Calculating the Marketing Value of a Social Network

Posted by Vandana Ahuja on September 4, 2007

2 comments | 2164 reads

Further to the discussions on Companies trying to use social networks for CRM, and a series of product/brand related networks springing up on these networking sites, let me try my hand at figuring out the marketing value of a social network.

No. of members in the social network of that brand/product=A
We shall assume that 90 percent of the members on the network are 'engaged brand customers',(the remaining 10 percent probably joined the network to source information and may/may not convert).

Average spend of each member per day/month on the said product=B
The average spend on a product will vary on the product nature and purchase frequency and price.

Assuming no price fluctuations in a year,and further assuming C no. of purchases a year, total spend per member=B*C

Hence, total spend of the marketing network=.9A*B*C

Further, considering that each 'engaged' member of the network promotes the product to D number of new prospectives,per month,(new members are those who are either new to the product or have not tried the product yet.),the total no. of new prospectives 'reached' would be D*12. Further, considering a conversion rate of 25 percent, the total no. of new members who 'convert' to customers, would be .25(D*12). These new members would also now contribute to the marketing value of the network, which would hence be
(.9A*B*C) + (.25(D*12)*B*C)

Comments welcome to help me improve the calculation...

Vandana Ahuja

Vandana Ahuja is a visiting faculty at India's Jaypee Institute of Information Technology, Noida, an educational initiative of the USD 75 M Jaypee Group of Companies. She was earlier a member of the IT arm of the group which she joined after brief associations with software giant NIIT and Elbee Express.

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2 comments »

Graham Hill

September 5, 2007

A Small Error in the Calculation

Hi Vandana

An interesting post.

I think you made a small error in the calculation of total spend per member.

If the average spend of each member per day/month on the said product = B, then the total annual spend per member = 365*B (for daily purchases) or 12*B (for monthly purchases), not B*C as you suggest. C, the no. of purchases per year, is superfluous information for the calculation unless B = the average spend per purchase in which case the total annual spend per member = B*C.

The marketing value of networks is a little understood topic. We wil have to wait and see what marketing researchers come up with in terms of valuation models and the values for individual valuation paramters.

In the interim, I would stick with updated versions of the Bass Diffusion Model that consider network effects as the basis for calculating the value of a marketing network.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Vandana Ahuja

September 5, 2007

Thanx

Thanx for the response Graham. You got it right-I say that the total annual spend per member =B*C on the basis of using C in a vague manner.Have left scope for ambiguity or customisation there, as the idea was to evolve a generalised pattern for diverse products. I say pattern and not a well defined formula, which as i agree with you, should be left to well established researchers in the industry, considering that purchasing patterns for products may range from 2 purchases in a single day to a single purchase per month to a single purchase in an entire year.
However, applying the above to marketers,who are using social networking as a marketing tool, undertstanding purchase patterns and reaching the marketing value of their network may be possible using the above detailed thoughts, what with specific data available within their company for A,B, C and D.
Do let me know your thoughts, as discussing the same with you will help me get a greater clarity in the direction. Have followed the link to the Bass diffusion model that you suggested and the inputs of the same have been quiet useful for what i am pursuing.

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