Social Media ROI Is Like An Oreo Cookie

While watching Olivier Blanchard‘s great presentation about Social Media ROI that I ‘discovered’ on Mashable this week, I had a revelation.

Social Media ROI is like an Oreo Cookie!

It would be hard to find anyone who hasn’t taken apart an Oreo cookie to eat the frosting.  Some people claim that the middle of an Oreo is the best while others claim that there are no calories in the frosting which means that it doesn’t really matter.  In any case, one of the slides in Oliver’s presentation resonated with me and it made me think of Oreo cookies.

There are a lot of activities that people quantify and measure when looking at the ROI of an investment – but the only 2 ones that matter are the Investment Impact and the Financial Impact.  The investment relates to the limited resources of  people, technology and time for the activity, and the financial impact relates to increased revenues or decreased costs.

Social Media ROI is Like An Oreo Cookie

Social Media ROI is Like An Oreo Cookie (loosely borrowed idea from Oliver Blanchard and Nabisco)

In other words, the Investment and Financial Impacts are the cookie outsides and the non-financial action is the stuff in the middle.  And just like an Oreo cookie, the stuff in the middle doesn’t really matter.  At least it doesn’t matter from in a return or investment sense.  Web visitors, impressions, customer complaints, positive reviews, blog posts, click-throughs, emails, Twitter followers, blog comments, etc. do not translate directly into quantifiable revenues until those actions convert into incremental sales or confirmed cost reductions.  The non-financial impacts are predictors of success, but they are not success in and of themselves.

When it comes down to it, the only things that matter is how much did you spend and how much did you make.

Most importantly, Olivier says to:

  • Establish a baseline – so you can measure the changes from
  • Create activity timelines – so you can correlate specific actions to
  • Analyze sales revenue along several dimensions – in terms of Frequency, Reach and Yield or F.R.Y. (transactions per month, net new customers, $ amount per transaction)

With that introduction, I give you Olivier Blanchard’s Basics of Social Media ROI presentation from Slideshare which he originally presented at the Social Fresh Conference in August 2009.  He uses images from the 1970’s British television show, UFO Series, which makes for an interesting and amusing presentation:

You can also follow Olivier on Twitter at @theBrandBuilder.

Speaking of ROI, Maddie Grant summarized 6 other blog posts on Social Media ROI in Social Media Today this week.  Here are repeats of her links:

  1. NTEN – The Three Dimensions of Social Media ROI
  2. The BrandBuilder Blog by Olivier Blanchard – Defining Social Media ROI once and for all, and understanding the action-reactive-return narrative
  3. Adam Cohen (A Thousand Cuts) – The Basics of Social Media ROI
  4. Social Computing Journal – Measuring Social Media ROI: Does size matter?
  5. BrandSavant – What’s Wrong With Social Media Marketing Strategy
  6. Jacob Morgan – The Importance of a Social Media ROI Diagnostic
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What’s Different About Social CRM?

Nine years ago, I wrote an article titled “Where is the ROI in CRM”.  At the time, I was working at Oracle as a product strategist for their CRM (customer relationship management) solution and  was a big proponent of analytic CRM.  Analytic CRM is an approach for analyzing the profitability of customers (either current or lifetime value -LTV), and  then segmenting customers based on on their contributions.   At the time, Oracle was one of the few vendors who could actually deliver a complete customer profitability and analytic CRM solution.  Alas, I was a little ahead of my time as most companies didn’t really care about customer profitability before and during the booming dot-com era.

From the studies I did in the late 90’s for the financial services industry, customer profitability definitely followed the 80/20 rule (also known as the Pareto Principle) and in some cases, it was even worse than that ratio.

My article focused on the three simple things that companies could do once they were able to conduct a value-based customer segmentation:

  • Better customer management
  • Targeted selling
  • Focused retention efforts

My conclusions at the time were:

In a nutshell, companies need to build a strong foundation of customer intelligence which must include detailed customer profitability, data mining and predictive modeling; they need capable marketing tools to measure and manage interaction programs; they need people with strong marketing and analytical backgrounds to plan and execute their sales, up-sales and retention programs; they need to be able to manage and distribute customer intelligence to those who need to transform it into action; and, ultimately, they need to tie this customer knowledge into all customer-facing applications.

With the explosion of social media websites and tools (such as Facebook, Twitter, LinkedIn, Yelp and others) over the last year or two, people are starting to talk about a combination of social media and CRM called social CRM.

For example, the following graph from Google Trends shows the growth of the term “social CRM” over the last 12 months.  Before January, almost no one was talking about social CRM.

Worldwide Traffic Growth of term - Social CRM - from Google Trends

Worldwide Traffic Growth of term - Social CRM - from Google Trends

So what’s different about social CRM?

Basically, the customers are now in charge and expect to be part of the conversation.  Pete Blackshaw wrote an interesting book last year called “Satisfied Customers Tell 3 Friends – Angry Customers Tell 3,000” that sums up the dilemma.  While the title is catchy, I am not sure if the metrics are exactly accurate.  In any case, companies must listen to both satisfied and unsatisfied customers because they are being heard and can have a significant positive and negative impact on your brand.

Here is my updated social CRM advice:

Monitor conversations – If your company is not  monitoring the social media conversations, you are already a step or two behind.  It is imperative that all companies start to listen and plan to act on what their customers are saying over the Internet.

Selectively interact with customers – Companies need to let customers know that they are being heard which means that companies need to develop a plan for action and make someone responsible for making it happen.   For some companies, it may be difficult to respond to or participate in every conversation – but that should not stop you from at least responding to the most positive and negative comments.  In some cases, you may want to even ignore some negative comments as you do not want your conversations to devolve into a mudsling match which could cause more negative PR.  Ideally, you will want to prioritize customer interactions based on a combination of customer profitability and customer influence.

Develop new metrics – If your company already uses customer profitability or LTV, then you are a step ahead.  Then you just need to develop new metrics to merge customer profitability or LTV with some measure of customer influence, reputation or voice.  If your company does not have profitability, LTV or customer influence metrics, then you are really behind the eight-ball.

In case you want to explore this topic further, here are some links to resources and blog posts about social CRM:

Social CRM – Not Your Father’s Customer Relationship Management – a blog post by Brent Leary.

The Future of Twitter: Social CRM – a blog post by Jeremiah Owyang.

The Social C.R.M. Iceberg – a blog post by Ross Mayfield.

Enterprise Irregulars Join Social CRM Fray and Time to Put A Stake in the Ground for Social CRM – 2 blog posts by ZDNet’s Paul Greenberg.

Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty is an academically focused book by V. Kumar that provides scientific insights to calculating profitability including referral value.

Social Software in Business Survey

BabsonMzingaMzinga and Babson Executive Education recently conducted a survey on social software in business and the results became available this month.

The highlight of the survey for me was that 61% of the companies in the survey use social technologies as an ongoing part of their business.

However, several challenges emerged in terms of budget, resources and ROI.

Only 55% of the companies reported that they devote part-time or full-time resources to manage and drive their social media initiatives and only 40% have devoted budget dollars to social media efforts.   To me, this seems like many companies are paying lip service to social media or implementing it haphazardly instead of fully embracing social media and making it an integral part of their corporate DNA.

Measuring ROI remains a challenge for most companies as only 16% are able to measure ROI for their social media programs.  This means that software vendors and analytics vendors need to do a better job of making it easier to capture, measure and analyze metrics from social media.

When you look at how businesses are using social technologies, Marketing tops the chart at 57% penetration.  There remain significant opportunities for growth in the customer service and sales areas which only have 29% and 21% penetration respectively.  These areas are also where the ROI numbers should be more concrete and easier to measure too.

"What Areas of Your Business Are Using Social Media" -- Mzinga-Babson Social Media Survey -

"What Areas of Your Business Are Using Social Media" -- Mzinga-Babson Social Media Survey

I was pleased to see that the most mentioned social media applications and technologies matched my own list.  The survey respondents listed blogs, LinkedIn, Facebook, Twitter, YouTube, chat and standalone community sites as their most used technologies.

Mzinga Chairman Barry Libert (@blibert) also added his own commentary and predictions in his blog on the Mzinga website.

Barry predicts that:

1.  Brands will strive for deeper user engagement within social networks and online communities.

2. Strategy and metrics will become more closely integrated

3. Bigger budgets will be devoted to social media initiatives

You can read a summary of of the report from eMarketer or visit the Mzinga website to download the entire seven-page Social Software in Business report.

Review of ReadWriteWeb’s Guide to Online Community Management

ReadWriteWebs Online Community Guide

I received a copy of the new ReadWriteWeb’s Guide to Online Community Management last month and it is definitely worth looking at if you want to raise the level of your community management and social media game.  It is a collection of tips, talking points, data points and other collective knowledge from many different experts.  RRW editors looked through hundreds of articles and resources, and choose the best ones to be included in the report.

According to editor Marshall Kirkpatrick, this is why companies should look at the report:

Businesses seeking to engage with online communities on their own websites or all around the social web will find the guide invaluable in getting up to speed on the state of the art and making sure their employees have the foundation they need to be effective.

The guide starts off by answering the following questions:

  • Does our company need a blog? (probably)
  • Do we need a forum section on our website? (maybe)
  • Should our company spend time on Twitter? (definitely)
  • Should our company have a presence on Facebook? (the jury is out)

Then, the guide covers the need for community managers, ROI, job descriptions, marketing/engagement balance and dealing with challenging community members.  The guide ends with several interviews, a list of the 3 best podcasts on community management and additional resources.

The best part is the online companion (Community Management Aggregator) to the official guide.  This password protected website provides a dynamic and updated selection of articles and blog posts related to social media and community, links to featured blogs and Twitter addresses for leading experts.  The Guide and access to the Community Management Aggregator costs $299 and it is a bargain for the information and access provided.

Did I forget to mention that my blog post on “The Importance of Active Community Management” is listed on page 30 of the report and I’m included in the list of experts on the Aggregator site?

ROI of Social Media in Customer Service

Forrester’s Natalie Petouhoff spoke at the Social Media Club of Los Angeles on Wednesday night, and she discussed the importance of using social media in customer service communities.  Using social media is more than implementing the tools, it’s “building a community that  interacts with each other on an ongoing basis.”   Natalie noted that a ‘perfect storm’ exists today with the collision of increasing customer dissatisfaction with companies wanting to do more with customer service and the growing use and influence of social media tools.

Here are the 2 most important things you need to know about what she discussed:

  • Social media activities have a big impact on customer service
  • The conservative ROI on customer service communities  is 100% with a payback of less than 12 months

She also shared some of the revenue improvements and cost savings that are direct benefits of customer service communities:

Revenue Improvements Cost Savings
  • Increase lifetime customer value
  • Increase product ideation
  • Increase lead conversion rates
  • Reduce calls
  • Reduce emails
  • Increase agent productivity
  • Increase FCR (first call resolution)
  • Reduce SEO costs

Finally, she talked about how companies need to track a customer’s social value along with their lifetime value.  Customer advocates need to be recognized, acknowledged and thanked.  Even customers who are saying negative things about your brand or product can be turned by acknowledging their concerns and reaching out to them.

You can access Natalie’s complete presentation from this link (requires free registration) – www.forrester.com/socialmediaclubla.  Natalie is also available on Twitter at @drnatalie.

Compelling Reasons Why Your Brand Needs a Managed Community

Powered - The Leader in Social Marketing

Powered - The Leader in Social Marketing

I recently received the 2008 Social Marketing ROI Report and Benchmarking Guide from Powered – an Austin-based company that creates social marketing programs that helps companies create communities around their brand and “insert the brand into the social fabric of the internet”.

Not only did the companies in the Powered survey report an average of $60 in returns for every dollar spent, but they also reported strong correlations in purchase intent, brand affinity and brand loyalty as follows:

  • Purchase Intent: Two-thirds of the respondents stated they were more likely to purchase to sponsoring brands products and/or services as a direct result of the learning experience offered in the community
  • Brand Affinity: Two-thirds of respondents indicated an improved brand perception of the sponsoring brand
  • Brand Loyalty: 63% of respondents stated that they had a more positive opinion of the sponsoring brand

The survey included results from over 112,000 people – or about 11% of the total 1 million people represented in the population of the 22 communities surveyed.  Social marketing programs achieved nearly 5x the ROI of direct marketing programs and 30x the ROI of traditional media advertising programs.

From Powered Social Marketing ROI Report

From Powered Social Marketing ROI Report

The whitepaper goes on to suggest that Powered’s results are “virtually always above the industry norms” and advises marketers to study their target customers “to learn what kinds of social marketing and web experiences they would likely value the most, and to test those experiences”.  In any case, these figures are quite compelling and point out that a managed community can drive drastic changes in brand performance.

In the implications and concluding thoughts, I found this excerpt to be particularly telling:

Social marketing as a relatively new non-traditional form of persuasive marketing communications is widely misunderstood. Most advertising and marketing executives assume that the term relates mainly to content generated by consumers. Beyond social marketing, marketers ought to carefully investigate and test every practical means of befriending consumers by new and established forms of marketing communications which do not involve straight advertising. This includes True Sponsorship in all its forms i.e. entertainment programs as well as educational ones, in all media; cause marketing; service advertising (e.g. helping the consumer to know which products to buy and how to use them); sponsored games; sponsored processes supporting consumer generated media; and new forms which no one has thought of yet.

So why doesn’t your company and brand have a managed community?

You can download the report for free from the Powered website after filling out a registration form.  All serious social marketers can learn from this outstanding report.  You can also check out the slides from the webinar (“This ROI is Too Good to be True”) they held to release the report at this link.

I’m Going to Forum One’s Online Community Business Forum

Forum One Online Community Business Forum

Forum One Online Community Business Forum

While it seems like everyone else is attending SXSW in Austin this week, I am going to be attending the Forum One Online Community Business Forum in lovely Sonoma, California on Thursday and Friday.  There are eight great sessions planned over two days including:

  • Community strategy – thriving in a challenging economy
  • Managing your online community ecosystem
  • Measuring and improving community performance
  • Embracing community and social media
  • The business of online community
  • Gleaning insight from your community ecosystem

I’ll be taking good notes so I can blog about what resonates at the event for me.  Stay tuned for updates later this week.

And if you are interested in attending, here is a link to the conference website.