What is the ROI (define) for social media? It's zero. That's because there's no such thing as "social media."
People's conversations are not media; they can't be purchased as such by advertisers. In other words, people don't talk whenever advertisers want them to and they won't say whatever advertisers tell them to -- so it isn't "media" like TV, print, and radio.
That said, most advertisers and their agencies still attempt to use old media metrics -- like reach and frequency -- to measure social actions and calculate their ROI, but to no avail. Instead, let's explore the right way to leverage the social realm in support of marketing and advertising efforts.
Let's start with some basic definitions.
Social Actions: We Can Measure Them, But...
Metrics and methods for measuring social actions are new. We can measure social actions and conversations online; tools like Buzz Metric even allow us to estimate "sentiment" from words used. But these metrics shouldn't be compared to old media metrics.
For example, people's conversations don't start and stop on an advertiser's campaign schedule; they'll talk whenever they want. People may continue to talk well after a campaign is over. So we can't directly attribute conversations to specific campaigns; the ROI may actually continue to increase after a campaign is over because conversations continue.
Another common mistake is fan counting. A client once said, "If we cannot get one million fans or more (on Facebook) it is not worth doing." This is like mixing metaphors because he expects the reach and frequency of a television spot; he's not taking into account that he may achieve the same goal more efficiently through social actions without having to push his message out to a million people.
For example, with TV advertising, it may require reaching one million people in order to get five to 10 of them to act (e.g. make a purchase). But, when people talk, share, and recommend, an advertiser may only need to reach five to 10 people in order to get the five to 10 desired actions -- making purchases. Finally, "reach and frequency" refers to how much and how often advertisers push out messages. It doesn't relate to how much or how often their target customers received the message, let alone remembered it, talked about it, or took action because of it.
So the metrics of social actions can't be compared to old media metrics; it is not social media.
New Revenue From Unreachables and Untargetables
Let's consider the following. What if there are some people who don't watch television, read magazines, or go online? Impossible you say? OK.
What if there are some people who didn't watch the exact television show on which your ad was aired or read the exact magazine issue that contained your print ad? More probable? Probably.
What if they saw the ad, but didn't remember it when they were making the purchase decision. Or what if they didn't rely on the information in the ad to make the purchase decision? What if there aren't enough grandmas who read a particular magazine to give enough scale for the media buy to be worth it?
You may call these customers "unreachables" or "untargetables" because traditional media channels don't yield enough reach and frequency for it to be worthwhile. But even these untargetable consumers buy stuff. So how did they choose to buy one brand of ketchup over another, or one barbecue grill over another?
If advertising wasn't a predominant influence on the purchase decision, what was? Perhaps the recommendation of a friend, an overheard conversation, or the collective recommendation of a bunch of strangers.
New York restaurants and nightclubs benefit from or take advantage of this very phenomenon; New Yorkers avoid a restaurant unless it's packed or has a line out the door. Take, for example, Levain Bakery on 74th and Amsterdam in New York City. There's a line out the door on a Sunday afternoon that includes eight strollers with parents happily feeding the fresh baked cookies to their kids.
Levain's legend is its belly-bustingly-large, warm $4 cookies. A son, walking by with his out-of-town parents, leaned over and proudly declared, "This bakery's is known for their awesome cookies." Mom replied, "They've got to be expensive." He reassured her, "But they're totally worth it." And they all got in line, about 20-plus deep.
Levain doesn't advertise; but even if it did, its ad would never have reached that mom, visiting from who-knows-where. But yet, she invested time in line, purchased not one but four cookies, and paid more for a single cookie than she would three packages of cookies back at her local Wal-Mart.
How do we calculate ROI where the cost of advertising was zero?
Cost Savings From Amplification and Permanence
If we were still in a world of one-way, push advertising, it would be extremely difficult and costly to target these "untargetables" through paid media channels. However, in a world of two-way, customer-initiated pull, consumers themselves solve the problem of "untargetability"; they reach out to ask for advice, search for more information, or get recommendations.
The social actions of reviews, ratings, and recommendations are now available for them to find online. These actions had always taken place, but were usually offline -- around the water cooler, at Sunday brunch, or elsewhere. As these conversations now happen online, they are archived and findable through search and thus continue to provide benefit to future consumers at no extra cost to advertisers.
While the advertiser couldn't push an ad out because there was no way to target a specific individual, the advertiser could make information available or more easily findable to an individual or a whole bunch of individuals when they search for it. Comparing this to all forms of paid media, the ad is over once it is aired. In order to get further reach and frequency, the advertiser must pay for more media.
But providing information and making it more easily findable is something advertisers can do once and not have to incur more media costs going forward. Modern consumers will tend to go online and do their own research to inform their own purchase decisions, rather than rely on what a paid ad claims. Finding objective information from an advertiser or simply knowing what information is official, standard, or true, is far more useful than the superficial claims made in very brief ads.
Finally, there could also be a benefit of "social amplification." If one person likes something, that person's recommendations online can impact many other people, especially if that one person is an influencer or has many "followers." This leads to amplification and spread of the message at no extra cost to the advertiser.
Modern consumers also typically view recommendations from friends and peers as more credible anyway. And many look to trusted sources and lead adopters for advice and input to simplify their own purchase decision. Quoting Matt Goddard, CEO, R2i, "It's about risk reduction in my purchase decision...that's why people turn to peers and mavens online for input."
Relating this back to ROI, what's the cost to an advertiser of conversations already happening online and offline about their product? What is the cost to the advertiser of making its official, standard, or trusted information more easily findable? What is the cost of stimulating conversations about products and services by lead adopters and mavens? Probably not much and indeed far less than any traditional advertising campaigns that have a media cost component -- the cost of paying to air the TV ad or to place the print ad.
Tips for Doing Social Marketing Right and Valuing its ROI
So What's the ROI of Marketing in Social Realms?
It's higher than traditional advertising because:
Indeed, the best social marketing could be simply making the best product around or making it something worth talking about -- like Seth Godin's "Purple Cow," or Levain's $4 cookies.
If you treat people's conversations as media -- social media -- your ROI is zero (or even negative) because you'd be doing it wrong. But for social marketing done right, the potential ROI could be infinite -- when you divide a number by a cost of zero (ad dollars spent), you'd get infinity.
Agree with me or tell me I'm stupid @acfou.
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Dr. Augustine Fou is the senior digital strategy advisor to CMOs, marketing executives, and global brands. Dr. Fou has over 15 years of Internet strategy consulting experience and is an expert in social media marketing strategy, data/analytics, and consumer insights, with specific knowledge in the consumer packaged goods, financial services/credit cards, food/beverage, retail/apparel, and pharmaceutical/healthcare sectors.
He is a frequent panelist, moderator, and keynote speaker at industry conferences. Dr. Fou is also an Adjunct Professor at NYU in the School for Continuing and Professional Studies and at Rutgers University at the Center for Management Development, where he teaches executive courses on digital strategy and integrated marketing.
Dr. Fou completed his PhD at MIT at the age of 23. He started his career with McKinsey & Company and previously served as SVP, digital strategy lead, McCann/MRM Worldwide and group chief digital officer of Omnicom's Healthcare Consultancy Group (HCG). He writes a blog "Rants, Raves about Digital Marketing" and can be found on Twitter at @acfou.
December 12, 2013
1:00pm ET / 10:00am PT