Report Summary

Companies able to grasp social media’s potential to transform the way organisations function will secure a significant competitive advantage over their rivals. To benefit most, companies should use new forms of valuation to shape their customer engagement strategies.

The emergence of social media has transformed the potential for companies to build deep and profitable relationships with their most valuable customers. However, by and large, the emphasis remains on the potential. Many organisations have experimented with new forms of customer engagement. They have increased sales, reduced service costs improved innovation. Yet few – if any – have moved out of an experimentation stage to implement the kind of enterprise strategy changes necessary to fully realise the business opportunities offered by the spread of social media. Through an exploration of the changing face of customer valuation as social media become more widespread, this report finds:  

• Traditional measures of customer worth are at best incomplete and at worst misleading. How much a customer spends is just one of several ways that clients engage with companies. Applying conventional methods, which identify their most valuable clients by their transaction activity, to the social media arena can wastefully misdirect a firm’s customer engagement, conflating its customers’ monetary value with their referral or influence value. Appropriately understanding this arena can aid businesses by identifying degrees of client influence, gaining a deeper insight into customer preferences and capturing valuable product feedback.   
• Organisations must learn to distinguish between noise and valuable business information in order for novel forms of customer valuation to
  significantly enhance their profitability. Fresh insights can be drawn from the widely distributed customer behaviour that takes place in social media and from the digital trails within company systems by leveraging rigorous analyses. However, many current metrics do not necessarily yield actionable intelligence and tracking to them too closely can potentially lead firms down the wrong track.   
• Senior executives should holistically integrate customer engagement across their company’s departments to capitalise on new insights into customer valuation: this requires organisational flexibility and the relinquishing of some measure of control. To achieve this, social media need to be understood and employed as tools in the service of wider business aims, not siloed as a discrete functional area.    
• Organisations must tread carefully, however, when extracting value from social media engagement, to avoid appearing intrusive or inappropriate to the very customers and social networks with which they are trying to interact. Moreover, a widespread inadequacy of formal governance policies exposes many firms to significant risks as they seek to derive value from social media – not only reputation hazards but legal compliance issues and the protection of their intellectual property.