Retension and The Long Tail

Why is it that I know enough about the Rocky Horror Picture Show to know that I never want to see the Rocky Horror Picture Show?

Answer: Retention and the Long Tail

The Rocky Horror Picture show is a brand that knows how to keep and replenish its base. It is largely kept alive by the fan base, however the fan base doesn't have any control over whether it will stop circulating on DVD or in Theaters or in special big screen releases. 20th Century Fox has the call on that, and as long as they keep making money (as long as there is still a demand), they will continue to supply.

Compared to other movies produced recently, the Rocky Horror Picture Show ranks toward the bottom of the list in overall revenue. Its fan base/followers are a niche group. So why does 20th Century Fox waste their time. Because they are turning a profit. The Rocky Horror Picture show exists somewhere in the Long Tail, a term popularized by Chris Anderson, author of The Long Tail. He says "if you combine enough of the non-hits, you've actually established a market that rivals the hits" (22). So, if the Rocky Horror Picture was the only niche product they had, 20th Century Fox might have had to cut the ropes long ago. But in combination with its other niche, non-hits, Rocky Horror Picture Show is part of a market tap that runs long. For instance, Anderson explains that 1/4 of Amazon's book sales come from books that are not in the top 100,000 titles. 45% of Rhapsodies purchases come from outside of their top titles (Anderson, 23).

Retaining these niche groups is becoming of vital importance to companies. Anderson explains that The Long tail can be attributed to lower production, shipping, and storage costs along with rises in demand. But, it can also be attributed to social media. These niche groups tend form around an idea or some brand identity like the Rocky Horror Picture Show or some obscure indie rapper. These groups use Facebook, blogs, wikis, YouTube, Twitter and other social platforms to organize and ultimately make purchasing decisions. As long as this group maintains its size in relation to other groups in the Long Tail, then the companies who supply these niche groups will continue to turn a profit. That means that members have to remain involved or be replaced if they become inactive.

So when Jeremy Richardson of Mixpanel, Inc. said in his Mashable post that Retention should be a greater Analytical concern than virality, he may have had a point. He says that virality is measured in three factors:

"It’s computed by multiplying the percentage of current users who invite other people (X), the average number of people who are invited per user (Y), and the percentage of invited people who accept an invitation (Z). Many companies use this –- and only this — to determine the success of a product" (Richardson). This equation is known as the K-Factor. The problem is that Y is the middle man in this this equation.

As Richardson puts it . . .

The first and last numbers, X and Z, are conversion rates. By definition, they are always going to have a finite limit –- 100% engagement. While having perfect conversion rates would be amazing, it wouldn’t really mean much if Y, the number of people invited, was only one.

So, if conversion rates are maxed out, then the only thing left to tweak is the number of invites sent out. There are two main contributors to this:

Invite Rate: The frequency with which users send out invites

Engagement Period: The duration that users actively use a product


By determining the Invitation Rate and Period of Engagement, a social media analyst can determine how well a product, video, idea, application, game, etc. retains consumer demand. Richardson argues that by tracking retention rates, an analyst can determine why consumer demand is decreasing or why users are not sharing at high frequencies.

In a market driven by non-hits, retention becomes vital to the bottom line. Niche groups gather around a product, movement, idea, etc. because they strongly identify with it in some way. If the consumer is not able to act on that feeling, then there goes the business. By analyzing why videos are not being shared, a social media analyst could respond by redeveloping the social media strategy to maintain the community of consumers. That means building strategies for retention and building strategies for virality are both separate and interwoven tasks. Different calculations are applied to determining both, but both are applied for the same goal: positive Returns on Engagement

Return on Engagement (Investment)

The other day, I was asked if I could name two companies: one that uses social media well and one that does not use social media well. I have been asked this question before, I don't believe I ever answered it in the way that it deserves to be answered. So here it goes:

A good company fosters a good return on engagement (ROE) and a bad company does not.

I define Return on Engagement as data that shows the effort a business puts into social media versus the amount of exposure their brand and products generate through social media (the increased fans on Facebook, Retweets on Twitter, traffic on the website and microsites, reviews on Yelp, Posts through foursquare, etc).

But what does a good social media strategy look like? What elements of a social media strategy foster a positive ROE?

There are two companies that do this particularly well and one company that is struggling in the age of transparency and conversation.

Effective Social Media Strategies: Starbucks and Toyota

Wetpaint and Altimeter keep rankings on the most socially engaged companies. They call it the Engagement Database. In their rankings, Starbucks (ranked #1) and Toyota (ranked #21) have two of the most effective social media strategies among the ranked companies. There is an interesting correlations between these companies. Their social media strategies are very similar, and both have high levels of ROE.

Strategy 1: Social Media is a Company Wide Effort

Both Starbucks and Toyota are limited in their social media teams; Starbucks has six people on their team, and Toyota has three people on theirs. In addition, I doubt anyone on the Starbucks team can make a Frappuccino or anyone on the Toyota team can explain how the sticking accelerator is being fixed. But each company has employees that are experts in these areas.

So, when Starbucks created MyStarbucksidea.com, the social media team wasn't creating content and responding to ideas posted by customers. Instead, "Starbucks set out to ensure the departments impacted by the site (which includes practically every department) had a representative who was responsible for being the liaison" (from Engagement Database Report found on the website). The Mini-Starbucks Card was actually a customer idea that made its way to Chuck Davidson, an employee at Starbucks. He traced the comments, wrote a proposal, and put it into action.

Toyota has as similar breakdown in roles:

"Take a look at the Twitter account and you’ll see that in addition to DeYager, three public relations specialists from sales, environment/safety, and public affairs/community outreach contribute posts. The Toyota Twitter team uses monitoring software to identify tweets mentioning Toyota, then responds from a respective area of expertise using technology from CoTweet to manage multiple authors on the single Twitter account. This same mode is utilized on Toyota’s Facebook pages — response requests are sent out and come back from around the company, depending on the topic" (from Engagement Database Report found on the website)

Clay Shirky talks about how standard company hierarchies are breaking down due to social media, but existent companies are finding ways of incorporating it into their standing organizations. Building through ways to company experts is the beginning of an effective social media strategy with positive ROE.

Strategy 2: Choosing Platforms Requires Effort

Besides being good at spreading social media through the company, Starbucks and Toyota are also picky about which platforms they use to engage. For instance, Starbucks discovered that for every three person that interacted with a particular news item on their Facebook Page, three of their friends joined the page. Facebook enhanced their ROE.

The social media team at Toyota wanted to blog. But organizing it would have been a logistical nightmare. In addition, the higher ups were not so keen on being that transparent. But the team knew that breaking into social media was necessary if they wanted to see the sort of results that Starbucks was getting. So, they began with a YouTube Channel and uploaded pre-made content from Toyota PR. After that, the higher ups became comfortable with the idea of a Twitter feed. They also work with an independent blog, priuschat.com.

Reasons for Social Media Strategies: Dasani.

My last post explained how bottled water companies are coming under fire due to social media. But Dasani has no social brand identity. They have no social way to engage customers. This is a bad decision because the customers are already talking about their brand (once again, see my previous post) on social platforms. They may still engage customers in traditional modes, but customers are no longer engaging them there.

In addition, the report from the producers of the Engagement database charts another reason to engage customers on Social Media.



The chart above shows that the more engaged companies have a better bottom line. This the point at which ROE turns into ROI.