Influencing the Influencers: Using Social Media to Find Top Customers
Social
media offers an almost endless stream of data for businesses to collect on
their customers. But what good is data without a smart way to apply it? The
latest research from Gad Allon, Wharton professor of
operations, information and decisions, offers a lifeline for firms drowning in
the deep waters of social networks. Allon and his team devised an analytics
model that can help businesses identify high-value customers. The paper,
“Managing Service Systems in the Presence of Social Networks,” was co-authored
with Washington University professor Dennis J. Zhang. He talked with Knowledge@Wharton
about the process.
An edited transcript of the conversation
follows.
Knowledge@Wharton: Tell
us about what you studied and the main questions you examined?
Gad Allon: We’re looking at
the intersection between social networks and service providers, and we’re
asking, “How should service providers think about these social networks?” Now,
social networks have existed for many years. Think about reading clubs, churches
and so on. But the emergence of the new social networks, such as Facebook,
Twitter, Instagram and Snapchat, allowed firms to not only look at what
customers do, but track it over time.
Nowadays, firms have presence on these social networks. But more
importantly, consumers use these social networks to communicate among each
other and tell others about the experiences they had. Why is that interesting?
In the past, we had key opinion leaders who had access to maybe The New
York Times or The Wall Street Journal and wrote there
about food and so on. Now, we have more and more people that have access to,
let’s say, 1,000 followers on Twitter. So, we have to think about the idea of
influence in a more nuanced way.
That’s on the social network side. From a service provider side,
technology enabled firms to micro-target and offer very segmented,
differentiated services to customers. They can offer upgrades based on who you
are, your history, what you’ve done. The combination of the two — the fact that
firms can look at customers not only in terms of the value they bring, but also
how they influence others on social networks — poses very interesting
questions. The main question we’re trying to answer is: How should service
providers allocate scarce resources, whether these are priorities or better
service, to customers based on their value, but also their social network
presence, and how they’re influenced and being influenced by others?
Knowledge@Wharton: What
did you find, and how can your findings be applied in business?
Allon: First, we built a
model of how customers tell others about their services, how they form beliefs
about the quality of the service based on their own experience, but also what
other people tell them. We’ve identified and indexed an idea we call “centrality
of the customer.” The economically adjusted centrality of the customer. It
looks at not only the value they bring, but also how they influence others and
how they are being influenced by others.
The main takeaway is that firms should think about ranking their
customers according to this index. Essentially, a customer should get high
priority, or a better service, if they fit into one of three categories: they
have many friends; they have very few friends, but these friends bring very
high economic value; or this customer himself brings very high economic value,
but is not being influenced by others. If he’s being influenced by others, I’m
better off giving it to one of their friends.
One of the main things that this doesn’t have in it is this idea
of “friends of friends.” As you notice, you need to look only at the closed
circle. That stands in stark contrast to what we know about products or
political opinions. The reason for that comes from the nature of services. The
nature of service means that I’m offering a customer a service only when they
are there, which means that I can provide a very differentiated quality of
service, which means that when the customer comes, I don’t have to really think
about how this information is going to propagate. The moment they bring their
friend, I can then decide on the right quality of service to provide. What it
means is that it makes it much easier for a firm to track and to combine this
information into the decision-making process.
Knowledge@Wharton: How
does this interface with the concept of customer lifetime value? It sounds
similar.
Allon: While many firms
track the lifetime value of their customers, very few firms understand how
their customers interact among themselves on social networks. Should firms
really go and obtain this information? We say that for firms to obtain this
information, this information needs to be valuable. We look at the correlation
between the economic value and social value. Surprisingly, we see that for some
businesses, there is positive correlation. This means the more vocal customers
are also the ones that have higher lifetime value. In which case, it’s pretty
easy. I know that I need to target those with high lifetime value.
However, the situation we see in many businesses is that it’s
negatively correlated, meaning you have highly vocal customers and customers
with very high lifetime value. In this case, knowing the social network and how
it interacts with the lifetime value is crucial. In fact, we’ve obtained data
from Yelp that showed for restaurants that are above-average in terms of their
pricing, they’re very likely to have negative correlation between the two. In
which case, knowing not only the lifetime value, but also the exact way that
your customers interact with their friends, is going to be crucial to obtaining
better value from providing better service to the right customers.
Knowledge@Wharton: What’s
next for this research?
Allon: The main question
we try to answer now is: How should firms think about the difference between
pure information and opinion on these social networks? There are many more
markets for influencers, what we call key opinion leaders, where firms try to
ask these people to tell their friends, tell other people, maybe celebrities,
tell their audience about a product. But what part of that is purely
informational? The goal is to bring additional volume. What part of that is
really trying to shape customers’ opinion?
Clearly, if you hear about a celebrity that got an amazing
service from United, you’ve heard of United before. The question is, can this
information shape your opinion about a firm that you already know something
about? Is it only for an emerging market, or is it for a market that already
exists? What we try to do is, both empirically and theoretically, disentangle
these two effects.
http://knowledge.wharton.upenn.edu/article/using-social-media-to-find-top-customers/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2017-07-06
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