause of that
revenue. Take credit for it! You did this!

59

Where Possible – Compare Equal Customers
₤250 - ₤500 Buyers In 2012.
• Non-Community Buyers Spent ₤80 in 2013.
• Community Buyers Spent ₤88 in 2013.
• Incremental Gain is 10%.
Do not pick “community buyers” and say they
are worth ₤88 (hint – Pinterest). Do not
compare “community buyers” to other, lowervalue customers. Equalize your customers!

60

It’s Not Your Fault When A Business Is Dying
Many community-centric businesses are not
experiencing growth.
This is not the fault of the community
manager! If anything, the community manager
is slowing the rate of decline.
Your efforts may stave off the slow death of
your business, or help reverse the trend.

61

Know Your Metrics
What is the probability of an average customer
buying something in the next year?
If the customer buys something, how much
will the customer spend?
Multiply these two metrics together – then
multiply by your profit factor.

62

Know Your Metrics – Then Fight Back!!
Once you know that you are generated three,
four, or five times your annual salary in profit,
you can make a case for getting more
resources, more help!
You matter.
Your work is important!

63

You!


64

The Executive


65

What You Create For Your Company!


66

You Matter!
You Are Important!


67

Questions?

Kevin Hillstrom
President, MineThatData
206-853-8278


68

Community Workshop:
Coffehouse Chain Mocha Madness
Mocha Madness was created in 2009 as a
London-based competitor to Starbucks.
With thirty stores, Mocha Madness is one of
the fastest growing coffee-centric businesses in
the UK.

Predictably, the brand differentiates itself from
Starbucks with Chocolate!

69

Community Workshop:
Mocha Madness is looking to differentiate
itself from Starbucks. The product (chocolatecentric) might be sufficiently differentiated,
but many perceive Mocha Madness as a
Starbucks clone.
The Owner and CEO have different views of
how the “brand” can relate to customers.

70

Community Workshop:
The owner (female age = 39) feels that Mocha
Madness should be a warm brand that
embraces community.

The CEO (male age = 62), an old-school retail
operator, thinks that product is the answer –
that customers just want coffee at a fair price,
and wants to get in-and-out of the store
quickly.

71

Starbucks Community (Liked by Owner)


72



73



74



75

Best Buy Community (Liked by CEO)


76

Best Buy Community (Liked by CEO)


77

Community Workshop:

Things to know:
1 – CEO and Owner do not see eye-to-eye. The
CEO is results based, likes everything proven.
Owner is brand-focused, thinks everything will
take care of itself if done well, over time.

78

Community Workshop:

Things to know:
2 – The CEO receives a bonus equal to 100% of
his salary if annual sales increase by
₤5,000,000 and if annual profit increases by
₤1,000,000 this year.

79

Community Workshop:

Things to know:
3 – The average customer is 37 years old, 75%
female.
4 – The average customer buys in-store 3 times
a week, spending ₤5 per visit. The company
generates ₤1 profit from each visit.

80

Community Workshop:

Things to know:
5 – The average store has 1,500 customers who
purchase at least one time per year.
6 – At 30 stores, and 1,500 customers per
store, annual revenue = ₤34,000,000.

81

Community Workshop:

Your job:
1 – Knowing how the CEO and Owner disagree,
what would a community-centric program look
like at Mocha Madness?

2 – How would you inform customers of the
new community-centric program?

82

Community Workshop:

Your job:
3 – How would you build the size of the
community over time?
4 – How would you reward the community for
their ideas?

83

Community Workshop:

Your job:
5 – How would you measure the success of the
community? How would you tie your
measurement plan to the sales / profit bonus
structure given to the CEO by the Owner?

84

Community Workshop:

Your job:
6 – How will you convince the CEO that
branding is as important as immediate ROI?
7 – How will your efforts generate enough ROI
to pay your salary.

85

Community Workshop:

Your job:
8 – Provide one or two examples of community
programs that you hope to emulate. What do
those programs do well?


86

Community Workshop:

Divide into three teams.
You have 45 minutes to complete your
proposal.
You will present your results to me – I am the
CEO of Mocha Madness.

87

Community Workshop:

Go – And Have Fun!

88

Kevin Hillstrom at Vircomm14 - 'Mine that data - A cold hard dose of reality'

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