Utilizing Financial Formulas to Determine the Value of Community Equity

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A very interesting post by Radian6's David Alston entitled: Can We Calculate “Community Equity?”

David states that: Community equity refers to the marketing, public relations, sales, recruitment and customer service effects and outcomes that accrue to company that engages in community building compared to what would accrue if the same brand did not invest in efforts to find, build & care for their community.

His premise is that Community Equity is much more valuable than buying eyeballs as your community is much more involved and engaged. They are there because they want to be not because they were coerce. How to calculate this equity is an interesting dilemma.

David further states, It becomes clear why 500 passionate community members on Facebook or Twitter are no comparison to the 500 eyeballs or even 1 million eyeballs purchased in a media buy. It becomes evident that community building goes in the investment column while buying media buy goes in the expense side.  

So if this is an investment, I would propose utilizing existing financial calculations such as Net Present Value (NPV) or Internal Rate of Return (IRR) to calculate the value of a community. NPV is a common calculation done to determine if you should invest in a project or not. NPV is the defined as the difference between Initial Cost Outlay and present value of expected cash inflows. A positive NPV value is acceptable where as an NPV of zero yields the internal rate of return. A negative value for NPV suggests that investment is not worthy of the money we are about to invest.

Like NPV, the IRR is a rate of return used in capital budgeting to measure and compare the profitability of investments.

Instead of using a dollar amount, could you use number of people in the community you would like to capture over a certain time period? What would be the initial outlay - possibly the total amount of people you want in that community? What about the discount rate - 10%?

Using IRR, I did a calculation as follows:

Year	0	1	2	3	4	5
Amount	-10000	1000	1500	2000	5000	7500

Discount rate of 10%
IRR was 15%

Not by any stretch perfect but I hope it starts some discussions and other ideas.

Sequencing Change

Image by Todd Huffman via Flickr

It used to be that technology was adopted first at the corporate level and then by consumers. That sequence has now changed. It is the consumer who is driving the adoption of technology by corporations. Social Media and mobile are prime examples of this switch.

According to Web measurement firm Compete Inc., Facebook has passed search-engine giant Google to become the top source for traffic to major portals like Yahoo and MSN, and is among the leaders for other types of sites. I would bet that this traffic is primarily consumer driven. That said, what does this mean for corporations, especially in the B2B space, as it has been shown that the Internet is one of the top places buyers begin their research on a product. Will they now be shifting from Google searches and SEO to FaceBook Fan pages? Searching Twitter for end users or stories? Mining LinkedIn for Groups and people that can help them with their decision? Yes, they will be.

The ramifications for corporations is that they must have a presence on all these sites, regardless if they are B2B or B2C. At my firm, we are really just ramping up the use of FaceBook, Twitter and LinkedIn to support the launch of our next generation product, Harvard ManageMentor. I am the primary person updating all these sites, as well as contributing to our new blog, and I know that it takes a lot of time and effort. As the use of these mediums becomes more prevalent in buying decisions, the need for a full time person in the marketing department will be mandatory.

Additionally, marketers will need to rethink which marketing automation platform they use and your messaging to fit to these sites. Can you explain your value proposition in 140 characters or less? Firms such as HubSpot are going to become even more important to help analyze the new inbound marketing results. It will be interesting to watch VC investment in this area of analytic's.

It has been interesting to see the new traffic being referred by these sites and I hope it only increases.

Twitter traffic report

HubSpot report on Twitter traffic.
http://bit.ly/4nU7A3

Does this help support my previous posts on breaking through the noise as well as prediction number 5 on my Top 10?

A few musings on 2010

Looking back in 2011 this list will probably read closer to a David Letterman Top 10 but here are a few thoughts on things that could happen in 2010.

1. Microsoft buys Salesforce.com. MSFT needs to get into the SaaS world in a better/bigger way and SFDC would be an instant, game changing move
2. Walmart does not buy Amazon again.
3. Google buys eBay to boost its mobile strategy and m-commerce
   
4. Leadership development in corporations becomes a hot topic to retain and reward people who have survived.
5. Twitter will have to change its business model or die. Big danger in it just becoming a spam platform.
6. In the theme of #5, new technologies will emerge to help marketers calculate an ROI for different SM platforms. Those that can't prove it will become irrelevant.
7. The economy will slowly recover as the consumer starts to spend in the second half of the year.
8. Infrastructure tech firms will do well in 2010 as companies replace old systems that have been neglected for too long.
9. The SaaS model continues its rise in importance for several reasons including a move away from the  perpetual/maintenance model, the variability (add/subtract users) and the impact on the balance sheet.
10. Clouds everywhere but end users become confused on how, when and why they should use them.
    

Good example of a nice initial approach

I recently received the below email and I thought it was a very good way to approach someone who may have a need for your service. No hard sell, just an introduction and a request. Well done. Here it is. I left out the senders name but check out the firm.

Hi Barrett-

I was recently doing some marketing research and came across your blog. You offer some great insights in to the world of marketing, particularly online marketing. Your post about "Death of a Salesman" had some great points. The more the consumer can be directly involved with the process, the more it becomes being what they are looking for, and less about selling to them.

I work for an online marketing start-up, Kutenda (Kutenda.com). We have created a toolset with PPC management, email marketing, website management, SEO and more- all in one place. Our goal is to help small businesses increase their visibility online and grow their business. To this point, online marketing is often seen as overwhelming and complicated, especially for small to mid-size businesses. That's where we come in. Our suite of tools is simple to use, with expert knowledge built in. In addition, we also provide training too, to walk people through the process, start to finish. We are working on getting our name out there and having people experience all we offer. I know how busy life gets- particularly after a holiday!- but if you have a moment, it would be great if you could check us out. Kutenda.com- we offer a great free trial program and a demo to learn more.

If you feel we would be a good resource for your readers, a link would be much appreciated. If you have questions, please don't hesitate to ask. I hope to hear from you soon. Thanks for your time and happy new year!

Sincerely,

What price does your brand pay for discounting?

I can't remember the last time I drove past the Gap in my town and they did not have a big SALE sign in the window. Sometimes it is just a one day sale, or a sale on top of another sale. As a result, I can't believe that people actually pay full price for anything at the Gap. Why would they when they know if they wait a few days the item will most likely be discounted. The constant sales promotions have damaged the brand in my mind as I do not believe the clothes are worth full price. The Gap used to be one of the top brands in the country but, to me, it is now is relegated to third tier status.

The Gap reached an adjusted high of about $55 per share in 2000, but has been bouncing along in the high 20's or low 30's since around 2002. It would be interesting to know when they started their aggressive discounting policy. My guess is that it began when the stock began to fall and competition increased.

Discounting is common in all industries, particularly the software vertical where customers expect a discount and will wait until a quarters end to get the best possible price. I worked at The Mathworks a few years ago and they are the only firm that I know of that refuses to discount and actually gets away with it. Customers now know the discount policy and do not ask for one. The Mathworks has been a very fast growing company in a competitive space so it is interesting that they continue to be able to get away without discounting. I believe they have done a great job of linking price to value and have enhanced their brand in the eyes of their customers. They are a model that others should try to replicate.

Recently, a competitor of ours at Harvard Business Publishing has been offering a 25% discount on their courses through year end. The competitor is a high end, well know brand in the corporate learning space so it was a big surprise that they were doing so. Their policy is a great competitive selling point for us as we can plant the seed of doubt in our prospects minds that their courses must be inferior to ours if they have to run a sale.

Once you start to discount your product or service it is very hard to get full price or even raise prices.Price should equal value but if a customer knows you will eventually cave in and discount than you have lost that relationship and your brand suffers in the end.

How do you break through the noise of Twitter?

Image by blprnt_van via Flickr

The constant stream of tweets makes it almost impossible to connect with your followers unless they are constantly online monitoring you. There are certainly people out there that seem to be consistently updating and informing their followers but that seems to be the exception rather than the rule. Additionally, these users are ones that are tweeting to try and promote their own brand or company. Twitter almost seems like one big advertising feed to me.
Yes, I know there are tools that can help you track and find certain topics, but these seem more geared toward the marketer trying to analyze their own data rather than an end user seeking out specific information. The constant flow of tweets makes it difficult to leverage your Twitter network for inbound marketing purposes. I have had some success with inbound marketing when I have offered free white papers or articles, but not everyone has access to the Harvard Business Publishing library like I do.
I would be interested in hearing how others have succeeded or failed in trying to break through the constant noise of tweets to generate tangible business results.