Wednesday, May 22, 2013

The Influence of Revenue Producers

Which is more valuable an 'influencer' or a 'revenue producer'?

When introducing new products there is a temptation to find influencers - those consumers with the capacity to spread the news, either by direct contact through their network or via inference and reputation.   The question becomes: Is this a better strategy than seeding new products with revenue leaders, i.e. those who already are valuable customers?

Recent research in the Journal of Marketing focused on that very question and found the following:
  1. Given that Customer Lifetime Value (CLV) is often skewed toward Pareto's world view, revenue leaders can have the dual benefit of producing revenue AND influencing others like them.
  2. The number of consumers used in the 'seeding' process makes a difference.  At low levels of introduction (think 'I hope it goes viral') there is a strong social influence; however, as the number of people you tell increases (Big Seed Marketing) there is a plateau or saturation point reached.  
  3. As a side effect, considering both social influence and direct revenue production widens the natural divide in CLV.  The leaders are more valuable and the laggards are less valuable than one would think based purely on dollars-to-date.
So, as with many aspects of marketing - the old and the new come to provide new insights and approaches.   The tried-and-true method of RFM provides a decent basis of estimating customer value while interests and social graphs offer a means to estimate the contagion effect.  

The introduction of a new product is a very risky business since most fail.  This research suggests that internal data be overlaid with socialgraphics in order to improve the odds of success. 

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