Image courtesy Psiaki.
I’m doing some research for an eBook I’m writing about practical ways to answer the question “What’s the ROI of social media?”, so I figured why not look at how we got started with that controversial trinity of letters in the first place? See, there’s a little quirk of Marketing Research that I know: most of the methodologies, models and formulas we use actually originated in other industries, and we’ve roughly translated them over to the behavioral sciences. A lot of what we do comes from game theory or economics, and brings a good chunk of that original DNA to the solution at hand.
So what about ROI? Where did it come from? Well, if you’re going to begin at the beginning, then we have to talk about a young Virginia Polytech grad named Donaldson Brown who, in 1909 joined DuPont not to do math, but actually to sell explosives.
You can read a great biography on Donaldson at DuPont’s website here, but the short story goes that his financial genius only surfaced when, in 1912, he submitted an Efficiency Report to corporate that used a return on investment formula. Now, this interested DuPont greatly, because they were invested in just about everything - the afore mentioned explosives (the whole company was founded in 1802 by Eleuthère Irénée du Pont to make gunpowder in Wilmington, Delaware - all using capital and cash from France), cellulose, lacquers, and many other chemicals. And it was in 1912 that Pierre S. du Pont started investing in the brand new Automobile industry, thinking it would become a big hit. In fact, Pierre and the business acumen warehouse of DuPont would invest over $25 million (in 1920!!) in and grow General Motors into one of the largest auto companies in the world. So much so that Pierre became President of GM in 1920, and their purchases were one of the catalysts to drive antitrust legislation from the US government.
So when you’re invested in just about everything, you really - REALLY - want to know how well it’s doing for you! Mr. Donaldson Brown led a new breed of Accounting, bringing statisticians and economists into the mix to develop new ways of understanding and comparing wildly differing investments, and defining performance of each in a way that compared apples to apples (or cars to cellulose, in their case). This is what ROI was designed to do: reduce any investment down to a common denominator, one that can be compared across a wide range of other investments to see which ones are the top performers.
Which brings us back to Social Media. With businesses that have been drilled in cost accounting principles almost 100 years old, this is their paradigm: the view that any amount of money that goes out the door other than taxes can have a return, and those returns can be compared across any investments. So when Social Media comes to the table, how your CFO sees it can make perfect sense - a new channel, a new cost, so what’s the return I can compare with everything else?
And Social Media does generate the kinds of hard numbers that work for this mindset - just recently, USA Today published a story on a number of independent retailers using social channels to drive huge amounts of sales during the holiday season. The problem with Social Media is that it generates multiple returns, and only some of those are sales. Awareness, assists, advocacy and avoided costs are just some of the extra benefits a business can receive through participation in social media, and not all of those can be turned into a dollar figure.
So based on the history, our challenge is clear: Businesses want tools that will allow them to understand where to best spend their money, and Social Media must pass these tests as well. So how do you do that, when there’s so many comparisons that can be made, and Social may likely not even be a business’ best sales-driving channel? Here’s 3 quick ideas for you:
- Measure ALL the benefits from your social interaction. I’m amazed at how many brand social media teams don’t use one or more of the readily available social management systems to track how they interact, who they interact with, and how it turned out. Even just a simple job-ticket-like system can help you manage incoming requests and document their success. Moreover, it’s time to get really serious about connecting Social Data with Customer Data. We know our customers buy, and in many cases, we know something personal about them - a name, an email/physical address, a credit card. It’s time to start connecting those people with their social profiles, so I can see how my actions are affecting social metrics, and how THOSE correlate with changes in purchase behavior.
- Make the comparisons you can. Social Media usually isn’t the best revenue driver in an organization, but that’s often because they’ve spent decades attributing sales to TV or a print circular. Social Media can stand toe-to-to with direct customer sales methods, but can also stand up on awareness even to Big Media. Ford’s Facebook reveal of the 2011 Explorer gave them a greater awareness than comparable Super Bowl ads, and at a fraction of the price per impression. I may not be able to show the same audience sizes as Big Media with social, but I can certainly show a cost that’s much better.
- Measure what they can’t do. Social Media can do some great things for a business, but why stick with the usual scorecards? A billboard can’t drive Advocacy like a social campaign/effort can, but Advocacy is still hugely powerful for a business. When you portray social actions as having a complete package of benefits for the organization, you’re giving them a true and more accurate picture of how important these efforts can be.
Hope you enjoyed your history lesson, and found a few things to implement. Happy New Year to all, and have a great 2012!