From the last post, we saw that some folks argue that Social Media ROI can NOT be calculated and some folks argue that Social Media ROI can be calculated. We argue that Social Media ROI can be calculated and we will put forth a few different ways of calculating the Social Media ROI.
First up is Forrester’s Social Media duo Charlene Li and Jeremiah Owyang. In 2007, Charlene and her team conducted a study on the ROI of blogging where they saw that it is fairly easy to calculate the ROI of blogging. They did not calculate the ROI of blogging directly. Instead, they calculated the value and the cost of key functions like advertisting, PR and word of mouth marketing of traditional media. They then transposed the value metrics to the blogging calculations and compared the cost between traditional media and social media based on the same values. The value and the cost of traditional media is well known so based on the same value but difference in cost, the ROI of blogging can easily be determined.
Charlene quotes an example: “FastLane has about 100 people commenting on the blog each month, which is equivalent to gaining customer insight on products and brands from a traditional focus group. We estimated that the value of this was equivalent to running a focus group every month at the cost of $15,000 a month, or $180,000 a year. Voila – there’s the value of the blogging benefit laid out in black and white.”
This method can be extended to the ROI of Social Media with similar results.
For better visualizion of the study, refer to Shwen Gwee’s slide deck called “Can Pharma Make a Business Case for Social Media.” The study slides start at slide 60.
So one way of measuring the Social Media ROI is by comparing the value and the cost of key metrics from traditional media with similar key metric from Social Media.
Another way of calculating the ROI is doing what Powered, a social marketing company, did. They asked the customer!
Powered is a social marketing company that builds managed online communities for their clients. The clients invite their customers in to the online communities for building stronger B2C relationships. The managed online communities “provide the benefits of social networking with engagement marketing, which result in a high conversion to product purchase, greater affinity for the brand and key insights into consumer behaviors.”
A research company, New Century Media (NCM) conducted a study of Powered’s social marketing programs. NCM asked customers questions in regards to purchase intent, brand affinity and brand loyalty, and then compared the results direct marketing and mass marketing.
Based on the NCM’s study, the Social Media ROI using Powered’s techniques where 60:1. This compares very favorable to direct marketing at 11:1 and mass marketing at 2:1 (download the report for Social Media ROI details and references – it is a great read).
The last comment is from Bill Johnston at Forum One. Bill has compiled a set of publicly available data that are related to Social Media ROI:
- Community users remain customers 50% longer than non-community users. (AT&T, 2002)
- Community users spend 54% more than non-community users (EBay, 2006)
- Community users visit nine times more often than non-community users (McKinsey, 2000).
- Community users have four times as many page views as non-community users (McKinsey, 2000).
- 56% percent of online community members log in once a day or more (Annenberg, 2007)
We have discussed a few ways of calculating the Social Media ROI; Charlene and Jeremiah compares value and cost of key metrics between traditional media and social media, while NCM simply asks the consumer and then compares the ROI with direct and mass marketing. Both cases lead to big advantages to social media over traditional media – and that does not include other online social media advantages like detailed measurements.
Comments is a fundamental part of social media, so do your social duty and add a comment with your thoughts.
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The statistics are intriguing. I’m still undecided though as to which is the chicken and which is the egg… Do members of a community engage in more interaction, or do people who are more inclined to interact become members of a community? If I could whittle membership down to those few who engage, I’d have a stellar ROI, but as I build and expand the community to more fringe participants, the ROI is likely to go down.
Rick, thanks for your comments.
I don’t think it is a chicken and the egg situation because that implies that one come before the other. In any social situation, offline/online, someone says something and someone else replies. If the discussion is interesting, more people join in. After a while the original discussion might morph into a number of sub-discussions in sub-groups. It works the same way in online social networks.
Wrt to you second point about ROI – I think we always want to retain the high-paying customer and not the no-paying customer but today it is tough to separate the two until the conversion is complete. Going forward and using web analytic and consumer tracking methods, it is a lot easier to determine who is likely to purchase and who is not based on predictive analysis.
For additional, impressive stats, see http://www.bazaarvoice.com/industryStats.html
It’s almost too good to be true that Powered’s social marketing problem has an ROI of 60:1 whereas direct marketing is 11:1 and mass marketing is 2:1. It makes me wonder why more companies are not using the idea of a community in order to promote their products/services. It’s interesting that the idea of a community plays out very well in ‘the real world’ since if people are connected to other people, they can easily become brand advocates for certain brands hence improving the ROI. It’s interesting how a similar situation plays out on the internet. Once people feel connected to a brand, they become advocates for that brand. Now, instead of just telling their close friends, they can tell their followers on Facebook, Twitter, and various other social networking sites.
Since I hope to begin a marketing/communications career within the healthcare industry, I found it extremely interesting that you addressed tracking social media ROI in the pharmaceutical industry in particular. I looked at the student “Can Pharma Make a Business Case for Social Media,” and it was extremely interesting. This is an area that I have put a lot of thought into, and I am very eager/anxious to see how social media will impact an industry as volatile as the healthcare industry. I will be in Professor Xia’s class when you come in to guest speak this Wednesday morning, and I would love to hear more about your opinion on this matter. Thank you!
I agree that it’s possible to measure the ROI of social media. Since it’s such a huge part of marketing today, it’s a necessity to do so. Like Liz, I too find it interesting how ‘real world’ situations play out over the internet. I just hope that the ‘real world’ isn’t taken for granted for the convenience of the internet. I looked over the statistics on the bazaarvoice link and found them astounding. Word of mouth has an immense role in marketing and advertising and thats part of why social media is so effective, people can now talk more easily. I think it may be a while longer before we see all of the effects of social media and we’ve only begun the possibilities. With more changes, like the introduction of the iPad, will it make ROI harder to measure, or would the process/calculator stay the same?
I also agree that it is possible to calculate the ROI of social media web sites. The statistics given are very interesting and prove that community members are more loyal and involved in their social network than non-community members. Therefore, I am in favor of Powered’s approach in asking the users what they think and feel. A loyal user is very likely to give their input when asked what improvements that they believe need to be made or what aspects they enjoy the most, I know I do! This also helps with building a strong relationship between the user and the social network itself. In order to be successful, it is essential to gather information from both ends (the user and the creators) to continually innovate the design and process of the site. I look forward to hearing more at Bentley tomorrow during our class discussion!
It has been constantly reiterated that social media is new is a new form of marketing and that no one has quite figured how to measure is efficiency. And understand the importance of determining whether or not you are getting a return on investment when using social media. with that being said, i think people are trying to put a square peg into a round hole so to speak because they are talking about new and innovative however, they are attempting to use traditional financial calculations. I see that some are trying to figure out new ways to accomplish this, and i think that eventually someone will figure out an effective way to calculate the ROI of social media.
The new social media is like how TV used to be in the eyes of big business. Hard to measure, but because it has been around longer they are content with it. I believe the feedback is the best because social media users love to get asked questions. They do the searching around on-line, through the blogs, twitter, etc. So if we are able to ask for their opinion they would love to tell it. Thats a great measure of ROI.
I found interesting the quote that implied people who comment on blogs offer the same amount of value as a traditional focus groups. Has there been any study that proves or disproves this? It would seem to me that the feedback from a focus group would be more constructive because the person running the focus group can ask for clarifications, specifications, and examples with a guarenteed, as well as immediate response.
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