Monday, May 25, 2009

Social Media and ROI

Return on Investment (ROI) is a resource-allocation tool and measure of performance. The widely employed formula for ROI is Profit/Investment. Although social media is a promising new marketing channel, efforts to measure social media's ROI are fraught with confusion. In this article you will find tips, technology, and important questions to help you measure social media's ROI for your business.

In a May 19, 2009 Marketing Profs article, Sharan Jagpal, PhD, the president of Strategic Management & Marketing Consultants and a professor of marketing at Rutgers Business School, asked will the pursuit of ROI lead you to rags or riches? As he point out, the "unwillingness to replace old business models, strategies, and metrics with new ones is causing some companies hardship and leading many others to their deaths."

As Jagpal explains "an overarching truth about business: The best marketing strategies, those that yield long-term value, are based not on trends, anecdotal evidence, or past "success stories" but on new scientific methods and metrics explicitly developed for analyzing often-imprecise data."

With today's fragmented audiences, and the mix of traditional and new media, you need to work much harder to stay on the radar and gain share of mind. To reach your audience you need to integrate traditional and new media, likewise your research needs to include both data culled from social technologies and more conventional research. However when social media and conventional marketing are integrated, it can add to the challenge of measuring ROI.

With 150 million blogs, Facebook's nearly 200 million users, LinkedIn's 30 million subscribers, and tens of millions of daily tweets, few businesses can afford to ignore the reach of social media. According to an article entitled Why Social Media is Worth Your Time, "[t]hat spells significant opportunity—whether your customers live around the world or across the street, you can find a lot of them online."

Getting the most for your marketing dollar is important, particularly in a serious downturn and although social media can be a powerful and cost effective part of an effective marketing strategy, many are struggling to find ways to measure its efficacy.

Difficulties Measuring Social Media's ROI

Despite the opportunities associated with social media, there are numerous issues that confound and overwhelm, and this is particularly true for the small business owner trying to manage his own marketing.

A recent eModeration article reviewed the arguments associated with social media, and as this article reiterates, measuring ROI in social metrics is not without controversy. The article quotes a MarketingProfs article in which David Alston describes the major difficulty, “adapting traditional metrics to fit social media [is] akin to sticking a square peg in a round hole.” And as reported in the same article, a recent MarketingSherpa poll indicated that the inability to measure ROI is, "one of the most significant barriers to the adoption of social media tactics."

"The number of people and hours we invest in [social media] is huge," Mainardo de Nardis, the new global CEO of Omnicom Group's OMD Global, said. "The revenue is small but we can't afford not to do it but can't afford to do it. There's an imbalance and we have to find a way to rebalance it."

Either because the ROI is hard to measure or because it is too time consuming, many small businesses shy away from social media. One of the main problems is that online marketers are more familiar with traditional quantitative metrics and social media marketing often requires qualitative measurement.

As pointed out in eModeration article, "Measuring the impact of online advertising used to be relatively easy. It was all about analytics: Unique Visitors, Page Views, Cost per Clicks: lovely, measurable, safe, defined metrics. But those engaged in social media must now attempt a way of measuring not just the online advertising within social media, but the framework surrounding that advertising."

What To Measure

Social media's ROI can be calculated using the standard methods used to measure conventional PR initiatives. However, this approach needs to be to supplemented with more dynamic assessments. According to Connie Benson "Web Analytics provide traditional attributes of page views, unique site visitors, etc. This alone isn’t adequate anymore because customers are talking to each other. It’s about engagement with your customers, your potential customers, and your critics, at every level of social interaction that modern communication has to offer." That is why online marketing efforts are increasingly geared towards new metrics that are following what is happening in social networks.

Barbara Bix explains that marketers measure the ROI of their social media investments, in most cases, "using many of the same metrics they do today, such as the cost of moving prospects to the next level at every stage of the buying process—and the speed at which prospects move. What will change most are the processes and tools that marketers use to capture, analyze, and report data. As with email marketing and search, expect social media developers to bundle in platform-specific features to accomplish these important tasks."

Three years ago Jeremiah Owyang provided an excellent guide on how to measure your social media programme. He recommends measuring the following attributes:

Activity: Web Analytics
Tone: (Sentiment) opinion
Velocity: (Distance/Time) speed your message is traveling over a given time.
Attention: (Duration on site)
Participation (Interaction) click comments, trackbacks, embed.
Qualitative attributes (comments, what did they say, what did they mean)

eModeration suggests the following chronological approach:

Listen, understand the conversation, then participate
Measure the number of conversations
Monitor the percentage increase of conversations over time
Measure the reduced buying cycle & reduce support costs by encouraging self-support
Increased sales due to increased customer satisfaction in product due to involving them in product development cycle
Increased efficiency in developing products due to customer feedback at various stages
Minimize brand damage by responding quickly to customer’s concerns online

They further suggest the following monthly reports:

Ongoing definition of objectives
Web analytics
Interaction - Trends in members, topics, discovery of new communities
Qualitative Quotes - helpful for feedback & marketing
Recommendations - Based on interactions with the customers
Benchmark based on previous report

An article reviews the results of a new social media ROI metric that combines the ComScore and Dunnhumby panels into a single-source database. According to their recent research, even relatively small outlays on social networks by package-goods brands can result in offline sales impact and deliver positive return on investment. This method holds promise for more-accurately measuring many smaller efforts.

As far as blogs are concerned, a post entitled The Customer Collective, suggests three qualities to consider when assessing a blog's ROI: Reach, Relevance, and Credibility. Although you can determine Reach and Relevance with quantitative measures, Credibility is a more qualitative assessment.

The multidisciplinary research of Sharan Jagpal stresses the importance of the marketing-finance interface. In Jagpal's view, "the standard ROI criterion is likely to lead to poor decision making, because it fails to consider the tradeoff between risk and return. It is essential to compare strategies using the risk-adjusted ROI, since different marketing policies involve different combinations of risk and return. Depending on the magnitude of the uncertainties involved, after comparing risk and return, many companies could well find that it may be better for them to focus on marketing strategies with lower, not higher, average profits...[Even] examining your risk-adjusted ROI will not always be enough.... consider whether audience duplication would boost or reduce its media productivity."

According to Jagpal, "when key players go beyond conventional metrics (e.g., ROI) and work together to apply new concepts and metrics to measure marketing productivity, your company can seize the hour."

New Technology

Thankfully some new technologies are being developed that make it easier to follow social media. eModeration reviews some very useful tools that will help you to obtain the best ROI. IAB’s ‘Social Media Ad Metrics Definitions’ provide a clear framework and metrics to help advertisers measure their ad effectiveness in three main social media areas.

Social media sites: Unique Visitors, Cost per unique visitor, Page views, Visits, Return Visits, Interaction rate, Time spent, Video installs, Relevant actions taken.

Blogs: Conversation size (no. of sites, links and reach of a conversation whose content includes conversation phrases relevant to the client), Site relevance (Conversation density, Author credibility, Content freshness and relevance)

Widgets and Social Media Applications – Installs (no. Applications), Active Users, Audience Profile, Unique User Reach, Growth, Influence, Installs – (no. installed per User)

There are a number of other technological solutions available that monitor discussion of your brand online and options to track & create custom reports. Tools for social media monitoring include Techrigy SM2 and Tinker, they are examples of efficient tools that measure brand presence, brand perception, opinion & tone. And they also help to identify the conversations that the brand should be engaging.

For a review of 67 social media/web/reputation management tools and sites see Social Media Today.


Embarking on social media marketing may be efficient, but it augers a lot of questions. An article written by Pete Blackshaw, exec VP of Neilson Online Digital Strategic Services, suggests ten critical questions we need to be asking to effectively leverage earned media marketing:

What is the primary source of earned media, advertising campaigns or brand experience (e.g., product meeting expectations, customer service fulfilling needs)?

What role does trust and authenticity play in the earned-media equation, and what steps must we take to keep the end product as credible and persuasive as possible?

What is the role of what we might call "spurned media," or earned media that goes negative?

What specific brand issues or experiences have the highest likelihood of triggering earned media? Product performance? Customer service? Employee?

How do we develop norms and benchmarks for appreciating the degree to which traditional (even offline) media feeds earned media?

How much of an "earned-media multiplier" do we need?

How do we reframe the operational mind-set to nurture longer-term earned media?

Should media- or marketing-mix planners invest as much time calculating how much budget goes to call centers or employee retention programs as to paid-media gross rating points?

How do we organize marketing -- how do we reconcile our silos -- in an earned media landscape?

Can a house divided long endure?


According to eModeration, three camps have emerged in response to the issue of measuring social media's ROI. Some are resistant to any attempt to measure social media, others just want to see the click through rate. Still others believe that measuring social media's ROI is an important part of trying to get a complete picture of people’s reactions to and interactions with their brand.

Marketing strategies are driven by return on investment and social media is no different in this respect. They have to make business sense, but when it comes to implementation of social media, particularly when paired with sustainable offerings, added attention must be given to ensure transparency.

Social media tools can track effectiveness or sequester capture information about interested parties. And although Mr Blackshaw has noted that, "just showing evidence that you care about what the consumer says incubates earned media," to successfully leverage social media's full power requires a more substantial effort.

One of the greatest challenges to social media researchers is finding and compiling relevant data online. However, thanks to new search technologies this task is now easier, quicker, and less expensive to accomplish. For the small business, the cost of listening in on social media can be very high and/or very time consuming, but this new technology should significantly decrease the cost and time investment associated with market-data acquisition.

As far as listening in to social networks is concerned, new technologies provide greater efficiencies because they give you quicker access to more data in real time. And you can mine data online because digital data is often available in archives. When it comes to communicating your message, these technologies may also provide better ROI, because it's quicker and easier to create brief messages than whole communications.

Despite difficulties associated with measuring ROI, social media is simply too efficient to ignore. Mr Blackshaw quotes, Fred Wilson who makes the case for earned versus paid media. Wilson suggests the media universe comes down to a blend of paid media and earned media, and in his words, "earned media, can be had a lot less expensively." But as he is quick to point out, "there are still a lot of marketers out there buying their media when they could earn it, and earn it a lot less expensively."

Social media is part of the tremendous wave of innovation we are seeing on the Web. Social media is an ever more powerful marketing channel, particularly when paired with ROI assessment tools in the form of new technologies like those that enhance search capabilities. Social media employing web analytics, buzz monitoring and community management listening can help to zero-in on your target demographic, hone your message and preempt (or at least manage) customer dissatisfaction.

To assess the ROI on your social media investment you must define your goal and establish benchmarks. Perhaps most importantly engaging social media involves reevaluating your customer in the context of social networks. Social media exponentially amplifies the fact that a satisfied customer is priceless while an unhappy customer can prove disastrous.

But the new metrics can go much deeper than addressing a complaint or logging a glowing testimonial. The new metrics not only monitor discussion around topics relevant to your brand, you can also find the number of people talking about it and their level of passion. A further advantage of new social media metrics is that they can measure not only whether people are engaged, but how they are engaging.

Social media not only measures what your audience is saying, effective communications can shape how your audience thinks. New technologies are helping to improve ROI measurement for social media, but as reviewed above, properly adapting and implementing metrics involves studying relevant attributes and answering important questions.

If used correctly, new technologies can help to level the playing field by making it possible for small businesses to leverage the reach, and assess the efficacy of social media.

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Shortening Your Sales Cycle With Social Media
Small Business Guide to Social Media
The Power of Social Media and the Importance of Market Segmentation
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Digital Marketing for the Young and Not so Young
Digital Marketing Will Thrive in a Downturn
Digital Marketing: Making the Most of Your Marketing in a Downturn
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The Green Market's Series on Mobile Marketing


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