I’ve been a fan of Gary Vaynerchuk for a long time. Well before he released his first book, 101 Wines. I’ve also been managing online communities for a much long time. I always enjoy when Gary touches on our profession because he’s smart and, no matter what, him talking about it is good for us.
At the end of July, Gary talked about community management in a big way when he released a slide deck titled “Go Big on Community Management!” On LinkedIn, he wrote a blog post titled “Why Community Management Works.” On his personal site, he went even further: “If You Don’t Invest in Community Management, You’re Done For. Here’s Why.”
In the slides, Gary makes a point of saying that he has the data that supports the value of community management. “This time I have all the stats,” he writes. “Or at least the stats that mean something to all my corporate pals out there.”
Gary feels that people aren’t as interested in community management as they used to be, and that’s a mistake. To demonstrate, he links to a Google Trends search for “community management.” This shows a gradual decline in Google search interest for that term since 2004. Personally, I don’t think this means much. It doesn’t portray the reality of the profession right now and how it has expanded. There are more employed community management professionals right now than ever before. You could just as easily link to the Google Trends search for “community manager.” In the same time period, you’ll see an impressive increase.
Early in the slides, Gary explains that there is major pressure on companies and executives to produce short term results, to their own detriment. “In reality, while everyone is focusing on the short game, the opportunity is in the long game,” he says.
The data that he cites is highlighted by green text you can click; you will then be taken to a link where you can read more. I thought I would sit down and take a look at all of the data that he ties to community management, so that we can more easily reference it. Whether we agree or disagree with it, Gary is out there selling this profession to a lot of companies, and this is the data that is helping him do it.
Increase Customer Retention by 5% and Increase Profits by Up to 95%
Frederick F. Reichheld of Bain & Company has been researching customer loyalty for decades. Back in 1990, he and Earl Sasser of Harvard Business School released their cost and revenue analysis for maintaining the entire life cycle of a customer relationship with your company. They found that, across numerous industries, the cost of customer acquisition was so high that the end result was not profitable – at least, during the early years of the relationship. But the longer that the customer is retained, the more profitable the relationship becomes.
Their research was summed up by this headline grabbing line: if you increase customer retention rates by 5%, you will increase profits by 25% to 95%.
In 2000, with the digital age upon us, they revisited their efforts to see how the numbers might have changed with ecommerce. The numbers had changed. It now cost more to acquire customers – but the profitability from retaining those customers occurred much quicker. Both in direct sales – loyal customers spend twice as much from months 24-30 than they did in the first 6 months – and in referrals. Not only do online customers buy more, they refer people more.
The “Average” Customer Experience vs. the “Wow” Customer Experience
Dorian Stone and Joel Maynes of McKinsey & Company pulled data from more than 60,000 consumers, who were surveyed on customer experience. They found that the benchmark for customer experience had raised to the point where an “average” experience was worth 5-10% less than the benchmark. Specifically, they looked at the likelihood of the customer to “remain/renew,” “buy another product” and “recommend.” Meanwhile, a “wow” experience was worth 30-50% more than the benchmark.
They extrapolated this to a couple of specific industries. One was pay TV, where customer loyalty dropped 20% from 2009 to 2014, when dealing with companies who provided only an average customer experience. In banking, this number was 30% lower.
Expectations play a role here. In their article, Stone and Maynes point out that some industries and companies are offering a more sophisticated customer experience which leaves people wondering why that sophistication is missing when they do business with someone else. They use the example of FedEx being able to track your package, but an insurance company not being able to track a car repair.
The moral of the story here is that you need to be great, not simply good. Companies that invest in community management have the opportunity to set themselves apart from companies providing only a “good” experience.
75% of Shoppers Said They’d Shop Elsewhere if a Retailer Didn’t Offer Free Shipping
Gary makes the point that being great is more attainable than ever before. To illustrate this, he points to a comScore survey highlighted by The New York Times in 2008. Three-quarters of online shoppers said that if a retailer did not offer free shipping, they would take their business elsewhere.
Brains Respond Positively to Surprise
Surprise offers you the opportunity to delight your customers in such a memorable way that you might just keep them forever. Gary shares a story about baseball player Rickey Henderson. As a 10 year old, Gary attended a baseball game, and Henderson winked at him after making a play. That one small action made Gary a fan of Henderson for life.
Following the story, Gary shares some research that demonstrates the value of surprise. First is a study conducted by Gregory S. Berns of Emory University. According to his website, Berns research is “aimed at understanding the neurobiological basis for individual preferences and how neurobiology places constraints on the decisions people make – a field now known as neuroeconomics.”
The particular study cited was released in 2001. Researchers gave subjects juice and water, without telling them which they would receive. The simple surprises activated one of the brain’s pleasure centers. They concluded that it had nothing to do with whether the participant preferred juice or water – they were just stimulated by the surprise.
Surprises Help Create Stronger Memories
Wael Asaad of Brown University leads a lab that is “interested in how the frontal cortex and basal ganglia work together to enable rapid learning and highly-contingent decision making.” Asaad spoke to WAMC Northwest Public Radio about one of his goals: aiding and improving the brain function of people who have had a stroke or experienced a traumatic brain injury. As part of that conversation, he explained that surprise drives learning.
You might be surprised in a good way, like receiving a reward you weren’t expecting. Or you might be surprised in a bad way, failing to receive something you were expecting. Either way, this is referred to as a “prediction error.” A positive prediction error leads to you doing that same thing again. A negative one points you in a different direction (e.g. away from a community or a brand).
Surprise is More Satisfying Than Stability
Happiness has been the focus of the research career of Stanford’s Sonja Lyubomirsky. In 2012, she wrote an article for The New York Times that discussed studies related to marriage.
Among the research she cited was a 2003 marriage study produced by researchers from America and Europe. They looked at 1,761 people who married and remained married during a 15 year period, concluding that married couples enjoyed a “big happiness boost” lasting around two years. After that, their happiness level returns to where it was before.
Next is a series of studies performed by the University of Virginia and Harvard that found subjects enjoyed “longer bursts of happiness” when they were treated to a surprise act of kindness and were left unsure of the person who performed it or the reason they did so. The juice and water study above also appears to be cited, as Lyubomirsky concludes that “surprise is apparently more satisfying than stability.”
Surprise is Still the Most Powerful Marketing Tool
I suspect the link on this slide (#59) is incorrect and that it is actually meant to go to this article by Scott Redick, who references some of the same surprise-related studies Gary mentioned previously in the slides. However, there are a couple of new ones.
Norbert Schwarz, currently the Provost Professor of Psychology and Marketing at the University of Southern California, conducted a simple experiment. A dime was left at a copy machine and, after someone found it, they were surveyed. The end result was that the people who found the dime had a higher overall satisfaction with life than those who did not find the dime.
In addition, Redick cites the late Robert Plutchik’s Psycho Evolutionary Theory of Basic Emotions to explain that surprise amplifies whatever we might be feeling. Positive or negative.
The Reciprocity Effect
Santa Clara University researchers Jerry M. Burger, Jackeline Sanchez, Jenny E. Imberi and Lucia R. Grande published a study on reciprocity in 2009. They selected 120 students and brought them in, one by one, for a test. However, the test they were knowingly taking was simply a decoy. During that fake test, a person posing as a fellow participant would interact with the subject. To keep this simple, I’ll refer to that person as an actor.
At one point, the actor would leave and come back. Half of the time, this actor would return with two bottles of water: one for the subject, as a gift, and one for themselves. The other half of the time, they would return with nothing. Then, at the end of every fake test session, water or not, the actor would ask the subject to do a favor for them. Would they be willing to fill out a pop culture survey for a school project and then drop it off at a set time at a specific location?
They also tested to see whether it mattered if the actor would be present to receive the completed survey. Half of the people were told that she would be, and half were told that she wouldn’t be. They wanted to see if people cared about whether or not the actor knew that they had returned the favor.
The results were pretty one-sided. 17 of the 60 students who were given a water bottle returned the survey, where only 3 of the other 60 did so. Meanwhile, being anonymous didn’t factor in at all. In fact, the students who were anonymous returned the surveys at a slightly rate.
Pigeons Won’t Unfollow You if Give Them Intermittent Reinforcement
Or I think that is the message? This is a fun one. In saying that people are less likely to unfollow you if you interact with them, Gary goes all the way back to 1974 and research involving pigeons.
Stephen B. Kendall, working out of the University of Western Ontario, gave pigeons two different keys to peck on. One key led to a white light and a 15 second delay, followed by food. The other key provided one of two different colored lights, a 15 second delay and then either food or a timeout.
When the lights on the second key were tied to a specific end result – when one color meant food and another meant timeout – the pigeons preferred that key. When the lights held no meaning, other than being lights, pigeons preferred the consistent key with the white light.
So that’s pretty random. This might be the type of thing that will be fun to see Gary talk about and elaborate on when or if he gives this presentation in person.
80% of Your Future Revenue Will Come From Just 20% of Your Existing Customers
According to Alex Lawrence at Forbes, statistics from Gartner Group indicate that 80% of your future revenue will be contributed by only 20% of your current customers. Hard to say much here as I couldn’t find the specific study, just a lot of people citing it. If you know the specific research it came from, please shoot me an email.
20-50% of All Purchasing Decisions are Made Based on Word of Mouth
More from McKinsey & Company – this time by Jacques Bughin, Jonathan Doogan, and Ole Jørgen Vetvik. Their research into word of mouth found that it was the “primacy factor” for 20-50% of all purchasing decisions. Word of mouth was especially important in developing markets, as opposed to mature ones.
77% of Customers Are More Likely to Buy a New Product When Learning about It from Friends and Family
In February of 2013, the Nielsen Global Survey of New Product Purchase Sentiment was released. You can download the full report for free. They surveyed more than 29,000 people with internet access in 58 countries. They polled them on a variety of methods through which people learn about new products, from traditional advertising to text messages.
The highest polling method of all was word of mouth from friends and family. 77% of people agreed that they were “much” or “somewhat more” likely to buy a product when they learned about it that way. This was higher than seeing it in store (72%), being given a free sample (70%) and actively searching online (67%).
Adding to this, people were 43% more likely to buy a product they learned about on forums/message boards and social media (those were divided into two separate categories, which I am always glad to see). This beat out numerous other methods, including banner ads (42%), video sharing sites (37%) and marketing emails (34%).
The Top 10 Companies in Forrester’s Customer Experience Index Vastly Outperformed the S&P 500
Laura Bassett at Avaya pointed to research conducted by Forrester, which compared the stock market returns of the top 10 companies in its Customer Experience Index (CXi) to the performance of the companies in the S&P 500. The CXi ranks companies based on how much customers enjoy doing business with them. Meanwhile, the S&P 500 (short for Standard & Poor’s 500) is an index of 500 companies selected by a committee, made eligible by specific criteria. Simply put, it’s 500 big companies.
When comparing the stock performance of those two groups over a 5 year period, Forrester found that while the S&P 500 lost 1.3%, the top 10 CXi companies gained 22.5%.
Of course, some would say that comparing 10 companies with high customer satisfaction to a 500 strong stock market index isn’t really much of a comparison. The 10 best are the 10 best but the S&P 500 is an average of 500 – their top 10 are dragged down by the other 490. A more in-depth study would be interesting, say the top 50 CXi companies listed in the S&P 500 vs. the top 50 S&P 500 companies not ranked (or ranked at the bottom).
I think there is a lot to take in here. Just because it works for Gary doesn’t mean it’ll work for everyone, but we can all pick and choose what works for us. At the same time, the fact that this data works for him does say something because of the level he is at. Thank you to Gary for being a vocal supporter of the online community profession.