The True ROI of Social Media

  |  November 18, 2010   |  Comments

What is the return on creating and strengthening a relationship and over what period do you measure it?

Few would argue about the impact of social media. The voice of the customer has never been so powerful, so connected, nor so frequently measured before. Customers are obviously engaged in conversations with brands. Customers choose to affiliate themselves with brands and businesses they "Like" while others consume the content (i.e., reviews, videos, etc.) produced by their fellow customers before and after they make purchase decisions. Social media has tremendous impact on brand perception.

One trend concerns me. So many marketers obsess about the return on investment of social media. I'm a big fan of ROI - always have been - always will be.

So what is the return on creating and strengthening a relationship and over what period do you measure it? Here is how it's broken down:

  • What is the investment (true cost) of listening and engaging in conversations?
  • Can the returns (incremental revenue) really be measured using direct response metrics?
  • Over what period do you measure the impact and how does that relate to lifetime value of a customer?

Measuring the short-term sales attributed to a tweet, YouTube campaign, or Facebook "Like"-athon might demonstrate "return," but it is the wrong end of the telescope to be looking at measurement from.

Social Media Can Not be Measured in a Snapshot

Social media is about relationships. And anyone who has ever had one can tell you that you cannot judge a relationship from a snapshot; you need to observe a relationship over months or even years to get any sense of the quality and value of that relationship. Sadly, most of the social media analysis tools in the marketplace don't provide this viewpoint.

When a brand chooses to participate in social media it is an investment in customer experience. Any investment in customer experience should be part of the cost of any marketing program today, but its costs should be amortized over the long term.

Irrational Hype Will Lead to Irrational Expectations

"If you torture the data long enough it will confess," is what we learn from British economist Ronald Coase. The question to ask is what are the "social media pundits" trying to get it to confess to?

The McLie of Foursquare

McDonald's first reported a 33 percent increase in overall foot traffic (and later clarified it was actually a 33 percent lift in check-ins) on a $1,000 Foursquare campaign. Have you seen this story? There has been quite a bit of analysis on this already by others, but here is the summary:

  • This was a contest with gift cards. Long-term impact: zero.
  • Measuring check-ins doesn't measure increased foot traffic.
  • To measure foot traffic, measure actual foot traffic. Metrics are not randomly interchangeable.
  • If you cannot measure the financial impact of your campaign, all you know is its cost. You didn't measure the outcome.
  • Measure conversions: reach > response > visits > check-ins > transactions > revenue > repeat.
  • McDonald's has about 26 million customers per day, so a 33 percent increase equals 7.8 million Foursquare users. But, Foursquare only has a total of 3 million accounts and 1 million active users.

Even if this case study from McDonald's was misunderstood, the point pundits are pushing is the same. Too many people are trying to look at these relationship building tools as a direct response vehicle. Can you get a direct response from a relationship medium? Sure you can. So why not put your customer relationship management (CRM) initiative on commission and then insist that any communication with customers that doesn't directly contribute revenue be cancelled? No more smiles for you! Online, those virtual smiles are visible to everyone. Do you want to be that company who only smiles to those customers transacting right now?

Take it from someone who loves measurement, conversions, and improving responses, you ain't going to get any satisfaction trying to measure the short-term impact. You will get a lot of noise, false signals, and opinions.

Measuring the long-term impact is what you need to look at and hopefully the tool vendors will catch up with this. However, it's not probable. It is especially challenging considering the volume of data they would need to go through to do this properly, the false hopes they've spread, and the "experts" they've endorsed.

There is a ton of value in engaging with your customers in social media. No doubt about it! Please get realistic about what it takes to build real value. Only then might you deliver the type of happiness Tony Hsieh, the CEO of Zappos.com, has acheived by leveraging great customer experiences and nurturing real brand evangelists. That is how you can experience the true ROI of social media!

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ABOUT THE AUTHOR

Bryan Eisenberg

Bryan Eisenberg is coauthor of the Wall Street Journal, Amazon, BusinessWeek, and New York Times bestselling books "Call to Action," "Waiting For Your Cat to Bark?," and "Always Be Testing." Bryan is a professional marketing speaker and has keynoted conferences globally such as SES, Shop.org, Direct Marketing Association, MarketingSherpa, Econsultancy, Webcom, SEM Konferansen Norway, the Canadian Marketing Association, and others. In 2010, Bryan was named a winner of the Direct Marketing Educational Foundation's Rising Stars Awards, which recognizes the most talented professionals 40 years of age or younger in the field of direct/interactive marketing. He is also cofounder and chairman emeritus of the Web Analytics Association. Bryan serves as an advisory board member of SES Conference & Expo, the eMetrics Marketing Optimization Summit, and several venture capital backed companies. He works with his coauthor and brother Jeffrey Eisenberg. You can find them at BryanEisenberg.com.

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