Digital: Fan/Follower Valuations
Digital marketers frequently discuss tactics for increasing the social engagement of their target audience. Much work has been done to show that Facebook fans and Twitter followers add more than just goodwill to a brand. For example, check out this earlier post. However, many companies have struggled to develop accurate valuations for the consumers that engage socially. Accurately measuring that value is of utmost important to companies like LiveIntent.com and to marketers that need to justify ad spend through ROI.
In a recent post on Marketing Vox, the author attempts to highlight a strategy that could be used to determine fan/follower value. The step- by-step approach to the calculation is as follows (directly sourced from the article):
- Run a promotion and offer a discount for a product.
- Count how many people redeemed that discount.
- Calculate how much profit made from that redemption.
- Determine how many people returned to buy again after the promotion.
- Incorporate core data you already know – in this case, how much the average person will spend over his/her lifetime with it.
- Combine the two to determine how much that newly acquired fan will spend with the company over his/her lifetime.
- Voila – you now have an accurate idea of that customer’s value to you as a business.
However, there are a couple of major flaws with this approach. First, the author fails to recognize that many of these people may have purchased a product without the coupon naturally. They are, in fact, socially engaged with the company. Second, the author fails to differentiate between consumers that join independently v. those that join for coupons. I suspect that one might find that the former are more valuable than the latter. Segmenting on that data point could be a great way to differentiate angel v. demon consumers. Third, by incenting consumers to purchase this product you probably cannibalized the sales of another product; consumers have a relatively fixed demand (with regards to quantity) for TVs, etc. In any case, while the high-level strategy is reasonable, execution and analysis are much more difficult than the article leads one to believe.
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