don peppers

©2008 Peppers & Rogers Group 1

Dancing Shoes for HoneybeesCustomer Networks and

Empowered Brand Advocates

Don Peppers

©2008 Peppers & Rogers Group

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Customers are social animals

Bees and ants share information about new discoveries for the benefit of the group

Ants leave chemical trails, and honey bees do a complex kind of dance


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The Honeybee “Waggle Dance”

Source: Bienentanz, Gesellschaft fur Kommunikation, Berlin, 2002


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Now suppose you were a food source for bees…

But a bee will only do his dance to tell the other bees about you if he was satisfied with the nectar

Moral: In the absence of communication among your customers, advertising rules

Once your customers communicate with each other, it’s the customer experience that counts

Bright colors and a sweet fragrance can get any exploring bee to take a look


Death by Word of Mouth…

The movie “Bruno” died quickly

"Even if they had a turkey, [studios] used to get two weeks of business before the stink really caught up to the film," according

to LA Times critic John Horn. "Now they have 12 hours."

“People came out of that movie and started texting or Twittering their friends and telling them not to go see it.”

Source: NPR All Things Considered, July 17, 2009

Box office receipts down 40% the first day!


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Screw up, and the “news” will be permanent

You can’t un-Google yourself.- Linda Kaplan Thaler, CEO, Kaplan Thaler Group

“You can't take something off the Internet. That's like trying to take pee out of a swimming pool.”

- Grant Robertson, blog post, May 1, 2007


Competing in the customer-centric dimension

Customer Needs Satisfied

Customers Reached

Maximize the value created by each customer

Maximize the value created by each product

Share of customer

Market share

Product-Centric Product-Centric Marketing Marketing

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Succeeding against your competitors…

Why does a customer choose you instead of one of your competitors?

Two marketing professors asked thousands of business executives this question…

Answers in all industries are remarkably similar:

“...trust, confidence, strength ofcustomer relationships...”


Now consider your customer value proposition

A customer creates the most value for you when you create the most value for him

But when does this happen?

Maximizing the value customers createrequires you to earn their trust


Two requirements for earning customer trust

Intention to act in the customer’s interest

Competence to carry out this intention


Acting in the customer’s interest

How Amazon helps you avoid making mistakes


Acting in the customer’s interest requires understanding what the customer needs

What is the customer’s perspective? How does the customer see things?

Can you speak the customer’s language?

Taking the customer’s point of view


Can you speak the customer’s language?


Incompetence also demolishes trust

Customer thinks: No matter how good their intentions, how trustworthy can an incompetent business really be?


Trust requires “competence with customers”

“You can destroy customer trust all at once with a major problem, or you can undermine it one day at a time, with a thousand small

demonstrations of incompetence.

Either way is effective.”


The need for more trust has boosted business

Lack of trust slows transactions down and imposes frictional costs

When more trust is required, business thrives, as obstacles are reduced

Case in point:


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Networks and “preferential attachment”

Networks don’t pop into existence fully formed, but evolve on a gradual basis

New people join a network one at a time, randomly, and new connections between members are made one at a time

Snowflakes are random networks of ice crystals. They all look similar, but in fact they are each individually unique

The “rule of preferential attachment” means:

Even though each new connection is random…

…each is more likely to occur with those network members who already have more connections

This can create a “cascading” effect in a network


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The cascading effect in a network explains why…

…water buffaloes, geese, and investors all stampede at the same time

…some Web sites or products become highly popular while similar ones languish

…people who are already rich tend to get richer at an even faster rate than others

Income inequality will always increase as an economy becomes more interconnected


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Cascading is inherently unpredictable

In 2007 the Wall Street Journal examined 25,000 user posts on six “sharing and collaboration” Web sites

Netscape has a million collaborating members

But 13% of Netscape’s “most popular” postings were done by a single user

900,000 registered users on Digg, but one third of all home-page postings come from just 30 users

Reddit’s most widely read user, Adam Fuhrer, has millions of page views, including MS Vista reviews

Adam Fuhrer is 12 years old, lives in Toronto with his parents, and attends elementary school


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Effects of customer word-of-mouth are therefore inherently unpredictable

Even if we could know what was in the heart of each individual customer…

…it is still impossible to predict in advance the cascading effects of a social network

Customer word-of-mouth can also cascade


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Because networks are unpredictable…

…it is impossible to “manage” word-of-mouth marketing

Jupiter Research:

Only 15% of viral marketing efforts actually generate positive word-of-mouth!

No matter how delicious your nectar is…

…you have to prepare for that one irrationally cranky bee with a million close friends


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So be careful when you try to generate “WOM”

A cautionary tale: Staples’ word-of-mouth marketing campaign, called Speak Easy

Despite its careful architecture, the press portrayed it as sneaky and manipulative

You can’t manufacture “authentic” word of mouth

If it isn’t spontaneous, then it isn’t authentic!


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The only way to succeed in a networked world:

Build and maintain a reputation for

trustworthiness


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One academic study of customers separated each one’s “referral” value from “spending” value

LTV = CRV + CLV (i.e., referrals plus spending)

What the study found:

Highest spending customers are not always the most valuable in terms of referring others

Analyzing the value of your brand advocates

Source: “How Valuable is Word of Mouth?” Harvard Business Review, October 2007


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At one telecom company

$-

$500

$1,000

$1,500

$2,000

$2,500

1 2 3 4 5 6 7 8 9 10

Va

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Customer Decile

CLV vs. CRV - Telecom Company

CLV

CRV

Source: “How Valuable is Word of Mouth?” Harvard Business Review, October 2007

Most valuable spenders

Most valuable referrers


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DoubleClick identified network “influencers”

Quantitative survey of 6000 Web users found 1000 influencers with certain traits

“People often ask my advice about…”

“I am an expert in certain areas…”

Influencers

Use the Web more than twice as much

Pay more attention to online ads, and want more relevant messages

But also more likely to clear their cookies regularly, as well as fast forwarding through video commercials


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Within social networks…

…influencers and connectors are curious and inquisitive people.

They want to know, but they don’t want to be sold to.


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In 2005, one influential blogger wrote about his bad service experience with Dell Computer

This “Dell Hell” story cascaded online as more people commented about their own bad experiences

Then Businessweek and The New York Times picked it up

Dell’s reputation suffered terribly, and its financial results declined, as well

One year later, a UK consulting firm analyzed the incident and concluded it was not really Dell’s fault at all

Most of the controversy was generated by errors and misinformation, passed along by a few key influencers

And sometimes influencers are just wrong!

Source: Paul Gillin, The New Influencers, 2007


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The human brain is a “prediction engine”

Complex tasks are managed easily, until something violates our expectations…

“Our brain is structured for

constant forecasting.”


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Networks can be intelligent prediction engines, too

Networks of people make collective decisions much better than even expert individuals do

As long as a group includes a diverse set of people making independent decisions

It isn’t the number of experts in the network, but the diversity of perspectives that counts

“Decision markets” predict sporting events and election results with great accuracy

The market for orange futures predicts Florida weather more accurately than meteorologists do


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Where were you at 11:39 am, January 28, 1986?

Four key space shuttle contractors

Rockwell built the Challenger and its engines

Lockheed managed ground support

Martin Marietta manufactured the external fuel tank

Morton Thiokol built the solid fuel boosters

“No clues” on the day of the event, and the actual investigation required six months to complete

But by 11:50 am, Thiokol’s stock was down the most and remained lowest throughout the investigation


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Where were you at 11:39 am, January 28, 1986?

How did the market know?


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Moore’s Law and Metcalfe’s Law

Gordon Moore

Bob Metcalfe


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Networking and computation: Implications

100 million+ Google searches every day How were these questions answered before Google?

Last year 3000 new books were published…

…every day!

In 2009, more new and unique information will be generated than in the previous 5,000 years

The amount of new technical information is roughly doubling every two years

By 2015, it will be doubling every 72 hours!


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In the words of William Gibson:

“The future is already here. It’s just not evenly distributed yet.”


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What we can expect in a PMT-enabled future:

Personal mobile technology (PMT) will dramatically change our lives in three ways:

1. Transacting and doing

2. Connecting and networking

3. Sensing and understanding


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“A mobile phone is just a credit card with an antenna…”

Richard Fairbank

Founder and CEO, Capital One


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Commerce will drive connectivity further

Free SIM card, just apply

43 minutes a month, free

216 texts a month, free

Earn more by clicking ads or buying products

You must be 16 to 24!

How Blyk uses its customers’

social networks


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Portable multimedia players Mobile gaming Automotive infotainment

Entertainment, fun, amusement, games

Voice-verification purchases and payments

Real-time reality shows

Sports events viewed from others’ seats

Coming soon with PMT?


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Location-based services


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Location-based networking

Traffic reports based on actual real-time traffic


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Location-based presence

When you access Facebook or Twitter, don’t you want to know who else is “present”?

PMT allows “presence” and “location” to be combined

Show up at the stadium, or the mall, or the concert, and see which of your friends are there, too

Games involving physical location

Real-time traffic and weather reports, with local comments and details from other users



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Technology will get better and better at enhancing our bodies


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But sensory enhancements will be first


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And sensory enhancements will get better

Looks like a Bluetooth earphone

Actually, a directional microphone

Headcam

Always-on streaming video


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Collective power of sensory inputs

What would “the news” be today without on-the-scene people videoing crimes and disasters?

Now imagine millions of mobile, networked cameras uploading their images, 24/7

How “real” will real-time news actually be?

And soon these images will be sorted and tagged by software that recognizes locations and faces!


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“Cloud sensing” using collective inputs

Earthquakes can be detected using a few thousand individual laptops

Jesse LawrenceAsst Prof of Deep Earth Seismology

Stanford

Source: Economist, Sept 25, 2008


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Network-enhanced understanding Sensory inputs drive our brains – our “prediction engines”

As a network with linked senses, the collective human race is destined to become more intelligent on its own

Ad hoc “smart networks” of connected users anticipating events, collectively

Voice-analysis lie detectors and emotion sensors

Molecular “sniffers” and pheromone detectors



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We are already merging with our technology


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But computers will never be able to do everything


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The real secret to a great brand…

The “Mechanical Turk”

(1769)


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There has to be a person in there…

Your employees need to be

Engaged in their work and

Enabled to accomplish their mission

Your employees are networked together, now

Like customers and honey bees, they communicate with each other

What you want from your employee network:

Self-organization


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So give your honeybees dancing shoes

HP has 40,000 unpaid retiree volunteers!

National Semiconductor provides an online platform for customers to design their own product improvements

Customers generate 20,000 new ideas each month!

3M relies on “lead user” customers to experiment with home-made improvements and upgrades

In B2B: Help your advocates within prospect companies by providing ready-to-use PPT decks

Source: “Under New Management,” New York Times, 26 March 2006


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So give your honeybees dancing shoes

Facilitate networked, moderated reviews of products and services, including your own

Let customers sign up “buddy lists” for checking their friends’ opinions, or just checking in

Provide useful, location-based information to accommodate personal mobile technologies

Above all, have fun, and let your bees have fun!

People like to connect with other people – your corporate mission should be to help them do this!


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And remember: People are just big honeybees!


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Peppers & Rogers Group

Management consultants in customer strategy issues

Magazines, newsletters,research white papers

Offices around the worldNorwalk, London, Brussels, Istanbul, Dubai, Sao Paulo, Singapore, Sydney

To subscribe to the “1to1 Weekly” email newsletter: [email protected]

On Twitter: @DonPeppers

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