• June 3, 2011
  • By Leonard Klie, Editor, CRM magazine and SmartCustomerService.com

Rise in Social Media Requires Businesses to Rethink Customer Value

The rise of social media should force companies to reevaluate the way they determine customer value, which in turn can reshape customer engagement strategies, a new report from the Economist Intelligence Unit and sponsored by SAS suggests.

According to the report, "Re-envisioning Customer Value," measures of customer value that focus solely on transactional activity capture only a fraction of an individual's behavior and potential value. The report also identifies a clear need for technology to help organizations determine a customer's influence in social media channels.

"You have to look at influence, not just the value or revenue he brings to your company," says Jonathan Hornby, director of marketing at SAS. "If a person spreads negative [messages] about your company, you could lose hundreds or thousands of people who were loyal to you."

With the growth of social media "the customer is now in control," Hornby adds. "Everyone has a voice, and they can make it known across the globe 24/7, and once it's posted on the Web, it's there for life.

"Once something negative starts, it can spiral out of control rapidly," he warns. "The goal is to mitigate the risk before it does real damage to your company."

One way companies can help mitigate that risk is by properly monitoring social media channels, and then backing up the data gained with analytics. Understanding a person's social reach, combined with his propensity to share thoughts, should become the method to extrapolate value, and in turn help update segmentation rules and adapt treatment strategy.

Yet, according to Hornby, most organizations do not currently have the resources, manpower, or technology to track what's going on in the social media world. Many are not even aware of what's available to them today, he notes. Others hire people to monitor social channels, but they can't keep up with it all.

Further complicating matters is the fact that most ocial conversations are messy and unstructured. Nonetheless, it is possible to capture social media activity and derive meaningful information from it using analytics, Hornby suggests.

For example, with SAS' Social Media Analytics, companies can help identify connections that exist among online consumers and how much conversation flows between an individual and his network. When cross-referenced with existing operational data stores that contain Web traffic or sales data, SAS can then identify if existing customers' behaviors are influenced or impacted by the sudden velocity of online conversations.

Hornby also recommends organizations use technology that lets them filter out noise and direct conversations to the most appropriate staff members. That filtering process begins with improved customer value metrics.

"Calculating influence based on how many Twitter followers someone has, or friends on Facebook, or re-tweets is only the beginning," advises Hornby. "What you are really after is an understanding of how many people took action based on a recommendation or negative posting from a customer."

Hornby says the value of people on social media is still hard to quantify because sites like Facebook and Twitter have only been around for a few years, but he notes that "if you simply segment [a customer] away as not being profitable, it could be very damaging."

As proof, he says 20 percent of customers typically generate 500 percent of a company’s profits, 60 percent do not affect profit negatively or positively at all, and the remaining 20 percent typically destroy 400 percent of the profit, bringing the numbers back to 100 percent.

"You need to track what&'s happening and understand the reach of the individual so you can mitigate the risk or amplify the positive to leverage an opportunity to grow the business," Hornby says. "You can turn someone who was against you into your biggest fan if you act fast and appropriately," he states.

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