Social Media ROI

So what? if,

"People are talking about your brand"

"You have a dashboard which shows pretty red, yellow, and green graphs"

"You've just paid a celebrity to tweet about You" 

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.

So how do we get at the ROI of social media?

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. 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.