This blog about new business trends is inspired by Wayne Gretzky's quote.
When asked what made him stand out from many other hockey players, Gretzky
responded: "A GOOD hockey player plays where the puck is. A GREAT hockey
player plays where the puck is going to be". Can the same principle be
applied to business? (More)
In my previous post I wrote about Word-of-Mouth being the future of marketing. WOW factor and WOM not only brings you customers for “free”, but those referred customers are even more profitable!
Philipp Schmitt, Bernd Skiera, & Christophe Van den Bulte published the article “Referral Programs and Customer Value” in Journal of Marketing earlier this year. They tracked approximately 10,000 customers of a leading German bank for almost three years and learned that REFERRED CUSTOMERS…
“(1) have a higher contribution margin, though this difference erodes over time
(2) have a higher retention rate, and this difference persists over time; and
(3) are more valuable in both the short and the long run. The average value of a referred customer is at least 16% higher than that of a nonreferred customer with similar demographics and time of acquisition.”
“I see a future in which marketing is customer driven. Instead of being passive recipients of “hits” from mass media, customer will determine what they will be exposed to, in what form, in what sequence, and from what sources. They will increasingly turn to the varous forms of word of mouth”
The above is the quote from George Silverman’s book: “The Secrets of Word-of-Mouth Marketing”, one of the best books ever written on the subject of Word-of-Mouth Marketing. Let me highly recommend Silverman’s book: you will find many useful strategies and tactics how to harness word of mouth. Silverman argues that “the idea that word of mouth can’t be harnesssed is probably the most dangerous and costly marketing oversight”.
One more quote about the importance of Word of Mouth: “The secret to marketing success is no secret at all: Word of mouth is all that matters” (Seth Godin)
Still not sold on the importance of WOW factor and positive word of mouth? Here are more research findings demonstrating that positive word of mouth (i.e. WOW factor) is more common / has higher impact than negative word of mouth:
- “In 15 studies, positive word of mouth (PWOM) is more common than negative word of mouth (NWOM) in every case. The incidence ratio averages 3 to 1” (Source: The relative incidence of positive and negative word of mouth: A multi-category study, East, R., Hammond, K., Wright, M., International Journal of Research in Marketing, Vol. 24, Issue 2, 2007)
- “For familiar brands, we find that the impact of PWOM is generally greater than NWOM“ (Source: Measuring the impact of positive and negative word of mouth on brand purchase probability Robert Easta, Kathy Hammond, and Wendy Lomax, International Journal of Research in Marketing
Volume 25, Issue 3, September 2008, Pages 215-224)
A report from eConsultancy showed that 25% of the budget is focused on digital channels. The number is up from only 20% in 2009, and it is likely to be around 30-32% in 2011.
Viral Marketing tactics (including Viral Video) is the new marketing trend. Note the big corporate names such as Heineken, Evian, McDonald, T-Mobile… resorting to this new marketing strategy:
1. DC Shoes – Ken Block’s Gymkhana Three, Part 2 – Ultimate Playground, L’Autodrome
2. Evian – Roller Babies
3. Icon Films – Motorcycle vs. Car Drift Battle”
4. Danny MacAskill – Way Back Home
5. Trance Urban – The Most Amazing Beat Box Video Ever
6. Heineken – The Entrance
7. McDonald’s – BF&GF TVC
8. DC Shoes – Ken Block’s Gymkhana Two, The Infomercial
9. Lego – The Brick Thief
10. T-Mobile – Welcome Back
Here are my two favourite viral videos: Evian (Roller Babies) and T-Mobile (“Welcome Back”):
Here is one trend that could be added to my top ten e-marketing trends (see my previous post): Augmented Reality.
The total value of mobile augmented reality (AR) applications will approach $1.5 billion in 2015, up from just $1.5 million in 2010 according to research published on Marketing Charts
What is AR? According to Wikipedia, “Augmented reality (AR) is a term for a live direct or indirect view of a physical, real-world environment whose elements are augmented by computer-generated sensory input, such as sound or graphics… As a result, the technology functions by enhancing one’s current perception of reality. By contrast, virtual reality replaces the real-world with a simulated one”.
Simple example would be the yellow “first down” line shown when watching NFL games on TV (The real-world elements are the football field and players, and the virtual element is the yellow line)… Another example of AR in sport would be in tennis: the projected tennis ball path determining if the ball was in or out…It WAS out!
1. Online shopping
2. Social Networking
3. Viral marketing / Word of Mouse
4. Social Shopping
5. Web 3.0
6. M-Commerce
7. The rise of App culture
8. e-Commerce Videos
9. Expansion of virtual goods and currencies
10. Internet and Mobile Advertising
The traditonal research suggest that WOM is the primary factor behind 20 to 50 percent of all purchasing decisions. The rise of online communities and communication has dramatically increased the potential of word of mouth (“word of mouse”). As I am doing my reseaerch on Viral Marketing and word of mouth, I have found several descriptions and calculations of customer life time value and his/her referral value, etc. However, I have not found a simple formula to calculate word of mouth equity yet. So, here is my attempt. I hope you fill find this formula useful and easy to use.
Word of Mouth (WOM) equity = C * p * r * i * M
C = actual number of your company’s customers (for any given product, product category or brand) p = percentage of your customers who talk about company’s product to their friends (“evangelists”) r = average number of recommendations given by your “evangelist” i = influence factor: average probability that the potential customer will act on recommendations and buy the product M = average profit (contribution margin) for any given product, product category or brand during certain period of time
Suppose your company is providing services and it has 2000 customers (C). Ten percent of your customers actually talk to their friends and recommend your services (p). In average , they (your “evangelists”) will talk to three of their friends (r). However, only 20% (i) of those recommendations will result in new profits (margin – M) averaging $5,000 over certain period of time. So your WOM equity is:
WOM equity = C * p * r * i * M = 2000 * 10% * 3 * 20% * $5,000 = $600,000
This is how much additional business you get just based on word of mouth referrals!
The next step would be to try to manage and maximixe your word of mouth by encouraging more customers (“p”) to talk to more of their friends (“r”) in more effective and more enthusiastic way (“i”) . How? The simplest answer: by creating the wow! factor. By GIVING them more value than they EXPECT.
More complex formula for calculating the WOM equity will follow on this blog.. The formula will take into consideration the possible negative effects of word of mouth, as well as the customer life time value.
Do you or any of your friends work in the food and beverage industry (dairy products, meat industry, confectionery industry, alcohol, water, juices, milling industry)? I am working on my PhD thesis (on “Viral Marketing”), and I am looking for people who have business experience in the food industry to answer my survey…
The survey link is below. Answering the survey takes app. 20-30 minutes (note that some questions are optional).
All survey participants will receive my coming e-book on Viral Marketing and up to one hour of marketing / Internet marketing consulting by phone or e-mail at no charge.
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