Why Brands Can Ignore ROI in Online and Social Media for Now

Posted on April 24th 2011

Management seems confused about why they need to deal with social media.  Most of those with responsibility for profit performance are missing the point when it comes to new media and ignoring the history of past media revolutions.  Consumer markets are going through a transition phase regarding their media preferences.

Right now, ROI isn’t necessarily about new revenue and new sales.  It’s more likely to be measured as the market share a company doesn’t lose.

All other things held constant, the rise of online and social media hasn’t created new markets or consumers (with the exception of those buying and selling stuff needed to engage in social media).  Social media is a new communication preference for existing customers in existing markets to engage, assess and choose the brands with whom they will transact business in future.

Future being the key word.

One facebook account may take over 4 hours a week from the available time of a mother of 2 children.  That’s 4 hours a week less one mother has to spend in other communication channels in future.  Less time in stores, magazines, newspapers, TV and radio.  The same goes for the mobile platform and the sms/mms channel.  Time is a finite resource.

So, not only are we moving into new online and social media, we are moving out of pre-existing communication channels.

Spare us all the engagement and authenticity romanticism.  Spare us all the finger wagging and pious recrimination over brands being unable to demonstrate concrete ROI from social media.  It’s all either pseudo ethical or pseudo academic drivel.

The reason brands must market and engage in online and social media is that the customers they already serve are shifting their preferences as to how they will engage with all brands in future.  If a brand’s existing customers arrive in online and social media and find the brand they have been dealing with is absent, alternative brands with comparable offerings will take future market share.  End of story.  That’s why every media revolution is an opportunity for new brand start ups in mature consumer goods and services markets.

This always starts off sounding like a distant cry until marketing programs through traditional communication channels start showing reduced ROI.  By then, the damage is already being done.

It must have sounded like a distant cry in the early 1950′s when TV appeared on the horizon with few channels, limited broadcasting schedules, little content and small audiences.  I still remember watching the ‘test pattern’ as a kid while waiting for the screen to come to life in the early 1960′s. By 1979 there were 300 million TV set in operation.  By 2001 there were an estimated 1.75 billion TV sets worldwide.  The most notable observation we can make here is that the move into online and social media is much faster than was the revolution into TV.

TV broadcasting licenses and advertising must have seemed expensive and unsupportable investments for some time in comparison to radio, newsprint and cinema.  But look at how market share changed hands after the transition phase to TV got going, and look at the monumental consumer brands that were forged from advertising in the early years of television.  The curse is on the laggard.

That’s the catch with social media ROI.  During this transition phase between traditional, web 1.0 and web 2.0 communication channels, ROI in social media isn’t necessarily measured in new sales revenues.  It’s significantly measured in avoiding the loss of existing market share as existing customers shift their communication preferences to new media.

For new brands, it’s an opportunity to take share from established brands lagging behind in the transition.

If you decide to stay largely out of online and social media until clear evidence of ROI is on the table, you are making a mistake.  You’ll pay for it with lost market share.

The next phase of this revolution will be the competitive phase where the fight for market share will be between those who have entered social and online media.  Then we will see a more relevant and conventional assessment of ROI from within new media channels.

Until then, as the song says, “don’t count your money while you’re sitting at the table”…especially when other players are moving to new tables.

Bill James

Bill James

CEO, We Engage LLC

Bill James is CEO of We Engage LLC. We Engage provides complete outsourced management of integrated, traditional, web 1.0 and web 2.0 marketing and engagement. Bill spoke at SXSW in Austin in March 2011 on trust and censorship in social media and you can read other articles written by him at: http://billljames.wordpress.com/
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Comments

Posted on April 26th 2011 at 1:25AM

Excellent article.

I've been wondering why, how or when ROI would be applicable for SOHO/SMEs, other than it being seen by many of our clients as a time drain, with no or little obvious measurable bottom line results for the effort expended: 

 

Right now, ROI isn’t necessarily about new revenue and new sales.  It’s more likely to be measured as the market share a company doesn’t lose.

Bingo! ... Yes.  Talk about a lightbulb moment!

Thanks.

Posted on April 26th 2011 at 8:32AM

Hi Bill, good article.

Social Media ROI is built on the social media return and the investment.  The social media return is a dollar value derived from your social media campaign. Based on the return and the investment, you get the social media ROI which is a measure of the efficiency of your campaign.

The social media return is different for different campaigns and comes from your goals with your campaigns. If your goal is sales, then the return is sales. If your goal is consumer insight, then your return is the value of these consumer insights.  In your case, the return is the value of non-loss of market share.  You need to estimate the value of that market share (shouldn't be hard to estimate) and get your return in dollars.  Together with the social media investment, you get your social media ROI as measured in a percentage.

Best, Dag.

Posted on April 26th 2011 at 10:04AM

I couldn't have said it better myself!  This is the perfect article to explain why one should be in social media.  It is not about skyrocketing your sales in a month's time or talking incessantly about the power of authentic engagement and transparency (I feel like I've heard those talks for 4 years now) but yes, about embracing the technology that your other competition is utilizing and where your consumers are.  Customer retention & loyalty is key in these times and social media will assist in that.  I've heard it referred to as Social CRM and it is becoming more clear to me that while social media can certainly complement an fully integrated marketing campaign, it should be utilize more for your already existing consumers.  


Great read!

Posted on April 28th 2011 at 4:14PM

Brilliant.

Thanks for reinforcing the - "what should be obvious, but isn't"

"If a brand’s existing customers arrive in online and social media and find the brand they have been dealing with is absent, alternative brands with comparable offerings will take future market share.  End of story."

I don't know why this ROI B.S. for Social Media is a constant refrain, but if the great Google Caffeine update of 2010 didn't unequivocally answer it (hint: Social Media Optimization = Search Engine Optimization = Search is No. 1 Research Behavior for ANYTHING), then I don't know how many more times you'll have to explain this.

Kudos!

~b



JeroenHoekman
Posted on April 28th 2011 at 8:48PM

Thanks Bill, that is a logical reason. Why didn't I think of it myself before? But that is what you generally think  with all new reasoning. Anyway, a great way to look at it.

However, this is the reason to venture into social media, but in general CEO's and Marketing Directors will only have an eye for the ROI and especially the short term ROI. You do not get a bonus for still being in business in 5 years from now (probably you will be working for a different company by then anyway); you get your bonus for selling more this year. They will look at the opportunity costs: "Where to cut budget to allow for social media investment" and thus receive less ROI elsewhere. Therefore Social media has to give a higher ROI than the investment that has been cut.

Leaders with enough vision will be persuaded by your reasoning, but to my idea most will not and need more time and reasoning invested into them to turn around (see also Mary McCary's article "Social media manager fatigue"). The reasoning you give here will be a valuable asset in this whole process though. Thanks! 

Posted on May 7th 2011 at 12:01PM

Right, so the ROI is basically that you're talking to your customers where they live & breathe lest your competitors do so before you.

So stupidly simple and true...