I was excited to see an article in Brandweek about the value of a conversation titled "Is Talk Cheap? How Cheap?". The article is about how the WOM industry is making efforts towards a standardized ROI metric, or at least a set of standardized metrics.
There are some really important points in this article, and to fully appreciate it I think it's valuable to understand the distinction between the *cost* of a conversation and the *value* of a conversation.
First, some key points from the article:
- putting a value on a WOM conversation is indeed a hot topic and definitely worthy of coverage
- the Word of Mouth Marketing Association, of which ChatThreads is a member, is helping to shape the discussion on this important topic
- when determining how to attribute purchases to a particular initiative it can be challenging, though not impossible, to isolate the effect of WOM especially in light of other influences going on in the market
- there are companies actively working in this space to help define the value of a conversation (by the way, here are links to papers by three of the companies mentioned in this article who have written on this topic: ChatThreads, Satmetrix, and BzzAgent's series of papers and stay tuned for more in the upcoming Measuring Word of Mouth research book by WOMMA).
Second, to appreciate this topic it's important to distinguish between conversation cost and conversation value. Here's the scoop:
One way to calculate the *cost* of a conversation is to divide the amount invested in a marketing initiative by the number of conversations that can be attributed to that marketing initiative (this is the formula that BzzAgent was cited as using in the article and how they arrived at a figure of $0.50 per conversation).
A different formula is required to calculate the *value* of a conversation. At ChatThreads we use the Conversation Value(TM) model which incorporates the conversational reach of a marketing initiative, reported purchase behaviors, and a number of other factors related to customer lifetime value (see the white paper for details). The outcome of this analysis is a single number, like $0.51 per conversation, which means that each time a conversation occurred about a particular brand that can be attributed to a marketing initiative, the bottom-line value to the brand was $0.51 (if the number is negative then the program failed to deliver a positive ROI). Based on our internal analysis we have found that this number can vary widely across product and industry categories, as one might expect.
In the Brandweek article, the figure that is attributed to BzzAgent refers to the average cost of a conversation. The figure that is attributed to ChatThreads refers to the value of a conversation (for a particular lower-involvement CPG product).
To summarize then, the cost of a conversation refers to the resources the company invested to generate those conversations (whether it be media spend, investments to improve the product or customer service, etc.). The cost of a conversation is established by the market, and can be used to set the rate for media spend, for example. The value of a conversation is the bottom-line impact to a brand of a WOM conversation. It is established by research and can be used to measure the effectiveness of particular marketing initiatives and for ongoing tracking of a company's performance.
This is an exciting time for WOM research and I'm appreciative that Brandweek chose to cover this important topic. Stay tuned for more research throughout the upcoming year!
(By the way, if you are a researcher who has something to add to this topic please consider contributing to the special section on Value of a Conversation for the Word of Mouth Marketing Association's research book, Measuring Word of Mouth, Volume 4.)
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