Social Media ROI: The Real Value of Social

Marcel Santilli - @santilli April 20, 2011

Placing a monetary value on social

Why social media matters

Evolution of communication and interaction

Role of social media in the organization

Challenges with measuring ROI

Framework to measure ROI

The “R” and “I” in ROI

Recommendations and key takeaways

Fewer ads Reached more people with undivided attention

More ads Reach less people paying less attention

“Success is rare”

Best in class approach to social media

How social media plugs into the organization

Marketing

Advertising

Public Relations

Reputation Management

Research

Customer Service

Customer Support

Business Development

HR Legal IT Internal Communications

Collaboration

Measurement

Data Analysis

Business Functions Business Processes

How social media creates value for the brand

Reshaping the relationship: Nike

Nike Plus Community

OPEN Forum (American Express)

Does the marketing funnel still work?

24 Source: Forrester

Challenge with attributing revenue to right touch point

Searches on Google and clicks

on paid search

Visits four pages and subscribes

to newsletter

From newsletter, registers for webcast and

follows on Twitter

Reads several blog posts and engages

on social media

Watches webcast and poses question

on Twitter (gets answer right away)

Watches YouTube video and clicks on product page

Downloads a trial Purchase

What do we attribute sales to?

First touch

Last touch

How do you measure intangible benefits?

Three biggest challenges Barriers to achieving buy-in on strategic social investments

Framework

# of Customers Impacted

Cost (Tech, people, process) VS

Business objective: Reduce churn

Customer-centric KPI: Customer satisfaction

Social transactional metrics: Sentiment, mentions, etc

Enterprise Approach How can social media create customer value?

Customer Lifetime value

Acquisition cost

Frequency Retention

Retention cost

Sales cycle

Efficiency Effectiveness Acceleration

Customer Experience

Unique social experience

Customer touch points (supporting social)

External factors (peers, competitors, etc)

Brand + customer value Conversations

ROI and CLV equations

The investment-return relationship

Investment Action Reaction Non-

financial impact

Financial impact

ROI should be measured here

This is very important but ROI doesn’t live here.

Engagement is key

Unaware Interested 1st time participant

Regular participant

Passionate participant

Awareness & interest

Call to action Incentive to return

Progressive benefit

Customer value

Definition: The perceived worth of the set of benefits received by a customer in exchange for the total cost of the offering, taking into consideration available competitive offerings and pricings.

Customers define value (in terms of utility and not product or service)

Value is opaque even to the customers

Value is contextual – the end user, end use situation and environment

Value is multi-dimensional – Functional, emotional and economic

Value is a trade-off between benefits and costs

Value is relative – Relative to the next best alternative

Value is a mindset – the sole purpose of the firm is to create value not products or services

Four pillars of profit

Customer satisfaction Loyalty

Engagement Customer value

From satisfaction to profit

Increasing the customer retention rate by 5% increases the average lifetime value of the firm’s customers by at least 25%

- Reichald, The Loyalty Effect, HBS Press.

Increased Consumption

Greater Share of Wallet

Longer customer lifecycles

Forgiveness for occasional lapses

Operational cost savings

Cross-selling opportunities Price insensitivity Referrals

Customer lifetime value (CLV)

CLV sensitivity analysis

From To New CLV Change in CLV

Customer retention 50% 55% $ 93.74 ▲21%

Transactions per customer 2.00 2.20 $ 107.47 ▲39%

Average transaction size $250 $275 $ 107.47 ▲39%

Acquisition cost $150 $135 $ 92.18 ▲19%

Retention cost $50 $45 $ 84.76 ▲10%

1% improvement = 13% increase in CLV

Example: Customer acquisition cost

Business objective KPI Metrics Reduce customer acquisition cost

•  Cost per lead •  Lead conversion rate •  Marketing effectiveness

•  Click-through rate by channel

•  Engagement metrics (Retweets, likes, comments)

•  Organic search

Questions to ask: •  Are customers impacted by social media cheaper to “acquire”? •  How does social media impact CLV for these customers? •  What metrics correlate to business objective? Why or why not? •  What is the impact of social interactions on KPIs?

The “I” in ROI

1. Technology Infrastructure, software, hosting and professional services

2. People Development, strategy and planning, labor hours

3. Process-related Training, workflow reengineering

7 Steps to ROI

1. Set enterprise-wide business objectives

2. Determine related KPIs and relevant metrics

3. Estimate necessary investment (technology, people and process)

4. Compare customers impacted by social media against those that were not

5. Calculate CLV

6. Estimate number of customers impacted in relation to investment

7. Show relative ROI

IBM example Using social media internally to surface IBMers’ expertise

Outcome = $100 Billion

1. Start with business objectives

2. Think of how social media can change the way you do business

3. Put social experience at the center

4. Focus on creating value for your customer

5. Prove ROI through CLV

Credit (white papers, research, pictures, blogs, articles, videos, etc)

http://www.brandrepublic.com/news/969874/Social-networks-making-people-likely-complain-online/ http://www.thestrategyweb.com/social-networks-make-people-more-likely-to-complain http://www.adobe.com/engagement/pdfs/Forrester_Adobe_TEI.pdf http://www.techzone360.com/topics/techzone/articles/131154-ibm-social-channelmedia-social-crm-trends.htm http://www.theappgap.com/top-5-social-media-myths.html http://www.realinnovation.com/content/c081103a.asp http://thebrandstop.wordpress.com/marketing-frameworks/lifetime-value-customer-equity/ http://www.slideshare.net/brieuc/whats-the-roi-of-your-mother-a-presentation-about-roi-and-social-media http://pb-hass.deviantart.com/art/mother-and-daughter-24676572 http://www.scribd.com/doc/49442666/The-Virtuous-Circle-The-Role-of-Search-and-Social-Media-in-the-Purchase-Pathway-Research-from-GroupM-Search http://www.brandrepublic.com/news/969874/Social-networks-making-people-likely-complain-online/

Closing the CMO Leadership Deficit in Social Media, Marketing Leadership Council (July 2010)

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