Social network analysis (SNA) is helping companies map and understand the links, associations and possibly behaviors of customers and employees. In the following hypothetical situation, we’ll explore the ramifications of using social network analysis in marketing processes and attempt to discern if SNA is “hype” or a valuable tool.
Suppose you are a marketer at a wireless telecommunications company in Europe. Your company has a deep historical record of customer transactions, products purchased and billing history. Three months ago, your company also finished an implementation of an activity based costing project complemented with a profitability management application that now shows customer spend, margins and life-time value.
Deciding it’s high time to determine which of your customers are creating and potentially destroying value, you start analyzing a key segment of customers.
On one particular day, while finishing the last sip of your Monster energy drink, you’ve zeroed in on customer “Thomas Smith”.
The analysis shows that Mr. Smith is chronically late on his bills. He does pay but often late, and while you appreciate the incremental revenues associated with late charges, you also examine that he constantly uses your call center to ask mundane questions (bypassing the automated systems). You also see from your product analysis that he likes to switch phones frequently, bringing back product just before the thirty day exchange policy expires.
In the initial analysis, it appears Mr. Smith is costing your company a lot of money. Now, as a marketer, should you keep Mr. Smith as a customer, or gently pass him onto the competition?
What might be obvious is in fact a very complex decision, especially when you include social network analysis.
Leading edge companies are using Social Network Analysis to detect and interpret the patterns of social ties within a customer base. Authors Stanley Wasserman and Katherine Faust in their book “Social Network Analysis: Methods and Applications“, mention that SNA is “based on an assumption of the importance of relationships among interacting units. The social network encompasses theories, models, and applications that are expressed in terms of relational concepts or processes.”
In this particular marketing example, social network analysis can be used to determine the “importance” of Mr. Smith, especially in relation to other paying customers.
So let’s get back to the analysis on Thomas Smith. By adding call detail records to your data warehouse, and using social network analysis techniques, you now see that Mr. Smith is a “node” in a pretty complex network of customers. In fact, through a “Fab Five” campaign you concocted a year ago (where customers can call five friends for free in-network), you also see that Thomas is linked to five very profitable customers.
Since Mr. Smith is well connected to five very profitable customers, treating him poorly on his next customer visit, or jettisoning Mr. Smith altogether could lead to the defection of his five closest friends … customers on your network, and customers that pay their bills and produce positive cash flow.
Let us suppose you also had the divine prescience to add net promoter scoring to the mix. Now you notice that while Mr. Smith has trouble paying his bills, he is in fact a “promoter” of your company. He likes your friendly customer service representatives, and also is very generous in telling his friends about your willingness to “bend over backwards for him” to meet his changing needs.
With this analysis in hand, you determine that Mr. Smith isn’t a customer to jettison, and in fact, is probably one that deserves a closer look.
Before we get too caught up in the hype, social network analysis isn’t a savior to marketing decision making.
Social network analysis–done right–requires a lot of data from myriad sources. In the hypothetical marketing example above, simple call detail records are used, but to say–find a terrorist–the National Security Agency of the United States (NSA) would require call detail records, credit card transactions, car rental receipts, and many other digital markers. Even then, the output of the analysis isn’t always accurate.
Accurate data is a key factor in reliable results, but so too are the assumptions used in the model. Is Mr. Smith really that “important”? Should we assume that “associations” are actual close relationships? Should we also assume that if Mr. Smith leaves our company, his “Fab Five” connections will follow?
Social network analysis–hype or help? It’s up to you to decide.
Questions:
* It is well documented that Social Network Analysis (SNA) can be the source of “false positives”. Would you trust the output of SNA to make marketing decisions in your organization?
* Call detail records show Mr. Smith calls five contacts quite often. Does “activity” … in this instance a phone call–denote a “close relationship”?
* SNA can also be used to model employee connections in an organization–in effect to determine the “importance” of an employee? Good or bad idea?
* If you were the marketer in the situation above, what other tools might you use to determine if you should keep Mr. Smith as a customer?
Tags: analytics, Customer Behavior, customer profitability, decision making, influence, Segmentation and Targeting, Social Media, social media strategy, social network analysis
Paul,
Great analysis. When conducted properly, SNA is an invaluable predictor of customer behavior. In addition, when we apply the analysis to inbound channels, we can create great customer experiences, increase customer loyal, and enhance our offers so customers only hear about their wants and needs. Good stuff.
Why aren’t more marketers excited about this technology? It is a driver to excelling in social media and social networking, which we seem to rave about.
Lewis, thank you for commenting on this post, it’s appreciated!
I’ll express an opinion, so please take it as such, but it is my estimation that most marketers are intimidated by technology, when in fact they really shouldn’t be. Technology is one of the primary engines behind great customer experiences.
Social network analysis, for example, isn’t pie in the sky type of marketing analysis. It’s an active concept in very progressive companies that are trying to identify customers likely to churn. It also helps companies understand customer communities better, as well as identifying “influencers” or kingpins who could/should be targeted with key offers.
Great post, Paul. We’re big believers in social network analysis as part of Weber Shandwick’s work with clients to drive Advocacy for their products, brands and ideas. It’s not the only measure, by any stretch, but it helps add critical dimensions to ensure a more holistic and extended view of an organization’s stakeholder relationships. It’s a good counter-balance to the “linear” view that dominates a lot of marketing, which assumes companies have a 1:1 relationship with their customers that is driven by direct marketing, advertising and other communication in isolation. The reality, of course, is that influence is multi-dimensional and can be impacted by many sources — whether they’re Advocates or badvocates or somewhere in between.
Tim, I appreciate that you’ve taken time from your busy day to comment. I liked your point about taking a holistic and extended view of customer relationships. As I mentioned in my post, the choice on whether to acquire, nuture or drop a particular customer is a very complex decision. It deserves a complete and thoughtful analysis in most instances.
Great post, as usual, Paul. Fascinating.
I have to say that we almost never ask a customer to leave unless they are violating our Terms of Service.
That said, this sort of analysis you talk about could be used to figure who a company’s best customers are by taking into account more than just the revenue they generate. If some customers are well-connected but relatively small, they could be worth well more than the revenue they directly pay you. SNA introduces exciting new variables.
Connected customers are usually more powerful than “isolated” customers, here is a true story…
http://is.gd/3toE
Other SNA projects in business…
http://is.gd/75Nj
Enjoy!
Neil, thanks for commenting. As you know, not all customers create value for enterprises, and unfortunately a minority end up destroying value. Identifying, segmenting and then acting upon such information can be a real difference maker in the lean years ahead of us!
Valdis, I have downloaded your whitepaper and intend to read it. Thank you for lending your deep experience and case studies on the topic of SNA.
Paul,
Great post! Having worked with data analysis/BI within the Carrier world this appears to be the Holy Grail. However we may be getting closer to having the tools and power to answer these type of questions.
There are additional factors that can come into play in this scenario. Mr Smith may be a younger customer that is just establishing his earning potential.
Don’t forget the value of the SNA when looking at items such as device usage or value-added services. There could be large potential for cross-marketing.
Thanks for another thought provoking post. It makes me wish to be embedded with this data again.
NWGuy, I set up this scenario as a hypothetical situation, but in reality there are telco’s currently performing SNA. I liked your idea of adding device usage or other metrics to the mix as well.
Thanks for validating this discussion with your real world experience, and for adding your valuable comment.
Yikes, customers destroying value!
It sounds like a horror movie. We need to be looking out for these. They probably lurk in our customer base and we do not even know it. Well, I bet our customer support people know who they are.
Neil, sounds like some analysis is in order for your customer base! And I think you’re just the guy to do it!
I’ve sent our anonymized member database (3,000 entries) to Sandro Saitta, he’s also a member of this community. Feel free to follow up with him.
Have you seen this study on Obama and how he used social networks in his campaign? What do you think of it? http://www.yovia.com/
David, I will download the report, thanks for the link.
Regarding Obama, agree or not with his politics, from a marketing perspective, his 3+ year multi-channel and very complex campaign is one to be admired.
Have you checked out http://www.keyhubs.com?