Doing and Saying: what a WOM study from HBR can tell us about understanding customer groups

HBR_WOM_formulas_v3 formulas for calculating CLV and CRV: copyright of Harvard Business Review / V. Kumar, J.Andrew Petersen, and Robert P.Leone

the joy above are two formulas, developed for an article by V. Kumar, J.Andrew Petersen, and Robert P.Leone published in the Harvard Business Review entitled How Valuable is Word of Mouth?  Mediation is a big fan of planning and incorporating WOM – in a structured way – into brand strategies, and have written a fair bit about it on this blog, so was more than a little happy when Mark H and Guy C sent me the above article.

the awesomeness of the above formulas get the authors to a place where they can compare CLV (Customer Lifetime Value) with CRV (Customer Referral Value), and something really interesting happens – there's no direct correlation.  it doesn't – I don't think – occur to planners often enough that those groups of customers who are valuable because they buy the most are not necessarily the some groups of customers who are valuable because they talk about a brand the most.

so on the basis that CLV added to CRV is not a good predictor of overall customer value, the authors develop and propose a rather useful matrix of low buying / low advocacy bottom left to high buying / high advocacy top right (with the obvious skews top left and bottom right).

…by splitting customer segments out in this way you get a very clear and potentially dual role for a strategy and schedule…  what's the plan (if any) for getting less vocal customers who buy a lot to talk more about your brand?  versus the plan (if any) for getting the less frequent purchasers but most vocal groups of your customers to buy more of what you're selling?

data, data, data … getting it and more specifically understanding and using it to illuminate what's going on in and across brands' customer bases.  better strategies, better plans and better schedules.  what's not to love.  you can get a copy of the report at HBR Reprints.

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