Traditionally, companies look to a customer’s lifetime value (CLV) – a measure of how profitable their relationship with an individual will be over time – but new research from Columbia Business School indicates that traditional CLV measures can sharply underestimate the true value of the connected consumer. Today’s social networks can turn regular people – not necessarily big spenders – into major influencers.
The research was conducted by Columbia Business School professors of marketing, Eva Ascarza and Oded Netzer, both of whom specialize in using data to gain a deeper understanding of customer behavior and models predicting changes in that behavior.
“Marketers are missing out on a substantial piece of the pie if their customer relationship marketing (CRM) campaigns only consider the profitability generated by their targeted customers. CRM campaigns also need to include and measure the changes in activity among those connected to the targets,” said Ascarza.
Firms and industries with network-based products and services such as telecommunications, online video games, or file-sharing services like Dropbox are naturally positioned to take advantage of the connections among their users. But the benefits extend to more traditional industries as well.
“Because there is a social component to many types of goods and services – restaurants, health clubs, golf courses – there is an upside for these types of businesses to also consider the connections of their customers and invest effort into collecting that type of data,” said Netzer.
The study Beyond the Target Consumer: Social Effects of CRM Campaigns was co-authored with Peter Ebbes from HEC Paris and Matt Danialson from the company Amplero. The objective was to investigate whether targeted CRM campaigns that aimed at changing the behavior of specific customers also affected the behavior of the targeted customers’ connections, who were not targeted themselves. The study proved that not only was the behavior of the customers’ connections affected, but also by ignoring their targeted consumers’ social network, marketers are leaving a significant amount of money on the table. Even if the original targets’ responses were lower than projected and generated less revenue, the response from their social network connections can more than make up for it.
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.
About Columbia Business School
Columbia Business School is the only world-class, Ivy League business school that delivers a learning experience where academic excellence meets with real–time exposure to the pulse of global business. Led by Dean Glenn Hubbard, the School’s transformative curriculum bridges academic theory with unparalleled exposure to real-world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School’s faculty and staff members, combined with the accomplishments of its distinguished alumni and position at the center of global business, means that the School’s efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School’s position at the very center of business, please visit www.gsb.columbia.edu.