American Express got the social media world talking this week when it announced a Tweet-to-Buy partnership with Twitter. The concept is simple: Users can sync their American Express cards to their twitter accounts, and then buy $25 gift cards for only $15 by tweeting the hashtag #BuyAmexGiftCard25. In essence American Express gives $10 free credit for a branded tweet.
In principle, $10 per tweet is worth giving away if American Express expects the tweet to result in at least $10 net profit in the future. But how does one formulate that?
When companies like American Express offer discounts, they often justify the spend by referring to the Customer Lifetime Value (CLV). This is usually calculated as the expected net profit attributed to purchases during the entire relationship between a business and its customer. The company is better off offering a discount today, because that will likely increase the customer's loyalty, and loyalty increases the CLV.
But American Express is now buying something different: they are not thinking CLV, they are buying Customer Network Value (CNV). CNV is the expected net profit from purchases by anyone in the customer's network — their friends, family and online followers — that can be attributed to the customer promoting the brand.
Let me explain by example: If Justin Bieber decides to buy an American Express gift card by tweeting #BuyAmexGiftCard25 to his approximately 35 million followers, then the $10 discount probably was well worth giving to him. At least a few of those people will probably check out American Express' offerings, and — as Justin Bieber's fans are relatively young — quite a few may eventually consider applying for an American Express card as a result. So the CNV of Justin Bieber is huge, probably by orders of magnitude higher than $10.
Take the other extreme, when someone opens a new twitter account with 0 followers, links it to their card and tweets #BuyAmexGiftCard25. The network value of this customer on Twitter is likely to be very close to $0.
The really interesting segment lies somewhere between Justin Bieber and the new twitter user without followers. Bieber may have an outstanding CNV, but he is unlikely to voluntarily engage in an advocacy program like Tweet-to-Buy for a meager $10 incentive. There is however a substantial segment of social media users, often referred to as the "magic middle," whose network value is relatively high, but who may be more willing to engage with the brand. This magic middle, about 9% of social media users, are trusted experts, bloggers and journalists who have built up influence and social capital in particular niche areas of interest.
What American Express stated by announcing this offer, is that they estimate the network value of their community as $10, on average. It is hard to say at this point whether this estimate is right or wrong. There is a weakness in American Express' one-size-fits-all offering: The lack of segmentation. This strategy will probably earn back multiples of the $10 investment on high-influence Twitter users, but it will likely be loss-making on low-influence twitter accounts, which are the in the majority.
As social media analytics matures, the industry is moving towards influencer marketing: Selectively delivering offers to audiences based on their social influence in relevant subjects. Marketers already use demographic segmentation to create improved marketing strategies based on CLV. Influencer marketing now allows for further optimized strategies that are based on CNV.
In the case of American Express, you could predict the scale of cash back by looking at a person's influence on Twitter. Or, a marketer could score inbound leads based on the predicted influence of people in important segments. Those with higher CNV would merit a higher customer acquisition cost, much as marketers spend more to acquire higher-spending customers.
The critical point is that the economic value of influence is now being assessed and characterized, allowing marketers to make sense of the billion-plus people now on social media.
An HBR Insight Center