Three myths of social media ROI

Dr Walter Carl presenting at SMM Asia 2012Three major misunderstandings about social media ROI are undermining the use of social media by brands, according to Walter Carl, chief research officer and founder of US-based research firm ChatThreads, who spoke last Friday at Social Media Matters Asia 2012.

The three myths are that social media ROI centres around measuring likes and followers; that it is the same for social media as it is for traditional media; and that it can be measured independently of other media executions.

Myth 1: Measuring likes and followers equals ROI

Marketers who believe that ROI can be measured this easily are embarking on “quantitative fiction”, Carl said. “The reality is you have to focus on business goals when measuring ROI. Does it increase revenue? Will it deflect costs?”

For example, adidas held a social media contest in conjunction with the launch of a new football boot with the goal of driving brand preference. The contest, which got fans to form two online football teams complete with badges and avatars, managed to drive page views through the roof. “Because 70 per cent of traffic came from peer recommendations, adidas was able to decrease the cost of reaching its consumers from US$1.87 per consumer (poor traditional media) to 40 cents,” said Carl.

Or in the case of Microsoft, the ROI it gained from its online support advocacy programme was to deflect the cost of customer support from 68 cents per customer to 24 cents.

“It’s about focusing on value metrics,” said Carl.

Myth 2: ROI in social is the same as traditional

Marketers are used to calculating ROI for traditional media, but when it comes to social media, they often forget to account for network amplification when a fan shares, reposts or likes a brand message, said Carl.

Which is a shame, because in social media, “80 per cent of value in ROI comes from network amplification”, he added. This statistic is based on studies that ChatThread has done in the past across industries such as F&B, consumer purchase goods and quick-service restaurants. “Only 20 per cent, often less, is driven by those people your brand contacted directly.”

To illustrate his point, he discussed a study his firm conducted to determine the ability that an online community of mothers in the US has to drive online traffic and sales through network amplification. A group of individuals were recruited and followed for 30 days to see who they would reach out to and the impact their network would have on views and sales of a particular product. A control group that mirrored the profile of the first group was also monitored.

The results, said Carl, showed that the test group was able to drive about 700,000 people to sponsored pages, who then told about three people each, resulting in a unique visitor count (factoring out social media overlap) of just under 2 million people. This next generation of followers then spoke to about 1.4 people each, resulting in more than 5 million people visiting the brand’s pages, over and above the word-of-mouth sharing behaviour that already existed.

Monitoring their purchasing behaviour, about 16 per cent of those who were directly exposed went out and bought the product for the first time. Of those people who received recommendations from the test group, about 11 per cent bought the product for the first time, and about 5 per cent of the next generation made purchases. The final result of the study found that about 450,000 purchases could be associated with the campaign.

Tracking the results over a year to include repeat purchases made by that group, the final result was that the campaign succeeded in generating US$458,000 in profit, and it cost US$175,000, generating an ROI of 162 per cent.

By being able to track network amplification effect, you’re able to more accurately determine the ROI of that campaign, Carl concluded.

Myth 3: Social media can be used and measured on its own

In a study with Ogilvy involving 400 US restaurant customers who tracked and reported more than 5,000 touchpoints with five quick-service restaurant (QSR) brands across all media, ChatThreads found that social media worked well when integrated with other channels.

When a social media campaign was combined with PR exposure, the study saw a 17 per cent increase in sales, compared with just social media. When social media was combined with TV (for Wendy’s) consumers were twice as likely to buy more than they did the previous week. Finally, when social media was combined with OOH exposure across the entire category, the study found that people were 1.5 times more likely to increase their spending.

“Sometimes, social media works in isolation, but it really works better in concert with other channels,” Carl said.

In conclusion, Carl said, brands will only measure ROI accurately if the marketing department is talking to finance. “Have the finance people in the room early on in the campaign to ensure that the ROI you measure is in line with actual business goals.”

This piece was originally published on Campaign Asia-Pacific.