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Re-envisioning customer value: A report from the Economist Intelligence Unit Sponsored by SAS

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 and 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, confl ating its customers’ monetary value with their referral or infl uence value. Appropriately understanding this arena can aid businesses by identifying degrees of client infl uence, 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 signifi cantly enhance their profi tability. 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 fi rms down the wrong track.

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Senior executives should holistically integrate customer engagement across their company’s departments to capitalise on new insights into customer valuation: this requires organisational fl exibility 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 fi rms to signifi cant risks as they seek to derive value from social media—not only reputation hazards but legal compliance issues and the protection of their intellectual propert

Social media facilitate the creation and exchange of user-generated content; these internet-based technologies are still in their relative infancy but they form part of a much deeper change in the business environment. The ubiquity of social media can, over the next five years, both drive and enable extraordinary changes in the way organisations function.

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The businesses best able to capitalise on this movement will be the ones that understand:

how the nature of customer value is different in a social media environment,

how to identify the most valuable customers,

and how to engage with them effectively.

None of these three tasks is easy, but the leading thinkers and business people featured in this report are pointing to the way ahead.

The first report in this series, Redefining customer value: Corporate strategies for the social web, showed that companies are aware of the need to rethink customer value, but are unsure of how to respond in a systematic way. This second paper examines the extent to which companies can refine their conception of customer valuation by leveraging the information drawn from social media interactions. This paper explores the implications that integrating new understandings of customer value can carry for business competitiveness. It examines some of the practical considerations for using such insights to better engage with customers, highlighting the risks and opportunities that companies face.

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