How do we get at the ROI of social media? First, let us reprise last year's key points and then add a few new ones.
A year and half ago I wrote the column, "The ROI of Social Media Is Zero." Today, I assert that the ROI of social media is still zero. Let me explain.
A September 2010 survey by Econsultancy found nearly half the respondents said they were not able to measure the return on investment of social media activities or even compare it to the return of other marketing activities. This comes on the heels of another study in April 2010 by R2 Integrated which showed that the biggest obstacle to using social media is the respondents' belief that there is not enough data or analytics with which to calculate a return.
This is not terribly far-fetched if you consider the following: 1) "people are talking about my brand;" so what? 2) "we have a dashboard which shows pretty red, yellow, and green graphs;" so what? 3) "we just paid a celebrity to tweet about us;" so what? Do any of these things drive sales for the brand? Maybe. Maybe not. Most likely there is simply no way to tell. This is because there isn't a metric or a series of metrics which can directly and accurately correlate social media actions to sales.
However, there are a few good examples where marketing activities in social networks can drive quantifiable value. For example, Dell has built up a following on Twitter over time so it can now tweet last minute deals and clear out unsold outlet inventory very efficiently. Netflix has built up a large fan base on Facebook and uses it to interact with fans, get feedback, and announce new features or content. JetBlue and Best Buy use Twitter for customer service and have thus built up a large enough following to use Twitter as a launch or awareness channel which is free, compared to other channels like e-mail or direct marketing. The value derived from the above examples is replacement value - in other words, it can sufficiently and efficiently replace traditional, costly tactics such as market research, direct marketing, e-mail marketing, etc.
Let's dig a little deeper. The "social media marketing" craze of today is really the same as the "word of mouth marketing" craze of a few years ago. There are wrong ways of generating buzz; there are right ways of attracting buzz; and sometimes buzz is generated accidentally - for better or for worse. Word of mouth cannot be purchased or faked; it will be found out. Social media also cannot be controlled; people won't necessarily talk about the product the way the advertiser wants the product or brand to be talked about; and they certainly won't use "on brand" terminology, etc. Perception of the product or brand is ever more important because of its lasting effect in social media. Remember the Domino's Pizza dirty YouTube video that went viral last year? To this day, there are thousands of Google results that memorialize the social media crisis and dozens of copies of the vile video still scattered across YouTube.
So how do we get at the ROI of social media? First, let us reprise last year's key points and then add a few new ones.
Social media is not media - people's conversations cannot be purchased, nor should they be purchased. The volume and influence on these conversations are not known ahead of time.
Social marketing is not marketing - instead it is listening and learning from customers' genuine conversation among peers and earning the right to be part of the conversation by providing value and earning customers' trust.
Social amplification will enhance the value of your existing content and extend its reach; as more and more conversations happen online, their reach and influence will remain far after marketing campaigns end.
Let me introduce a way to think about social media investment which may help to align spending and actions - "social media total value of ownership." Just like companies shifted to thinking about the total cost of ownership versus the one-time cost of capital purchases (e.g., computer hardware), companies should think of the longer-term "total value of ownership" for social media. Examples of the social media assets that are "owned" after longer-term investment may include fan pages on Facebook, followers on Twitter earned over time, collections of videos on YouTube, etc.
The return on these assets is derived over time and may not be attributable to any one marketing campaign. The ROI derived from these assets will come in the form of replacement value (e.g., you can tweet your launch announcements instead of paying for e-mail and direct marketing) and lasting value (e.g., customer reviews and candid discussions about a brand or product can live on in social media and benefit future potential customers when they go online to search, at no additional cost to the advertiser). Because the return is derived over time and is not easily attributable to any particular marketing campaign, social media should be thought of and executed at the corporate level - e.g., via corporate marketing - as opposed to brand marketing, which has a short-term view and specific revenue goals.
So, if companies start to think of the "social media total value of ownership" or the "lifetime value of social media" they would allocate spending as if it were a longer-term investment to create assets which produce value over time. The short-term, campaign-based ROI of social media will likely still be zero, as the payoff comes in other forms and accrues to the advertiser over time.
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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.
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