Archive for October, 2007

Net Promoter Debate

The Net Promoter has been hot recently. Simple to measure it is a loyalty score which is supposed to signal future sales and correlate to value creation. Defined, it is a simple sum of the number of people that promote your brand minus the number of brand detractors. Companies that use it, like it because it is straightforward and requires just one question to their customers – “Would you recommend us to a friends or colleague?”

Originally conceived by loyalty consultant Fred Reichheld and supported by Bain and Satmetrix it has whirlwinded into the minds of CEOs with companies such as GE and American Express using it and apparently on conference calls with analysts. Although it is intuitive that knowing recommenders and detractors has value, it does seem to ignore other factors for market success or value creation. What about slightly important issues such as context of recommendation, pricing, market timing, supply, competition, availability of substitutes, advertising etc. What is seems to suggest is that all of these factors cancel each other out or are set to zero?

Although I am sceptical of the value of the measure in isolation, I go along with the hypothesis that identifying recommenders and detractors is important (in our case finding this in an online context). However over at IPSOS-MORI, they are completely dismissive. Once they put the score to scientific scrutiny (with help from Vanderbilt University,Norwegian School of Management & Koc University) they showed the measure to be largely spurious and even less predictive of future value than the American Customer Satisfaction Index (ACSI) – this is especially controversial as Reichheld states their examination shows that ACSI has no correlation with firm growth…

Conclusions from “The Net Promoter Debate” - an interview with Tim Keiningham Senior VP, Ipsos loyalty (May 2007). Full version downloadable here.

1. “Simple put, we found no support for the assertions attributed to Net Promoter. Our research clearly shows that claims of Net Promoter’s superiority in predicting firm growth, or in predicting customers’ future loyalty behaviours are false. Based on the evidence we’ve compiled, it’s hard to imagine a scenario where Net Promoter would be classified as a superior metric”

2. “As complaints about the effectiveness of Net Promoter have begun to surface, supporters argue that detractors are missing the point; Net Promoter is simple and gets companies to focus on customers. That may well be true, but the research used to support Net Promoter focused exclusively on growth… in particular, Net Promoter’s superiority in linking to growth. Few managers would adopt a metric just because it is simple. Simple and wrong is simply wrong.”

OK, so this debate is hardly new news, with plenty of heated discussion around the topic, but it is scary if the conclusion is that a score presented at calls with analysts is proven to be baseless. In my opinion it should at least get a more thorough review regards predictiveness and although companies should measure who is recommending them (and why) and who detracts them (and why) it may be prudent not to rely too much yet on just one number…

Entrepreneurship video

While doing research for Financial institutions and social media I came back to the Fortis site for European entrepreneurs. There is an excellent, open interview with co-founder of French outdoors advertising company Athem, Christophe Bourgois. He explains aspects of entrepreneurship and his personal experience. My favourite line from him was “An ass walking goes further than ten intellectuals sitting down…”. His experience building a snow park, the ups and downs, and a fortuitous storm is also a key learning…

Social networks, the niche and the niche/niche

Just looking at the growth of social networks in the last months. Facebook having hit Europe with tsunami force, it has given me a chance to get together with some old friends. A lot of these friends had no other social media involvement until this year. Of course the sheer weight of traffic and demographically friendly information will be a boon for Facebook owners and everyone knows that Myspace is “raking it in” after Google’s rather large financial commitment. I also notice that Europe site Netlog is already making money (not bad for a young company based right here in Belgium) but all of these sites are focussed on the everyone market and if you get that right the potential audience is in the 100s of millions.

Can companies with a more niche focus make it? Can they get the people through the network that make the advertising bucks follow, and let’s face it, most networks start for this purpose. Looking at the travel industry shows that companies are already trying to make this successful. I presented at a few travel events this year and there is a lot of “social” activity in this vertical. WAYN appeals to a younger group of travellers that share their trips, their CEO was very optimisitic about their chances. But still the audience for travel is in the tens of millions (It supports Trip Advisor and group of other recommender/social sites). What gets me really interested is the “niche niche” sites. My friends at Chicks Away are aiming at a further focussed female traveller market. The point here is that even if the audiences are relatively smaller they will have more loyal users. This loyalty, which is a top issue for future social networks, should result in more longer term advertising relationships and more targeted campaigns.

It makes sense to me that the largest networks will make significant money (this is already clear), there will be 5-10 networks per vertical and a further group of very targeted networks that make it because of the loyalty creating content. These vertical networks will be strongest in gadgets, pharmaceuticals, business/finance, fashion and a few other areas that create the greatest buzz online. Of course plenty of networks will survive with little or no advertising with members chipping in to keep them going but the real growth businesses could be less than 100 globally by 2008/2009…

Blog predictions from 2006

Last year Lynettte and Dan from Isobar asked me for my predictions for blogging in 2007, I gave them 5 and a “just for fun” 5 predictions. Being all about measurement, I wanted to check how I had done. Not too bad I guess, but not everything happens as you predict, probably a good thing, right?

Blog top 5 PREDICTIONS

Prediction: Social web gets more local as critical mass of bloggers and social network users is reached in Germany, Italy, UK, Benelux, and Scandinavia. (France is already there – Skyblog)

YES, SEE EXPLOSION OF FACEBOOK, NETLOG etc.

Prediction: Blog Spam is being dealt with more effectively by search engines

YES (TRENDPEDIA.COM {YES, ATTENTIO MAKES THIS}, GOOGLE) and NO (IS TECHNORATI GETTING BETTER?)

Prediction: The division between online “social media” and online “mainstream media” will largely disappear… Bloggers are journalists and journalists are bloggers…

YES, MORE JOURNALISTS BLOG BUT THERE IS STILL CLEAR DELINEATION BETWEEN A JOURNALIST AND BLOGGER

Prediction: All large European companies are monitoring and measuring their brands in blogs. In 2006 they got to know about it, now they do something about it.

MOSTLY YES (MOST BUZZ GENERATING BRANDS ARE GETTING INVOLVED IN THIS, SOMETIMES WITH AD-HOC SOLUTIONS)

Prediction: Second Life is made available to under-13s. Now an adult refuge, the kids will want to play as well.

NO – BUT SOME OTHER COMPANIES FILLING THE VOID

Quirky top 5 PREDICTIONS :)

Prediction: Loic LeMeur becomes CEO of Sixapart.com and then leaves to become CEO of funky new start-up

YES (OK HE DIDN’T BECOME CEO OF SIXAPART BUT DID START SEESMIC)

Prediction: Le Web 4 doubles entry price and there is still a waiting list for places, but wireless access will be just as bad

CLOSE ENOUGH BUT DON’T KNOW ABOUT THE WIRELESS, HOPE TO FIND OUT IN DECEMBER…

Prediction: Two “Second life” avatars meet in real life and don’t know what to say to each other

YES, ALL OF THE TIME

Prediction: Google change Adsense to Ad cent

HASN’T HAPPENED :)

Prediction: Uncyclopedia takes over from Wikipedia in popularity and article accuracy

HASN’T HAPPENED :) STILL LOVING WIKIPEDIA