Do you dare to fail?

CBS News:

Logo of CBS News (Photo credit: Wikipedia)

April 16, 2012 12:49 PM

By

Margaret Heffernan

 (istockphoto.com)

(MoneyWatch) Everyone knows that to succeed business needs to innovate. Those who've thought a little more deeply about the subject also understand that anything new is inherently risky - it might work, it might not. ... So innovation has to accept and embrace risktaking and risktakers.

I've worked with numerous companies who understand this and even go as far as recruiting people with a distinctly high tolerance for risk. They ... avidly search out rock climbers, extreme athletes and adventure travelers. And sometimes they even hire them.

But then something strange happens. The risk-loving employee suddenly goes quiet and isn't the daring character everyone had imagined. Instead these new minted employees become model citizens. What's happened?

The usual scapegoat is culture. ... The harder truth is that innovation doesn't just require risk-taking. It requires failure. But how many companies reward that?

The other day I ran into the head of a fantastic school that, every year, runs a Failure Week. The point of the exercise is to encourage the students to dare to fail. Every afternoon, students stand up and discuss - proudly - what they tried, how it failed and what they learned from the experience. The bigger the failure, the bigger the learning, the the greater the kudos. The point of the exercise is to accustom the students to the idea that failure = learning.

In his book, ADAPT, Tim Harford articulates this beautifully, ... He argues that we don't want random failure but well-conceived bold experiments designed to elicit clear learning but not guaranteed to solve a problem overnight. 

...[That's] how Twitter started: It emerged after the initial idea - audio blogging - proved too difficult and unappealing. Or look at Change.org, the campaigning platform that galvanized public support for the parents of Trayvon Martin and public anger about pink slime in school meals. It may look an obvious success story now, but only if you ignore the first three-and-a-half years when it wasn't.

"There was a massive amount of failure," Ben Rattray, founder of Change.org, recalled.

You can't celebrate success only - because when you do, it sends a signal: We want no failure here. ... So hiring risk lovers won't save you because most risk lovers only enjoy calculated risks, not stupid ones. In a success-driven company, they quickly see that daring isn't valued as learning, they go quiet and often go completely.

I'm not surprised companies find this hard to understand and embrace. It's highly counter-intuitive. Why celebrate failure? Unless you can see the learning implicit in it, it feels wasteful. But the best boss I ever worked for failed all the time. He also won numerous international prizes for his work. Yes, there was a connection between the two. And he was lucky to work in an organization that understood that.

© 2012 CBS Interactive Inc.. All Rights Reserved.

• Margaret Heffernan
  >> View all articles
  Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.

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Digital Oxytocin: How Trust Keeps Facebook, Twitter Humming

Internet users--Facebookers most of all--are a trusting bunch. Why? Because we are wired to build relationships around trust.

Fast Company
BY Adam PenenbergToday
[Image: Flickr user Capitan Giona]

The most surprising takeaway from the recent Pew Research Center study, "Social Networking Sites and Our Lives," … [is] the idea that the Internet, in particular social networks, engender trust, and the more time you spend on them the more trusting you become.

Image via CrunchBaseAs the report put it, "The typical Internet user is more than twice as likely as others to feel that people can be trusted," with regular Facebook users the most trusting of all. "…

Image via WikipediaThis has significant implications, because … trust goes to the heart of our economic and social systems. Neuroeconomist Paul J. Zak, a professor at Claremont College and author of the forthcoming book, The Moral Molecule: Vampire Economics and the New Science of Good and Evil, says that trust is the lubricant that makes economic transactions possible. … While it may say "In God We Trust" on every dollar bill, what we are really trusting is that this piece of paper or coin--nowadays often a digital representation on a screen--is worth what we all believe it's worth.

In his own research, Zak and a co-researcher found that nations with higher levels of trust (Sweden, Germany, the U.S.) have stronger economies than those on the other end of the spectrum (the Congo, Sudan, Colombia). …

… We humans are hard-wired to commingle with one another offline and on-, and the web and its platforms like Facebook and Twitter make it more efficient than ever. …

Image via WikipediaZak has traced much of our behavior to oxytocin, a single neuropeptide he's dubbed "the moral molecule" because it appears to shape much of our better nature. Also referred to as the "cuddle hormone," oxytocin is the same chemical that forges that unshakeable bond between nursing mothers and their babies. … [In] a spate of experiments spanning a decade Zak has linked oxytocin to all manner of human behavior--from empathy to generosity to trust. And when we believe that someone trusts us, we trust them back, and this alters our behavior: It makes us more generous, for one. Ultimately, oxytocin is, Zak says, the "social glue" that adheres families, communities, and societies while simultaneously acting as an "economic lubricant" that enables us to engage in all sorts of transactions.

Image via CrunchBaseI wrote about Zak last year in a feature titled "Doctor Love" for Fast Company, and in addition to participating in a series of studies he conducted, I had him gin up one just for me. … I theorized it would also affect a person engaging on Facebook and Twitter. … So Zak took my blood, I got on Twitter for 10 minutes, then he took it again, then compared to the two samples. In those intervening 10 minutes my levels of oxytocin had risen 13.2%--as much as a groom at a wedding. (My wife: "That's pathetic.")

Subsequently Zak traveled to Korea and redid my tweeting experiment, this time with three journalists using Facebook. The result: They all demonstrated increased levels of oxytocin. …

Image via Wikipedia… [The] Pew study found "little validity to concerns that people who use [social networks] experience smaller social networks, less closeness, or are exposed to less diversity." On the contrary, Americans "have more close social ties than they did two years ago," and "are less socially isolated."

And it all comes down to trust. For this, you can thank the oxytocin in your brain.

Adam L. Penenberg is a journalism professor at NYU and a contributing writer to Fast Company. Follow him on Twitter: @penenberg.

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Forget Your Elevator Pitch — What's Your Dumbwaiter Pitch?

Image via Wikipedia

Harvard Business Review
12:01 PM Tuesday April 20, 2010
…Today, elevator pitches are the economic equivalent of speeches at a beauty pageant: predictable, often vapid, always bland.

…Try a Dumbwaiter Pitch instead. … Its goal? To strip an organization right down to its bones, and see how compelling it really is.

What's the one-word description of your business? …The most common answer is: hmming, hawing, and silence. The second most common answer is an imaginary benefit. The third most common answer is a raw product… . All three answers reveal a business with whose foundation, its economic concept, is confused, muddled, and perhaps even nonexistent. …

What's Twitter's Dumbwaiter Pitch? I'd say: "alerts." And that's powerful in a roiling, seething world where risk and volatility are vastly amplified. Information that alerts you to possibilities and opportunities matters more than ever before. … Twitter is one of the few companies in the economy with a solid, compelling Dumbwaiter Pitch.

In simplicity lie the seeds of explosively powerful propositions. In complexity, only confusion, incoherence, and uncompetitiveness.

Reductive, simplistic, restrictive? Think again. Nearly every disruptive business, in fact, has a Dumbwaiter Pitch as pure, simple, and powerful as Niagara Falls. Google? Search. Apple? Beauty. Lego? Creativity. …
The Dumbwaiter Pitch is so powerful because it cuts through the obfuscation, glad-handing, and double-talk … and asks them to get straight to the real point. And, of course, like the sharpest of scalpels, it reveals where there never was any meat on the bones to begin with.

Only businesses with a razor-sharp, laser-focused vision — and a disruptive economic concept — can craft a Dumbwaiter Pitch. Do you have what it takes? What's the one-word description of your business?

Umair Haque

Umair Haque is Director of the Havas Media Lab and author of The New Capitalist Manifesto: Building a Disruptively Better Business. He also founded Bubblegeneration, an agenda-setting advisory boutique that shaped strategies across media and consumer industries.
Umair Haque

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Social Networking Affects Brains Like Falling in Love

Fast Company

By: Adam L. Penenberg
July 1, 2010

Photographs by Bryce Duffy

Neuroeconomist Paul Zak has discovered, for the first time, that social networking triggers the release of the generosity-trust chemical in our brains. And that should be a wake-up call for every company.

Enlarge
Photographs by Bryce Duffy
Enlarge
Photographs by Bryce Duffy

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The essence of affection. The cuddle chemical. In other words, oxytocin.
Cover via AmazonThis hormone, produced daily by your brain …, is the reason … I have volunteered … to be a test subject for Dr. Love, aka Paul J. Zak, a professor at Claremont Graduate University who popularized "neuroeconomics," an emerging field that combines economics with biology, neuroscience, and psychology. … While best-selling behavioral economists such as Dan Ariely (Predictably Irrational) and Steven D. Levitt (half of the Freakonomics duo) ponder how we make economic decisions, Zak wants to figure out why we do what we do.

In a series of studies spanning nine years, Zak has changed our understanding of human beings as economic animals. Oxytocin is the key (and please, do not confuse the cuddle drug with the painkiller oxycontin). …

Image via Wikipedia… As Zak and others deepen their study of oxytocin, we may better understand why people with friends live longer and get sick less, and why we are compelled to be social animals online and off. If these changes apply in the world of social media, the implications for business -- for every brand, company, and marketer trying to understand the now intimately networked world -- could be significant. Yes, there may be a dark side to all this: What if corporations come to understand human behavior and its root mechanisms so well that they can manipulate our biochemistry to trick us into buying more? …

EXPERIMENT No. 1:

In Which I Learn Trust by Issuing Ultimatums
… The first oxytocin experiment that Zak used, customized for him by former student William T. Matzner and University of Pennsylvania professor Rob Kurzban, was a variation of the "ultimatum game," a staple of economics research. There are many versions, but the general idea is that a first person is given a certain amount of money and told to send some portion to a second person (separated by computers, neither knows the identity of the other). The second person must then decide whether to accept or reject the first's offer. For example, let's imagine that player 1 proposes to divide $10 by offering $3 to player 2. If player 2 accepts the three bucks, they both get to keep their share of the money. If she rejects the offer, neither gets anything.

Image via WikipediaZak juices his trust-game studies by introducing oxytocin. He stimulates my cuddle hormone with a sad video of a toddler named Ben who has a brain tumor, which I watch while ensconced in the MRI chamber, my neurohormonal releases measured every second… Then, while still in the MRI, I play the ultimatum game, clicking through choices 30 different times. Sometimes I offer $7, and sometimes I offer $2. I get annoyed when I receive offers as low as $1, which I reject. …[The] video-induced oxytocin does the trick: My offers are 33% more generous than people who watched a less-wrenching video. And the generosity doesn't hurt my bottom line. Over the course of the game, I make $73, an average score. …

This fits perfectly with Zak's general findings, which show that the more money test subjects received, "the higher their oxytocin levels; the higher their oxytocin levels, the more they reciprocated." I had become part of a virtuous cycle, without even trying.

EXPERIMENT No. 2:

Image via WikipediaIn Which I Learn Charity by Snorting Oxytocin
…Late last year, Zak attended a wedding in England and took blood samples from the wedding party before and after the ceremony. Predictably, the bride had the highest levels of oxytocin, followed by her mother. But the groom also experienced a rise, and immediate family measured higher levels of oxytocin than friends.

…Not surprisingly, studies like these have their critics. Predictably Irrational's Ariely, a Duke University economics professor who is a friendly rival of Zak's, believes neuroeconomics has been "overhyped" because "if you look at the amount of money invested into it, there has not been a very good return." He's particularly critical of studies that rely on MRIs, which he says are not definitive. Of Zak's work on oxytocin, however, Ariely is "a big fan," since it "allows you to see quite clearly what the mechanism is" that drives human behavior….
Our second experiment addresses oxytocin's broader role. I gather in a room with a dozen undergrads, all snorting a substance not sold at your local drugstore. … Some are inhaling a placebo, others oxytocin, both administered via identical inhalers. Zak ensures I get oxytocin, so I hoover 40 drops up my nose in 5-drop increments per nostril. …
We then view a series of public-service announcements. The videos, which are real PSAs that ran in the United States and Europe, dramatize such things as the dangers of taking drugs and drunk driving, and the devastation of global warming. … I watch almost a dozen, and after each one am asked a question that tests whether I paid attention. If I answer correctly, I get paid. As a follow-up, I'm asked if I'd like to donate a portion of the proceeds to the organization that sponsored the ad.
The experiment is ongoing, and the data are far from complete. I donated 33% more money to the PSA charities than the placebo group. … Zak's initial findings indicate that folks infused with oxytocin donated an average of 48% more to charity than those administered the placebo. This will be the first study showing that oxytocin increases generosity to charitable organizations, and not simply to a particular individual. And if we can be induced to give more to a charity, well, it's not that big a step to being induced to give more to a corporation, or a political party, or even a country. The possibilities are both thrilling and frightening….

EXPERIMENT No. 3:

In Which I Learn to Love by Tweeting Madly
Image via CrunchBaseZak greets me at his lab near the Claremont campus, … [A] nurse …draws blood. Then she and Zak leave me alone. I pull up TweetDeck on my laptop and get to work. The question is simple: Will social networking increase my levels of oxytocin? Will my brain react to tweeting as it reacts to, say, a dinner conversation with good friends?

I start tweeting and alert my followers that I'm engaging in a Twitter experiment with a neuroeconomist. I update a previous remark I made about the GPS in my rental car and how the automated voice gets uppity whenever I miss a turn. Responding to a woman I've never met, I type in the language of 140-character Twitterese: "I want Mr. T GPS voice! How abt James Earl Jones? He says turn left you *turn* left. Or Norah Jones? Plaintive directions." Another person I've never met asks my opinion of an infamous journalist, and I answer as best I can. Responding to a former editor, I joke about overweight tourists in Speedos grabbing plum spots on Greek beaches. Some of my "tweeps" respond to my post about the experiment, and I field questions from a couple of New York University students I've taught. And then the nurse returns to take some blood, ending the experiment. I leave wondering whether anything of value could come of such a short, typical, and somewhat dull dip into my tweet stream.
Yet six weeks later, when Zak shares the results with me, my blood tells a more dramatic story. In those 10 minutes between blood batches one and two, my oxytocin levels spiked 13.2%. That's equivalent to the hormonal spike experienced by the groom at the wedding Zak attended. Meanwhile, stress hormones cortisol and ACTH went down 10.8% and 14.9%, respectively. Zak explains that the results are linked, that the release of oxytocin I experienced while tweeting reduced my stress hormones. If that's the case, says Zak, social networking might reduce cardiovascular risks, like heart attack and stroke, associated with lack of social support. But there's even more to our findings. "Your brain interpreted tweeting as if you were directly interacting with people you cared about or had empathy for," Zak says. "E-connection is processed in the brain like an in-person connection."
Other studies support this idea. One Australian experiment discovered that people with a sizable network of friends were less likely to pass away over a 10-year period than those with a small circle of friends – … Another study showed that people with friends get sick less often than those without. … Two researchers from Washington University in St. Louis scanned the brains of fiction readers and discovered that … their brains reacted as if they were actually living the events they were reading about.
Taken with my Twitter test, all of this research reinforces the idea that we are biologically driven to commingle, and suggests that online relationships can be just as real as those conducted offline.
According to Zak, our findings are potentially "huge" … If I'm representative …, then social networking may increase a person's oxytocin levels, thereby heightening feelings of trust, empathy, and generosity. …
… "One day, a company might be better off asking not what its margins are, but what its trust factor is," says Brian Singh, founder of Zinc Research, a social media and marketing research firm in Calgary, Alberta. Singh has begun framing the formation of connections via social networking as a form of "digital oxytocin." The idea is that if businesses wish to thrive in our interconnected world, where consumers' opinions spread at the speed of light, they must act as a trusted friend: create quality products, market them honestly, emphasize customer care….
Several pioneering companies, sensing that social media might build trust, have experimented in interesting ways. Zappos publishes a stream of its employees' tweets as a way to interact with consumers. JetBlue has 1.6 million followers on Twitter, where its bio states: "Have a question? Follow us and let us help!" But some efforts have gone famously awry. In one fiasco, Motrin released an online ad implying that a mother carrying her baby in a sling risks backache by buying into a fad, which generated much anger on mommy blogs. Nestlé created a set of online fan pages but then threatened to delete negative comments that altered the company's logo, fanning a conflagration of negativity. Southwest Airlines, famous for being direct and honest with its customers, got nailed when Clerks director Kevin Smith tweeted about the captain who tossed him off his flight, claiming that Smith, due to his size, was a safety risk. Two Domino's Pizza employees from North Carolina posted a video on YouTube where one of them stuck a sliver of grated cheese up his nose and put it on a sandwich. It took Domino's 48 hours to react, and by then the damage was done. (Domino's, of course, has rebounded quite nicely thanks to its new and well-promoted pizza recipe: Sales are up 14% in the first three months of 2010. Which means it is possible to overcome social-media migraines.)
The speed with which social media can affect a company's "trust factor" may lead to a new focus on what Richard Laermer, CEO of RLM Public Relations in New York and author of several books on viral marketing, calls "horizontal growth." In other words, "instead of pushing for new customers, focus on your current customers," he says. "If they have a positive interaction with customer service, or love your product, they'll tell other people and do your marketing for you, which will attract new customers."…
In a world of social networks, then, this much seems clear: Companies that can connect with us and raise our oxytocin levels should prosper. Those that can't, won't.
… As Zak walks me to my car, parked by his Claremont lab, I ask if it really would be possible to manipulate people by, say, releasing oxytocin into the air of a department store to prod them into spending more?
Nah, he says. You'd have to absorb a lot of oxytocin, … The Food and Drug Administration would get involved if companies tried this. Besides, there are far more effective ways to raise someone's oxytocin levels. …
Contributing writer Adam L. Penenberg is the author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves.

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7 Reasons Why Small Businesses Should Take a Look at Foursquare

Small Business Marketing Blog from Duct Tape Marketing
posted by: John Jantsch

Mon Jan 04, 2010
…The idea behind location awareness is that people will use the GPS capabilities in today’s mobile devices to check-in, tweet, review, and refer and add their location while doing so. Today I would like to talk about what I think is one of the first location aware services that is already beginning to impact small business.

Image via WikipediaThe service is called Foursquare and while it’s receiving lots of hype from the bleeding edge social media types as the next Twitter, it may be totally foreign, or at least nonsensical, to many small business owners. While I want to use this post to introduce you to Foursquare, keep in mind that my primary point of view is that of the small business marketer and what I believe Foursquare has to offer, and not really the Foursquare user per se.

Having said that I do first feel the need to give you an overview of Foursquare.
The big picture
Foursquare is a location enabled service that allows users to “check in” when then stop at a bar, restaurant, park, bookstore or really anywhere they want to list. The service further allows users to connect with friends and alert them of your location if you choose. …  Foursquare also turned this activity into a game: a point that I believe led to its current role as a leader in this evolving space. …
Foursquare is self-described as – “Think: 50% friend-finder, 30% social cityguide, 20% nightlife game.”
Users compete with check-ins to earn points for their city, badges for various types of activity and to become mayor of frequented spots. …
Users also add and update information about businesses, write tips and make suggestions for anyone to consume. …

Image via CrunchBaseFoursquare is set-up around cities and enhances the kind of neighborhood, hyper-local, branding and community building that is so important to local type small businesses. The service is currently available in a growing list of cities and is driven by iPhone, Android and Blackberry apps. Check out the Foursquare help page for some more detail.

… I’m not ready to suggest that every business rush to Foursquare as the next red hot thing, not yet anyway, but I do want to point our a handful of reasons that many small business should start paying attention to this growing force, even if you don’t get it.
Below are seven reasons why I think Foursquare may hold promise for small business
1) Hyper local, tech savvy, evangelists – Foursquare user are people that really love their neighborhoods, getting out and evangelizing the businesses they love. This tech savvy, early adopter is exactly the kind of consumer business should kill for as they often influence large circles. Embracing Foursquare and giving these tech leaders the tools to promote your business is just plain smart business.
2) Online offline – …Foursquare is yet another way for local business to use the efficient online tools to drive more in-person, offline activity. People are physically checking in to your business and talking about online in what can turn into a tremendously effective one-two punch.

Image via Wikipedia3) Make offers – On a recent trip to Chicago I checked into my Marriott on Foursquare and immediately received notice that three nearby businesses had a special offer for me. … You can visit the Foursquare business page to get your business signed up. …

4) Track and reward – Foursquare’s gaming functionality allows businesses to create special promotions for mayors and badge earners and in effect setting up a competition among their most loyal fans. The image below comes from a special promotion hosted by blynk organic, a restaurant in North Carolina. By creating and communicating Foursquare’s tools and platform you can begin to educate customers and create Foursquare advocates for your business. Some bars and restaurants routinely promote free offers for mayors.

5) The power of making it a game – One of the most intriguing aspects of Foursquare is the game. It’s amazing what some folks will do in order to win a game, come in first or, in this case, be the mayor of a popular spot. …
6) Automated CRM data – … Every business should find ways to capture everything they can about a customer. Obviously email is a great tool and can be very effective for follow up marketing. … Foursquare can provide business owners with check-in stats for users. What this means is that the customer that comes in every day can now be tracked and even incentivized to get a free cup of coffee for every tenth check-in. It’s like the digital/social version of the loyalty card. …
7) Sync with Twitter and Facebook - Like all good social media platforms Foursquare understood the need to integrate with platforms that others already use. Foursquare users have the option to tweet or add a Facebook status update every time they check-in. What this means is that a Facebook user with a few hundred friends might expose your business by way of a Foursquare check-in to thousands of Facebook walls. While many of those folks on Twitter or Facebook may not be in your part of town, I’m thinking it’s still a pretty good thing for the brand.

While I’ll caution again that Foursquare might not be the highest priority for many businesses, it’s something that is coming and will be put to use by businesses outside of the retail and entertainment world (I can already imaging how real estate agents could use this.) Businesses that get how to use, stimulate adoption and promote Foursquare now could hold a significant advantage when and if Foursquare becomes the next Twitter.
Sidebar: Look for Facebook or Google to acquire Foursquare before the year is over.
Image credit: Joshua Kaufman

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A new way to measure word-of-mouth marketing

Assessing its impact as well as its volume will help companies take better advantage of buzz.

McKinsey Quarterly
APRIL 2010 • Jacques Bughin, Jonathan Doogan, and Ole Jørgen Vetvik

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Consumers have always valued opinions expressed directly to them. … As consumers overwhelmed by product choices tune out the ever-growing barrage of traditional marketing, word of mouth cuts through the noise quickly and effectively.
Indeed, word of mouth¹ is the primary factor behind 20 to 50 percent of all purchasing decisions. … And its influence will probably grow: the digital revolution has amplified and accelerated its reach to the point where word of mouth is no longer an act of intimate, one-on-one communication. …
As online communities increase in size, number, and character, marketers have come to recognize word of mouth’s growing importance. But measuring and managing it is far from easy. … Understanding how and why messages work allows marketers to craft a coordinated, consistent response that reaches the right people with the right content in the right setting. …

A consumer-driven world

… As consumers have become overloaded, they have become increasingly skeptical about traditional company-driven advertising and marketing and increasingly prefer to make purchasing decisions largely independent of what companies tell them about products.
This tectonic power shift toward consumers reflects the way people now make purchasing decisions.² Once consumers make a decision to buy a product, they start with an initial consideration set of brands formed through product experience, recommendations, or awareness-building marketing. … [Consumers] gather product information from a variety of sources and decide which brand to purchase. Their post-sales experience then informs their next purchasing decision. While word of mouth has different degrees of influence on consumers at each stage of this journey (Exhibit 1), it’s the only factor that ranks among the three biggest consumer influencers at every step.

Exhibit 1: Word of mouth is influential throughout the consumer decision journey.
It’s also the most disruptive factor. Word of mouth can prompt a consumer to consider a brand or product in a way that incremental advertising spending simply cannot. … In the mobile-phone market, for example, we have observed that the pass-on rates for key positive and negative messages can increase a company’s market share by as much as 10 percent or reduce it by 20 percent over a two-year period, all other things being equal. This effect alone makes a case for more systematically investigating and managing word of mouth.

Understanding word of mouth

While word of mouth is undeniably complex and has a multitude of potential origins and motivations, we have identified three forms of word of mouth that marketers should understand: experiential, consequential, and intentional.

Experiential

Experiential word of mouth is the most common and powerful form, typically accounting for 50 to 80 percent of word-of-mouth activity in any given product category. It results from a consumer’s direct experience with a product or service, largely when that experience deviates from what’s expected. …

Consequential

… The most common is what we call consequential word of mouth, which occurs when consumers directly exposed to traditional marketing campaigns pass on messages about them or brands they publicize. …Marketers need to consider both the direct and the pass-on effects of word of mouth when determining the message and media mix that maximizes the return on their investments.

Intentional

A less common form of word of mouth is intentional—for example, when marketers use celebrity endorsements to trigger positive buzz for product launches. …
What marketers need for all three forms of word of mouth is a way to understand and measure its impact and financial ramifications, both good and bad.

Word-of-mouth equity

A starting point has been to count the number of recommendations and dissuasions for a given product. There’s an appealing power and simplicity to this approach, but also a challenge: it’s difficult for marketers to account for variability in the power of different kinds of word-of-mouth messages. … In fact, our research shows that a high-impact recommendation—from a trusted friend conveying a relevant message, for example—is up to 50 times more likely to trigger a purchase than is a low-impact recommendation.
To assess the impact of these different kinds of recommendations, we developed a way to calculate what we call word-of-mouth equity. … By looking at the impact—as well as the volume—of these messages, this metric lets a marketer accurately test their effect on sales and market share for brands, individual campaigns, and companies as a whole (Exhibit 2). That impact—in other words, the ability of any one word-of-mouth recommendation or dissuasion to change behavior—reflects what is said, who says it, and where it is said. It also varies by product category.

Exhibit 2: By looking at impact as well as volume, marketers can measure the effects of word-of-mouth messages more accurately.

Image via WikipediaWhat’s said is the primary driver of word-of-mouth impact. Across most product categories, we found that the content of a message must address important product or service features if it is to influence consumer decisions. In the mobile-phone category, for example, design is more important than battery life. … Marketers tend to build campaigns around emotional positioning, yet we found that consumers actually tend to talk—and generate buzz—about functional messages.

The second critical driver is the identity of the person who sends a message: the word-of-mouth receiver must trust the sender and believe that he or she really knows the product or service in question. … About 8 to 10 percent of consumers are what we call influentials, whose common factor is trust and competence. Influentials typically generate three times more word-of-mouth messages than noninfluentials do, and each message has four times more impact on a recipient’s purchasing decision. About 1 percent of these people are digital influentials—most notably, bloggers—with disproportionate power.
Finally, the environment where word of mouth circulates is crucial to the power of messages. Typically, messages passed within tight, trusted networks have less reach but greater impact than those circulated through dispersed communities—in part, because there’s usually a high correlation between people whose opinions we trust and the members of networks we most value. …
Word-of-mouth equity empowers companies by allowing them to understand word of mouth’s relative impact on brand and product performance. … When Apple’s iPhone was launched in Germany, … its share of word-of-mouth volume in the mobile-phone category—or how many consumers were talking about it—was about 10 percent, or a third less than that of the market leader. Yet the iPhone had launched in other countries, and the buzz accompanying those messages in Germany was about five times more powerful than average. This meant the iPhone’s word-of-mouth equity score was 30 percent higher than that of the market leader, with three times more influentials recommending the iPhone over leading handsets. As a result, sales directly attributable to the positive word of mouth surrounding the iPhone outstripped those attributable to Apple’s paid marketing sixfold. …

Harnessing word of mouth

The rewards of pursuing excellence in word-of-mouth marketing are huge, and it can deliver a sustainable and significant competitive edge few other marketing approaches can match. … [The] incremental gain from outperforming competitors with superior television ads, … is relatively small. That’s because all companies actively manage their traditional marketing activities and all have similar knowledge. With so few companies actively managing word of mouth—the most powerful form of marketing—the potential upside is exponentially greater.
The starting point for managing word of mouth is understanding which dimensions of word-of-mouth equity are most important to a product category: the who, the what, or the where. In skincare, for example, it’s the what; in retail banks, the who. Word-of-mouth-equity analysis can detail the precise nature of a category’s influentials and pinpoint the highest-impact messages, contexts, and networks. …
… Harnessing experiential word of mouth is fundamentally about providing customers with the opportunity to share positive experiences and making the story relatable and relevant to the audience. … [Consumers] are more likely to talk about a product early in its life cycle, which is why product launches or enhancements are so crucial to generating positive word of mouth. Buzz also can be sustained after launch: …
… To create positive word of mouth that actually has impact, the customer experience must not only deviate significantly from expectations but also deviate on the dimensions that matter to the customer and that he or she is likely to talk about. For instance, while battery life is a crucial driver of satisfaction for mobile-handset consumers, they talk about it less than other product features, such as design and usability. …
Managing consequential word of mouth involves using the insights provided by word-of-mouth equity to maximize the return on marketing activities. …. In fact, McKinsey research shows that marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising in categories as diverse as skincare and mobile phones.
Two things supercharge the creation of positive consequential word of mouth: interactivity and creativity. … One example of a company successfully harnessing this power is the UK confectioner Cadbury, whose “Glass and a Half Full” advertising campaign used creative, thoughtful, and integrated online and traditional marketing to spur consumer interaction and sales.
The campaign began with a television commercial featuring a gorilla playing drums to an iconic Phil Collins song. … The concept so engaged consumers that they were willing to go online, view the commercial, and create amateur versions of their own, triggering a torrent of YouTube imitations. Within three months of the advertisement’s appearance, the video had been viewed more than six million times online, year-on-year sales of Cadbury’s Dairy Milk chocolate had increased by more than 9 percent, and the brand’s positive perception among consumers had improved by about 20 percent.
Intentional word-of-mouth campaigns revolve around identifying influentials who become brand and product advocates. … [Ambitious] marketers can use word-of-mouth equity insights to shift from consequential to intentional campaigning.

Image via WikipediaThe type of campaign that companies choose to adopt depends on the degree to which marketers can find and target influentials. … Mobile carriers have granular customer data that can precisely locate influentials who know the category, talk to many people, and provide them with trusted opinions. That means messages can be directed at specific individuals who are most likely to spread positive word of mouth through their social networks. As a message spreads, this approach generates an exponential word-of-mouth impact, similar to the ripple effect when a pebble is dropped in a pond.

Companies unable to target influentials precisely must take a different approach. While Red Bull, for example, can’t send text messages to specific consumers, it has successfully deployed science to orchestrate effective intentional word-of-mouth campaigns. After identifying influentials among its different target segments, the energy-drink company ensures that celebrities and other opinion makers seed the right messages among consumers, often through events. While it can’t be sure who will attend, Red Bull knows that those who do will be the kinds of consumers it seeks—and that the positive messages they will relay across their own social networks can generate a superior return for its marketing investment.
Marketers have always been aware of the effect of word of mouth, and there is clearly an art to effective word-of-mouth campaigning. Yet the science behind word-of-mouth equity helps reveal how to hone and deploy that art: it shows which messages consumers are likely to pass on and the impact of those messages, allowing marketers to estimate the tangible effect word of mouth has on brand equity and sales. These insights are essential for companies that want to harness the potential of word of mouth and to realize higher returns on their marketing investments.

About the Authors

Jacques Bughin is a director in McKinsey’s Brussels office, Jonathan Doogan is an associate principal in the London office, and Ole Jørgen Vetvik is a principal in the Oslo office.

Notes

¹ The term word of mouth, as used in this article, means consumer-to-consumer communication with no economic incentives. The sender may, however, reap social gratification or rewards.
² See David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The consumer decision journey,” mckinseyquarterly.com, June 2009.

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Professional Contacts Key to Finance Officer Visibility

August 24, 2010 (PLANSPONSOR.com) – Accounting and finance managers have the best shot at keeping up their visibility by staying active in professional groups, but they shouldn’t forget about using social media outlets as well.

Image via CrunchBase

Image via CrunchBase

A Robert Half Management Resources news release about its latest poll said 28% of chief financial officers recommended keeping up professional group contacts, while 22% said Web sites such as Twitter and Linkedin were also useful in this regard.

According to the news release, visibility enhancing moves recommended by poll respondents also include:

• Publish articles in trade/business journals, 15%
• Volunteer or participate in charitable work, 15%
• Speak at industry events or webinars, 15%

"An extensive base of business contacts is one of the most valuable assets a professional can possess," said Paul McDonald, executive director of Robert Half Management Resources, in the news release. "The most successful executives constantly cultivate a network of people -- through both in-person and online networking -- who will help build their reputation in the industry. As social networking continues to gain popularity, it's especially important to use online tools to build credibility and visibility in the business community."

The survey was conducted by an independent research firm and includes responses from 1,400 CFOs from a stratified random sample of U.S. companies with 20 or more employees.
Fred Schneyer
editors@plansponsor.com

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Unlocking the elusive potential of social networks

To realize the marketing potential of virtual activities, you have to make them truly useful for consumers.

McKinsey Quarterly

JUNE 2010 • Michael Zeisser

There is much hype about social networks and their potential impact on marketing, so many companies are diligently establishing presences on Facebook, Twitter, and other platforms. Yet the true value of social networks remains unclear, and while common wisdom suggests that they should be tremendous enablers and amplifiers of word of mouth, few consumer companies have unlocked this potential. At Liberty Interactive, which comprises many specialty e-commerce companies, we wrestle daily with the question of how to realize the promise of social networks.

… When you think of word of mouth as media, it becomes a form of content, and businesses can apply tried-and-true content-management practices and metrics to it. In addition, word of mouth generated by social networks is a form of marketing that must be earned—unlike traditional advertising, which can be purchased. We therefore concluded that we could succeed only by being genuinely useful to the individuals who initiate or sustain virtual world-of-mouth conversations.

So what does it mean to be useful in a world of virtual conversations enabled by social networks? … We have … learned a few lessons that can be encapsulated in two primary insights. First, a powerful way for a brand to be useful in the virtual world is to confer social importance on its users. Second, “virtual items” are critical to stimulating social interactions that may in turn generate word of mouth.

The power of importance

An effective way for a brand to be useful in the context of social networks is to make people who originate a word-of-mouth conversation seem important within their own social environment. Recognition by peers is a powerful motivator, and brands that allow users to gain it deliver real perceived value. When users publicize that recognition, it translates into word of mouth. Companies can confer this kind of importance—for example, by issuing achievement “badges” that users can post to their Facebook profiles or by deploying leader boards or achievement scores of all types. As Web sites evolve to become increasingly dynamic experiences that let people interact in real time, the value to core users of being recognized for their prominence in a community will only increase.

We’ve also learned never to underestimate the value consumers place on opportunities to brag online about their achievements. That’s made significantly easier through the clever integration of a Web site with Facebook and Twitter. We see this phenomenon daily—for example, on the forums of our Bodybuilding.com site. When members boast of reaching their target weight or other goals with help from Bodybuilding.com workouts, we receive authentic and credible word-of-mouth endorsements at almost no cost. In fact, if recent behavioral research is accurate, these experiences can create “contagions” in which the behavior of users is mirrored by their networks of friends, amplifying the word-of-mouth effect and reflecting well on the underlying brands.

The allure of virtual items

It’s our strong intuition that virtual items play an important role in facilitating virtual word of mouth. … While the notion of virtual goods—nonphysical objects used in online communities and games—still puzzles many executives, it’s quite apparent that consumers love them. People acquire or compete for virtual items obsessively on Foursquare, Zynga, and many other sites. …

So why do consumers pay real money for online objects that don’t actually exist? Their motives reinforce our notion that users seek online importance: they purchase virtual goods primarily for self-expression (such as virtual houses or virtual gifts) and for recognition (such as virtual badges for becoming, say, the “mayor” of a bar on Foursquare). … Brands should actively experiment with ways to use virtual goods as catalysts of word-of-mouth media.

Virtual gifting is becoming an important consumer activity among Facebook members. Today, much of this activity is free, but Facebook is introducing a virtual-currency “credit” system that will allow sellers to get real dollars for their gifts and other items. In the context of a social network, it is not a stretch to conceive of virtual gifts as important objects, especially as their availability can be strictly limited. …

We’ve also found that basic laws of consumer behavior still apply: consumers love a bargain, and companies should take full advantage of social networks as powerful notification tools. Users can be alerted to sales or to the expiration of a promotion, but companies must be mindful that these feeds and tweets are designed as catalysts to generate virtual word-of-mouth media. They are not social-media junk mail, but legitimate content objects—actual pieces of media that we want the initial recipients to distribute to their friends.

One final recommendation: no gimmicks. Forget dancing monkeys, artificial contests, or stupid tricks; they add no value and waste people’s time. A commitment to being useful in social-media activities means a commitment to creating only high-quality interactions. Again, regarding word of mouth as a media product makes it easier to define what quality means for your particular activities. There are clearly many ways for brands to make themselves useful to consumers, so managing virtual word of mouth goes well beyond maintaining a Facebook page or a Twitter account. Exactly how far remains to be seen, and companies should apply an experimental mind-set, while being careful not to overinvest.

Word-of-mouth marketing through social networks could emerge as an important tool in the marketer’s arsenal. That will depend on whether marketers can tame the fundamentally unpredictable and serendipitous nature of word of mouth without losing what makes it so valuable in the first place—its authenticity.

About the Author

Michael Zeisser, an alumnus of Mckinsey’s New York office, is a senior vice president at Liberty Media.