Learning From the Dynamics of Viral Marketing

January 25, 2010

In what context do viral marketing strategies work? How do on-line product recommendations develop, multiply, spread and ultimately, dwindle and die? And, can Marketers influence any of this?  

These were important questions posed by Leskovec, Adamic, and Huberman in their 2008 study “The Dynamics of Viral Marketing.” This is one of the few studies I’ve seen to actually study how on-line recommendations grow virally and how this growth impacts purchase behavior throughout the viral network.  

Viral Marketing -- When and Where Does it Work?

 

Admittedly, the study had limitations, notably that it was only four categories, just measured on-line viral activity, and included a discount incentive to help motivate purchase. But, even with these limitations, it uncovered deeper insights into the systematic patterns in knowledge sharing and persuasion online—all of which are of high interest to Marketers.  

What Did the Study Entail?

Lescovec et al. examined an online recommendation network composed of 4 million people who made 16 million recommendations for 0.5 million products. Each time a consumer purchased a book, music, or movie, he or she could  send e-mails recommending the item to friends. The first person to purchase the same item through a referral link received a 10% discount.  

What was Measured

  • When and at what price a product was purchased
  • If the product was recommended to others
  • Whether the recommendation resulted in a subsequent purchase and discount

They then modeled the effectiveness of recommendations as a function of the total number of previously exchanged recommendations.  

Recommendation Networks Grow Slowly Over Time.

 

Important Viral Network Learnings & Insights

Finding #1:  Consumers recommended a large number of products to the same group of people. As a result, recommendation networks became heavily locally-based. For example, in the DVD recommendation network there are 182,000 pairs that exchanged more than 10 recommendations.  

Consumers Tend to Recommend Products to the Same People

 

Finding #2: Recommendation networks centered on a specific product category. That is, the people tended to focus on recommending a particular product category and thus created a “community of interest.” Having said this, most all networks shared recommendations for all types of products.  

Finding #3: Trust, influence, and perception of “spam” affected purchase. As people exchanged more recommendations, the likelihood they would purchase the product increased due to a growing foundation of trust. However, purchase likelihood increased, peaked, and then fell as consumers received additional recommendations for a specific product. A few recommendations built credibility; too many appeared as “spam.”  

Finding #4:  Most recommendation chains didn’t grow very large. In fact, most terminated with the initial product purchase, and even the largest connected networks were very small as a percentage of the total population.  

Recommendation Chains Don’t Typically Grow Very Large

 

Finding #5: 20% of recommendations accounted for 50% of sales. This is not far from the usual 80-20 rule, where the top 20% of products account for 80% of sales.  

What are the ‘Viral’ Implications for Marketers?

1. Identify the “Amplifiers.” Given that 20% of recommendations generate 50% of sales, it’s key to figure out whom the amplifiers are and focus your efforts on them.  

2. Determine Where the “Amplifiers” Congregate. Where do they exchange product information? On what platforms do they consume media? Web behavior can be linked to off-line purchase panels to quantify the effectiveness of recommendations (see “What Really Drives Web Advertising ROI”).  

3. Take Online Recommendation Networks to the next level Through Social Media Marketing. Marketers should explore development of models to measure recommendation systems on Twitter, Facebook, Foursquare, and the larger online arena. Through broader web 2.0 outreach, marketers can quantify consumer engagement on recommendation networks by volume, reach, tone, and source.  

Marketers can optimize paid media and earned media with viral marketing.

 

4. Be Wary of Creating “Recommendation-Fatigue.” A fine line exists between trust and influence in recommending a product and what is widely considered “spam.” Consumer engagement via any online channel must be done with careful consideration of earned media and buzz promotion.  

Viral Marketing: Limitations…

What’s not yet so clear from the research is how to minimize transmission “breakdown” – e.g. how do you minimize the likelihood that a product recommendation is the last one. As the research showed, most viral networks don’t grow very large. Marketers will only invest significant money if they can truly scale viral marketing programs.  

…And Future Opportunities

With the right tools and metrics, marketers can diversify their marketing plans to incorporate viral marketing strategies. The research clearly shows that viral marketing can build unique and niche recommendation networks, bolster consumer engagement, and lift sales.  

And as consumers continue to favor a digitally-based, social network-centric world, it’s critical that Marketers become more expert at viral marketing. Key to this will be identifying amplifiers, focusing on congregation points, leveraging social media opportunities—all without overdoing it. As importantly, Marketers must discover new approaches to spread and scale viral marketing just as effectively as the flu seems to proliferate every flu season.  

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The 5 Truths of TV Advertising Effectiveness

January 18, 2010

Question:  Is TV advertising less effective today than 15 years ago?

If you think you know the answer, read on. Digital and social media are having a transformational effect on Marketing content, organizations and processes. This being said, what’s often ignored is what we know about TV advertising effectiveness in the here and now. 

The 5 TV Advertising Truths

I recently wrote about “The 5 Myths of TV Viewership,” and this post forms a book-end with that earlier one. Like TV viewership, there are many myths about how and whether TV advertising actually works in the current environment. Here are the 5 most prevalent ones–some of which you might find surprising:
MYTH:   TV Advertising Takes a Long Time to Work
TRUTH #1:   Advertising Works Fast, When it Works

Part of the mythology of TV advertising is the “3+” frequency myth. That is, it takes a minimum of 3 repetitions of an ad for it to move a consumer down the purchase funnel. For CPG, this is simply not true. 

The advertising response curve is "convex"—the greatest marginal response is from the first exposures.

Numerous single source tests have demonstrated that when TV ads work, they work quickly to build sales (Rubinson, Journal of Advertising Research).  In fact, the TV ad effectiveness curve is generally convex—e.g. early airings have the most impact, and additional airings decrease in effectiveness (Taylor, Kennedy & Sharp: Journal of Advertising Research). When ads work, they tend to work quickly. 

MYTH:  When TV Ads Work, They Have Large Impact
TRUTH #2:  Ads Generate Small Impact Over Time

The question “What sales impact is my ad having?” has been studied rigorously since the advent of single source data (e.g. BehaviorScan or other panels which track the single variable impact of advertising on purchase behavior). On average, for the CPG categories studied, every $1 invested returns about $.10 (Taylor, Kennedy & Sharp Journal of Advertising Research). The sales return on an invested TV ad dollar has varied between .06 and .14 over the past 20 years (Hu, Lodish, Krieger & Hayati Journal of Advertising Research). And the sales lift is larger in year 2 than year 1. 

MYTH:  DVR’s are Killing Ads
TRUTH #3:  Ad Impact is Similar With or Without DVR’s

Yes, it’s hard to believe, but the evidence suggests that DVR homes have about the same recall of TV ads as non-DVR homes (du Plessis, Journal of Advertising Research). 

 

There’s likely a range of reasons for this phenomenon, including people with DVR’s watching higher engagement shows, DVR’s increasing total TV viewing time, etc. Interestingly, research shows that consumers have the same recall and understanding of your ad when fast forwarded as when viewed in a normal manner, if they have already seen it normally once (du Plessis, Journal of Advertising Research).   

MYTH:  Digital Ads are More Likable Than TV Ads
TRUTH #4:  TV Advertising is More Likable

People assume that because the web is a “lean-forward” medium, ads in this environment are naturally more engaging  and well liked. Research shows that this is not the case. On average, TV ads are liked better than digital ads (Moult & Smith, Journal of Advertising Research). Here I should also say that likability doesn’t necessarily translate to effectiveness. 

MYTH:  TV Ads are Declining in Effectiveness
TRUTH #5:  TV Ads are as Effective Today as 15 Years Ago

This is perhaps the biggest myth of all—that TV ads are losing effectiveness over time. Falling TV ratings and the rise of social media and mobile are hurting TV ad effectiveness, right? Wrong. The research on this topic, across time and geographies, strongly suggests this is not true. As noted earlier, advertising demand elasticities have fluctuated over the past 15 years, but are not declining (Rubinson, Journal of Advertising Research). So, TV advertising is as effective (or ineffective) as ever. 

Future of TV Advertising

So, if TV advertising is still effective, what’s the future of TV advertising? I’d suggest it will be in three areas: 

1. Cross Media – The rise of digital and social media has created numerous new means and forms to advertise and engage consumers. Research clearly shows that the impact of a TV ad is even higher when a consumer has been exposed to your brands ad on the web, and vice versa. Thus, CMO’s should focus on building cross media campaigns that continue to leverage TV as appropriate, but in new combinations with new social media and digital initiatives (for more on social media marketing, see “How the Future Social Web will Transform Marketing”). 

Social media has entered the traditional marketing ecosystem.

2. New TV Ad Forms – As TV evolves from network to networked TV, new advertising form factors are cropping up. iTV is already in place and many brands are experimenting with this new approach. Additionally, Shelly Palmer and others have proposed new ad forms such as speed bumps, telescoping ads, etc. which are being enabled by “networked” TV. Marketers need to keep an eye on these new ad forms and be ready to experiment, learn and adjust. 

3. Earned Media – There is vast opportunity for brands to understand how to use paid media to drive earned media. However, this is a nascent and poorly understood area that deserves much greater experimentation. Nonetheless, understanding how paid media drives earned, earned drives paid, and how they influence one another is fertile ground for future advertising model innovation. 

So, back to our original question: “Is TV advertising less effective than 15 years ago?” The answer is a clear “no,” just as you should answer the question “Shouldn’t we completely forget about TV advertising and just concentrate solely on new media?” 

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Guest Post: What the Best Financial Advisors Can Teach Marketers

January 11, 2010

This is the 4th in a series of periodic guest posts. Libby J. Dubick is President of financial services consulting firm Dubick & Associates. Ms. Dubick has extensive experience in investment product strategy, marketing, and distribution at Goldman Sachs & Co. and Citibank.

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Let’s be honest:  there are probably few Marketers out there who believe financial services has anything positive to teach them these days. There’s no question that financial services marketing has received a good deal of negative press recently. But whether it’s during economic upswings or recessionary times, there’s one aspect of marketing where financial services marketers may be ahead of the curve:  the importance of trust in the selling process.

What Can the Best Financial Advisors Teach Marketers ?

Different Types of Trust

A University of Virginia Darden School of Business study identified two types of consumer trust:

  1. “Competence-based” Trust is the confidence that a company has the knowledge, skills and experience required to provide a service. This is foundational–without it, there’s no chance that a customer will choose a firm. It’s necessary, but not sufficient.
  2. “Benevolence-based” Trust is the belief that a firm will put the client’s interest first. While this might seem self-evident, the recent actions and  behaviors of individuals and firms–e.g. Madoff and pyramid schemes, out-sized bonuses for bankers taking TARP funding, etc.–certainly suggests that this can’t be taken for granted.

Both kinds of trust are required as consumers expect expertise and available knowledge before purchasing a product or service (for more on brand transparency, see  “Why Your Brand Needs to be “Open & Transparent”).

After the market collapse of 2008 and the Madoff scandal, many financial firms and advisors have dedicated the last year to winning back consumer confidence, respect, and trust. And many of these financial advisers did just that–they retained clients and maintained their referral flow, keeping their business healthy and vibrant, despite the most toxic economic environment since the great depression.

What Can All Marketers Learn From The Best Client Advisors ?

  • Listen to Clients  — Smart advisors don’t assume what their clients want or need – they ask them. While this interaction should occur all of the time, it’s particularly important when markets decline. This is basic Marketing 101–staying close to your customer in good times and bad–but always bears reinforcing.
  • Be Responsive — Many advisors made a point of returning all client calls on the same day, and not when it was convenient for them. Research conducted by the Spectrem Group, which surveys high net worth investors, found that responsiveness is the most important service attribute (even more than advisor knowledge or overall client satisfaction). Do your clients find themselves contentedly speaking with a helpful and empathetic employee, or trapped in telephone tree? Reaching out to your customer when times are tough is exactly the time they need it most — and builds trust and confidence.
  • Establishing trust: essential for financial advisors, and marketers.

  • Demonstrate Expertise — When economic times became rocky, financial advisors that sent weekly updates to their clients became their primary source of financial news. Through newsletters, email blasts, and website updates, these advisors were able to shape and color their clients’ knowledge base and perception. As an expert, news about your company or industry should come from you – or you risk allowing others to shape your customers views.
  • Be Transparent — Financial advisors have added pricing and process to their annual reviews to ensure clients understand fees and value added. Too many consumers have experienced a sales promotion that offers very little merchandise, or purchased an item online only to find “handling” charges that inflate the price. Marketers who want their products and firms to be viewed as trustworthy are open and transparent and don’t play those kinds of pricing games.

Financial services firms have a lot of work to do to regain the public’s confidence and trust. Buried within every major financial services firm, however, are financial advisors who have demonstrated to their clients that they can be trusted.

They do this by listening, being responsive, demonstrating expertise, being open and transparent, and asking thoughtful questions. In today’s digitally connected, always on world, where consumers are more empowered than ever, these are actions that all Marketers can benefit from–whether in financial services or any other industry.

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The 5 Myths of TV Viewership: What You Don’t Know Might Surprise You

January 4, 2010

TV remains the dominant medium for content consumption across the 3 screens, even with the growing presence of video content on web and mobile platforms. Yet 5 great myths — urban media legends if you will — about trends in television consumption have managed to become commonly held beliefs, even among senior Marketing professionals. 

5 TV Viewing Myths

And like the proverbial alligator in the New York City sewers, they just don’t want to go away. As the new year begins, it’s time to disentangle the myths and their realities: 

MYTH #1:    Young People are Watching Less and Less TV
REALITY:    Youngsters Have Always Watched Less TV

A positive correlation has always existed between age and TV viewership — older people watch more, younger people less. This is simply a function of time available, as older people have more of it. A recent Nielsen Wire post (Disclosure: I work for The Nielsen Company) showed that adults aged 65+ watch 38% more TV hours per month than those ages 25–34. And, viewers aged 12-24 watch even less.

TV Viewing: Always Lowest Among Younger Viewers

It’s true that children and teens watch less TV each month than adults do —  but contrary to popular belief, they are not replacing TV with the internet for video consumption, but have always watched less TV than older people. Instead, younger consumers are supplementing TV with new web and mobile mediums.  

MYTH #2:  Ratings are Down Due to People Watching Less TV
REALITY: Ratings are Down Due to Network Fragmentation

TV viewership in the U.S. is actually up over the past decade. The number of TV channels in the U.S. has more than tripled since 1990, and the availability of more channels has spread audiences more thinly. As a result, the average channel audience and program becomes smaller, driving lower ratings.

TV Viewing -- More Channels Means Lower Ratings

Accenture research on television viewership shows that over the past year, there has been a 5% increase in viewers watching six or more television channels and a 6% increase in viewers watching eight or more television programs per week. For marketers, fragmentation means that TV program engagement metrics to measure the engagement of viewers with TV programs become even more important.

MYTH #3:  Small Channels Have Highly Loyal Audiences
REALITY: Small Channels Are Small and Disloyal

Small channels face the same “Double Jeopardy” laws of small brands. Fewer people watch small channels and those who watch don’t watch for very long. Even when a small channel has an above average amount of viewers, viewers still only spend a small proportion of their total viewing time on small channels.So, the commonly held belief that you can reach a small, but highly loyal group of viewers on a small channel is false–small channels, just like small brands, are small because of fewer viewers and the viewers they do have aren’t that loyal.

MYTH #4:  Audience Demos Differ by Channel
REALITY:  Demos Are Similar Across Large Channels

Audience demographics vary far less than expected among large network television channels.

Large channels have almost identical demographic profiles. (Data courtesy of Nielsen Media Research, Inc. 2009)

 

Most network content is so broad based in appeal that, apart from obvious exceptions (Kids channels, music channels, etc.) the larger channels and networks do not have significantly different audiences.

MYTH #5:  Programs Have Highly Loyal Audiences
REALITY:  Programs Have Relatively Low Loyalty

Research shows that repeat rates for TV programs are generally low — around 38%. Repeat rates are lowest for comedies and low rated shows (see Double Jeopardy above). For perspective, most CPG companies consider a 50% repeat rate the bare minimum hurdle for a successful new product.While admittedly not a perfect comparison, the reality is that the same exact viewers are generally not watching a program week in and week out. Viewers tune out because of inconvenience, availability, lack of interest, family preferences, and other reasons.

TV Viewing — Myths No More

Research shows TV will continue to reign as the preeminent advertising platform for the foreseeable future. TV viewing habits have proven to be remarkably impervious to social and technological changes and the introduction of new media. In fact, the research that’s been done on the topic suggests that there has been no significant decline over the past 15 years in the effectiveness of TV advertising generating sales lift (see Joel Rubinson blog).

Where Should CMO’s Focus ?

CMO’s should focus on creating media strategies based on the fundamental truths about longstanding TV viewing behaviors. Avoid the popular urban media myths that are so rampant — e.g. TV is dying.

Focus instead on how your brand can use TV advertising in a more integrated way with new digital, social and earned media. This will be the real space for innovation in the future.  After all, those fictional New York City alligators have yet to migrate out of the sewers and into TV land.

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