Social Media Marketing's New Clothes

Lewis writes, "Don't Say ROI Unless You Mean It."  Agreed.  I see a lot of bloggers wading into unfamiliar territory, starting to spew opinions on measuring return on investment (ROI).  It's easy for anyone with an understanding of business finance to see the shallowness of these analyses.  But don't be surprised - has not knowing anything about a subject ever stopped a blogger from writing about it?

There is one correct approach to calculate ROI.  The result is a financial ratio.

To get to the root of the problem, we first need to go back to school.  Marketing has historically been a right-brain discipline, reflected in academic coursework.  Left-brained marketers end up focusing on direct and/or B2B - staying far away from social media.

Fast forward to the top of the food chain.  CMOs have a shorter tenure than other executive roles.  Why?  According to Spencer Stuart, the firm that publishes the most widely cited statistics on the subject, CEO and CMO agendas are misaligned.  CEOs want to see business results - I'd say now more than ever.  Marketers can't counter with, "well, I can't give you a number, but there sure are a lot of people talking nice about us."

Social media is easy to use.  If you can type in a box and click a button, you can blog.  Click the button that looks like "play" and sure enough the video starts rolling.  There is no secret to using Twitter.  Being a social media user meant that you were an expert...five years ago.  Not today.

Do you know the story about The Emperor's New Clothes?  Let's pick it up near the end:

And so the Emperor set off under the high canopy, at the head of the great procession. It was a great success. All the people standing by and at the windows cheered and cried, "Oh, how splendid are the Emperor's new clothes. What a magnificent train! How well the clothes fit!" No one dared to admit that he couldn't see anything, for who would want it to be known that he was either stupid or unfit for his post?

We know the Emperor should've just used some common sense.  Calculating ROI from social media efforts is no different.

If ROI doesn't apply to social media marketing, then social media should not be used for marketing.

Comments

[Marina Martin]

I expect you're going to get a lot of shit thrown at you for that post, so let me say: bravo! Thanks for saying something that needs saying.

There are multiple ways to track whether or not social media efforts impact sales that people aren't using, the same as direct mail campaigns are tracked and measured. I'm not convinced Dell earned $500,000 *extra* dollars through Twitter sales -- what's saying those people weren't going to make those purchases anyway?

I'm still waiting to see some actual figures to back up the claim that the Motrin Moms video cost them sales. I'd bet it didn't impact a thing.

Listening to and responding to customers is a customer service use of social media - not a marketing use. Further, social media is a tool -- one of many. I wonder how many "social media marketers" even use a CRM. (Highrise doesn't count.)

[David Mattia]

Isn't it interesting how trust has become a universal theme lately in business and the general headlines?

Trusting that social media marketing delivers ROI is perfectly reasonable now that it is mainstream...isn't it?, both reasonable and mainstream? Is the sample of the market represented by it fair?
Broadcasting has and is going through the same evolution depending upon which side of the industry you see. The universal chant is for "better metrics". Can we trust the metrics to tell us we are doing the right thing? From a long term perspective it suggests, to me, this is still an early growth stage and part of getting there is asking tough questions and realizing that when the questions change, chances are good that our perspective has too. I'm pretty sure the target will always keep moving.

[Peter Kim]

Do you trust that social media marketing delivers a positive ROI? I don't. I think a large enough experiment sample exists, but few of the companies are talking about results and when they are - as Marina points out - methodology is certainly absent.

Early stage is no excuse for not seeking proof.

[David Mastronardi]

Nice job here, Peter. I see a lot of propaganda (for lack of a better word) that SM ROI is so hard to measure. I think people are looking for an easy way out and buy into that message instead of doing what you propose. Fundamentals are fundamentals regardless of the medium.

[gianandrea facchini]

As I'm not english mother tongue, I hope to make my point clear enough.
I think that there is an issue at the very beginning of the story: I do believe that social media does not generate sales, at least, not directly. So you can't measure it with a Roi. But it helps in generating a positive environment which facilitate sales or avoid to lose sales.
Customers are far more complicated than in the past as it is the entire food chain. Ten years ago, Gillette (to say one) could have produced a new system, put it on the shelf, advertised it and forgot about the rest. Do you believe that this model has not changed lately?

[jacob morgan]

peter,

i suppose you are assuming that ROI is a dollar amount, yes? in which case i would disagree. you cannot track every social media action to a dollar amount and the cost of using or building such a fancy analytics or tracking solution is not worth the cost! aka the roi of tracking social media roi.

granted i do think there is a lot of information you can track, im just not sure that boiling everything down to a dollar amount makes sense.

J

[Joshua-Michéle Ross]

Well done -
I agree with the spirit of this post but it assumes that existing business structures should drive the way we frame our projects. I am not sure I agree with that premise. Social media blurs the lines between PR/Marketing/Customer Service/R&D etc... All of which have different measures. If marketing funds it - then marketing wants it's traditional measures - and forecloses on a lot of what would otherwise be possible. I am not arguing against ROI - but rather that we shouldn't simply fit a whole new type of initiative into our old structural models.
Marina raises a good point when she says, "Listening to and responding to customers is a customer service use of social media - not a marketing use." Yes and no. In a world of social technologies that listening and response becomes a form of marketing (Zappos stands out in this category). Most of the successful social media projects I have seen do not fit well in any single predefined business category like customer service or marketing.

[simon andrews]

I think the significant effect social media has on search will give us a way to measure ROI.
Positive buzz can make seo work well so saving money on paid search - we're looking at ways of attributing $value through this causal link.
On negative buzz its less easy to count, but search for Motrin and a number of the first page stories mention motrin mums - they should be able to look at fall off in search traffic?
I think social can drive ROI but I agree that if we don't find a way to demonstrate this we'll find brands reluctant to invest

[Joseph Jaffe]

When you say marketing, perhaps you should be saying marketing communications, in which case it's probably important to compare apples-to-apples (i.e. social media to 30-second spots) from an accountability standpoint, reconcile realistic timeframes and expectations...and manage accordingly.

[Kate Brodock]

You had me until the last line Peter :)

I agree that the traditional ROI measurements aren't (yet?) there in social media. Maybe they never will be. I agree that CEOs etc need to see some intelligent form of positive performance for any marketing campaign.

I disagree that social media shouldn't be used in marketing and I think people should start thinking beyond this traditional ROI measurement that they already haven't been entirely in love with for quite a while (Raise your hand if you completely trust your ROI measurements, and then raise your hand again if you're just trusting it because your company has used it for a decade without re-analyzing it). In other words, "common sense" (I thought this was where you were going until the last sentence).

A good start could be to think conceptually about ROI. It didn't come out of nowhere, by throwing some numbers into an equation.

The second thing is that there are plenty of numbers that you can measure in social media that actually lead to intelligent analysis of success levels.

I had some ponderings (I made that word up I think) on this a few weeks ago: http://tinyurl.com/5cdldj

Just my two cents :) I may have taken you too literally about not using social media as marketing (or at all), and perhaps you were saying (as Joseph was clarifying?) that you meant it should be in another function?

[Tom O'Brien]

Hi Peter:

While there is always linguistic nitpicking around this subject, I have to agree with you that all marketing efforts (including conversational or social media) have to show a positive ROI. There can be no other way forward.

With the Superbowl season upon us, I am asking the question: Would you rather have a Superbowl Ad or $3 MM to fund a team of people to do your social media/conversational marcom outreach next year?

TO'B

[Lew]

Pete,

You already know I agree. To those who say we assume ROI is measured in dollars, guess what it is. It is a financial metric, always has been and likely always will be to c-level executives whose primary responsibility is fiduciary in that they are charged to deliver profits and margins.

As you know, I offer another metric for consideration, as well. I used it both in the corporate world, including when I was a VP of Marketing, and it works well for measuring intangibles. It measures Value.

Nice job Pete. BTW I have always been able to measure both ROI and Value when I work closely with Sales, Customer Service and Finance. Not so much when I try to do it within a silo.

[Peter Kim]

Gianandrea,

I do believe that media channels have proliferated and attention fragmented, thus the path from awareness to purchase has become more complex for consumers and brands to navigate.

What I hear you saying is this: Social media isn't about sales. So it's not relevant to ROI. Thus it shouldn't be used for marketing...

[Peter Kim]

Sorry Jacob, ROI is a financial metric. As a CMO you should know this. What you're talking about is branding - which has escaped financial scrutiny for a long, long time. You should check out the link in the post above for the advice to CMOs from Greg Welch.

[Peter Kim]

Joshua-Michéle - I agree with you completely. Current organizational models need to change. Once they do, we will see new forms of social marketing, social finance, social IT, social customer service, etc.

[Peter Kim]

Joseph, I've thought a lot about your comment. I agree with you for the most part and marketing communications would cover most of traditional advertising, PR, and corporate communications. However, I wouldn't let other one-way marketing disciplines like direct or guerilla off the hook so easily either.

[Peter Kim]

To reiterate, the last sentence of the post is technically an if/then statement and not written rhetorically.

Simon mentions search above. In the closed loop of an online environment, it's quite easy to measure the ROI of SEM. If your client's job and your contract depends on driving financial results, would you recommend search or social?

I still stand by what I told the WSJ a couple months ago. http://online.wsj.com/article/SB122403310652235021.html?mod=rss_media_and_marketing

[Peter Kim]

Great question Tom. And if I had to choose one or the other and spend the money, I'd choose the Super Bowl ad. I'd recommend the same to MotiveQuest. Why? It will generate awareness that will lead to sales and measurement for that medium exists. I bet that spending $3 MM on social media marketing would end up looking a lot like the rest of today's traditional below the line tactics.

But if that budget could be applied differently - I'd recommend that it not be spent on any sort of media or positioning, but rather on tools and processes that drive genuine collaboration with colleagues and customers. (That's not marketing communications.) And of course in full disclosure, that's what my company helps businesses do.

[jacob morgan]

hey peter, yes traditionally roi is a financial metric but social media is not traditional. i think there is a lot that goes beyond a dollar amount for social media and using a strict dollar amount to measure the return on an investment is a very narrow-minded way of approaching things, especially social media. how do you quantify a relationship or a communication with someone? if everyone used strict ROI as a dollar amount to measure success, the world would be a very lonely place.

would love to see a very specific and detailed example of how you would measure a social media campaign and measure the roi from the relationships, connections, links, etc.

not everything is as black and white as SEM, we're talking about very different things here and it's not adequate to compare them.

im not big into semantics so call it what you will

J

[Larry Irons]

The Eighth Annual Burson-Marsteller/PRWeek CEO Survey recently reported that of 200 CEOs surveyed, 48% considered social media to have an impact on their company's sales of products and services. Of course 52% did not consider social media to have that impact, but it seems like 48% is an indication that someone thinks an ROI exists, not just savings of time and money.

[gianandrea facchini]

Peter, thanks for you reply.
I mean that for social media we should find different form of return: ROE (engagement) or ROT (trust), etc.
Now, the question is: which is your definition of marketing? Is it marketing anything that deliver a ROI? Without a Roi, there is no marketing?

[jacob morgan]

hey lewis,

roi is in the eye of the beholder, which in most cases is the companies/executives. if you choose to measure roi as a strict dollar amount then that is fine, you are only going to capture a portion of the value. you can call it whatever you want but the bottom line is you want to see results, it doesn't matter what you call those results.

roi is a financial metric to some and a different metric to others, it's like arguing what the definition of social media is. you want to talk stocks then sure bring up roi, peg rates and whatever else you want bring into the equation.

jacob

[jacob morgan]

oh and just curious peter, what are you using to manage your comments? standard wp? i like the "reply" feature that your comments system has.

J

[Peter Kim]

Marketing investments should be able to be measured with some form of financial metric, just like other capital investments in property, plant, and equipment or labor.

[Peter Kim]

Social media shouldn't be used for marketing campaigns, which by definition implies that a company has already made a decision. Social tools should be used for more fundamental collaboration and communication, not to push messages out to a broad audience similar to a commercial.

This is more than semantics.

[Peter Kim]

Larry - I think your comment is slightly misworded. The survey results say that "48% of CEOs believe social media CAN have an impact on sales" - not that it actually DOES (emphasis mine). And it's the third of three reported options, under two reputation choices. Without having run the survey, I can't speak to its methodology or how question response was worded.

And if CEOs always have the answers, why did a few guys from Detroit taking so much heat in Washington this week? Moreover, social media participation is highest for Millenials and Gen Y - certainly not the CEO set.

Link to the 2008 PRWeek/Burson-Marsteller CEO Survey: http://www.burson-marsteller.com/Innovation_and_insights/blogs_and_podcasts/BM_Blog/Lists/Posts/Post.aspx?ID=79

[Peter Kim]

I'm using Typepad's new Typepad Connect. Kimmie, Typepad product manager, left a comment on an earlier post and I'm sure she'd love to hear from you.

[gianandrea facchini]

I agree with you, here. (disclaimer: this is my job)
Social media are for intelligence of market and customers.

[Patrick Moran - CMO, Mzinga]

Good provocative post, Peter. I agree with the point of the post -- I DO think the "it is early" excuse for "why no measurement" is legitimate though. I think we will develop true ROI calculations which will drive the future of social software. I look forward to it.

[Larry Irons]

Peter,

I agree that one formula exists for calculating ROI, if that is your point. However, I doubt seriously that the operationalization of each variable is as straightforward company to company as you seem to suggest. My point was that 48% of CEOs surveyed think social media does impact their sales of products and services. Of course every survey's methodology is open to question. However, when it comes to identifying value or return I'll take the view of the people responsible for delivering it every time.

Larry

[Tom O'Brien]

@Jacob - this isn't really open to interpretation. ROI is a financial measure. You can change time periods, variables, etc. But it is a financial measure. If you try to tell Sr. Management that ROI is a "financial metric to some and a different metric to others" they will immediately tune you out.

TO'B

[Tom O'Brien]

Peter:

I guess what I was thinking is that either I spend the $3.0 MM on the Superbowl or I use it to implement tools and process AND people to get involved in genuine engagement (not facebook fan pages) across marketing, product, service, etc.

TO'B

[Larry Irons]

Duh...I meant to use the word CAN rather than DOES in the comment. And based on that, we don't know how many think it actually DOES rather than merely COULD. The sentiment stands in either case though.

[Tom O'Brien]

I have to disagree. Why is it legitimate to sell something with no measurable ROI? My experience is that the burden of proof is higher for something new.

TO'B
CMO - MotiveQuest

[Peter Kim]

Yes, yes - in complete agreement then for option two.

[Edward O'Meara]

Red is red -- anyone that has spent considerable time in front of a CEO, CFO, and/or Board of Directors should realize that every budget line item for which you take responsibility is a red number. The question - always - is: what do we get if we spend this money. The level of detail discussed may vary; but headcount, media, pr, research, T&E, social media - to them neither these items nor the metric you devise matter as much as your ability to demonstrate that expenses will deliver something in return.

[Lew]

Bravo and well said. I've been there both as a corporate guy and now as a consultant. CEOs, CFOs and COOs or CMOs for that matter won't last long if ROI doesn't deliver ROI as measured by gain in dollars when investment is subtracted from return.

[Steve Poppe]

When even I go into a mtg. and business executives and marketing people keep dropping the ROI acronym, two things become evident very quickly: they aren't getting any and it's "tactics time." ROS or return on strategy, is a much better metric.

[Eamon]

Hi
Just wanted to say that added your excellent post 'Thinking Through Twitter' to my Twitter Gold blog list.
http://www.spotlightideas.co.uk/?p=1088

[Dan Thornton]

Surely ROI can apply to marketing, by tracking a custom url driving traffic to a product page, for example, just as accurately as you could ever measure a print, radio or television advert?

What worries me about taking Social Media out of Marketing if there's not clear evidence of a direct ROI pretty much guarantees it won't happen in many companies - and it won't be a catalyst for changing organisational structure.

I'd also debate social media is easy to use - easy to sign up to...easy to use for basic broadcasting or having a branded page - but a lot harder to use in a way that effectively engages a group and builds the things that can lead to an increase in ROI.

The problem isn't that social media can't be measured in various ways - the main problem is this desire to isolate it from everything else in terms of ROI, and yet acknowledge it actually supports everything else.

If there's a measure to show I went to a url due to a full page magazine advert, and not the fact a friend mentioned it to me the day before, I'd believe social media is harder to measure and justify :)

[Peter Kim]

Dan - of course marketing investments can be tracked to some extent, especially in the closed loop systems you describe.

However, the whole point here is that social media shouldn't be used for marketing if we have to use it on blind faith. Better to spend money on things that are known to work.

It definitely is difficult to use in a way that engages constituents rather than supporting a one-way campaign. But that's the way it should be employed.

[Ethan Bauley]

"But if that budget could be applied differently - I'd recommend that it not be spent on any sort of media or positioning, but rather on tools and processes that drive genuine collaboration with colleagues and customers. (That's not marketing communications.) And of course in full disclosure, that's what my company helps businesses do."

Don't bury the lede!

;-)

[Luis]

Nice Job Peter.

I love bold statements and I also think many should stop using the ROI term without knowledge. I want a t-shirt!!!

Now let me ask you something:

This great post along with all these comments are some sort of social media right? I learned about this post through tweeter, another social media app... both you can measure.

If you had advertising on this blog (lets pretend you do), you could very well compare, for instance, the CTR on this post versus one of your other posts that have no comments at all (classifying that one as editorial, not as social).

Wouldnt you be able to financially measure it? At least you would have sold a TShirt for sure! The more you repeat this excersice (publishing well-written and controversial posts) the better and more accurate your estimates would be.

What do you think?

[Peter Kim]

Luis - your approach is definitely valid.

Question is, would the advertising itself be helpful or useful to the community? Display ads wouldn't be content that help the community here - it would turn this into a media site. You can't interact with a display ad. (But Facebook's voting approach is a step in the right direction.)

[robin seidner]

Social media/computing does blur the lines - that's why its important to bring these others to the table at the beginning to extend the conversation beyond marketing and into business strategy.

Organizations ought to work with a consultant rather than a PR or marketing agency when diving into social computing/social media. PR and marketing agencies are campaign- and marketing-focused, so its not in their interest to collaborate/join forces with more parts of the business (marketing, IT, customer service, R&D, etc). A consultant is going to (hopefully) be more neutral in recommendations, and take overall business strategy into account. (disclaimer: I am a consultant)

[Paul May]

Very late to this discussion...

So I've read through the post and comments twice now and it's still not clear to me exactly where you stand on this, Peter. Are you simply saying that you shouldn't use social media for marketing purposes unless you can demonstrate ROI or are you saying that you don't believe that social media marketing delivers ROI (or at least doesn't deliver it to scale)?

[Peter Kim]

The former. The latter requires inserting some assumptions between the lines that don't exist.

[Paul May]

I think there's empirical evidence that refutes the latter...starting to be lots of good case studies showing real return. Kyle Flaherty's recent case study about BreakingPoint Systems is a recent example with clear ROI http://budurl.com/8uyb (the post doesn't get into the specifics of the numbers, but I've talked to Kyle and Pam O'Neal about it, and the ROI blew me away). Now whether or not it can scale to the enterprise...I'd say that the jury is still out.

There are a couple of points that you've made that I think are worth discussing. You stated that: 1) social media should serve as fundamental infrastructure for communications and collaboration, and 2) it shouldn't be used for campaigns. I agree with the first statement and disagree with the second. If you believe that social media gains power when it becomes part of the company's underlying communications / collaboration infrastructure and if you believe it should span across all business activities/processes, I don't see any reason why marketing promotions shouldn't be included in that. Social media marketing campaigns certainly need to be handled differently than traditional campaigns, but I don't see why campaigns lose validity in a social media world.

[Kevin B. Gilnack]

"Listening to and responding to customers is a customer service use of social media - not a marketing use."

The difference between listening to and responding to customers on Twitter verses a 800 number is that the community sees it, and occasionally bring a good amount of attention to it. Then, perhaps, if you're doing something right, bloggers start blogging about it. Then, maybe those blogs get shared in Readers or StumbledUpon or Delicious or Facebook or etc. - maybe even back on Twitter.

The question really is, what's the impact? Compared to a TV ad, the audience is nothing. But, are you reaching a new audience? I work at a trade association and happened to start following someone the other day who DMed me saying she'd been meaning to check us out and maybe join. Would we have maybe reached her at an event or with a mailing? Perhaps, but Twitter found her first and started that dialog.

That's an extreme example, who knows if it will ever happen again. But, if you can engage folks, you're opening up a new channel. Marketing is often a multifaceted endeavor because that's what the competitor's doing, so people are flooded with information.

Using the demographic information of the many social media platforms out there, couldn't a company determine what channel might have a significant number of potential customers (and hopefully some satisfied ones already) and see it as another place to put your brand in front of them?

It just seems we don't know if someone chooses to buy a particular product because they saw a TV commercial, heard it on the radio, saw a planted news article, a newspaper ad, or if all of those things helped create a positive brand image to that customer?

That said, I am not a marketing professional - social or otherwise - so if I'm naive, I'd welcome any response you might have.