Matting Devrng nd capturing value CHAPTER THO What's the ROMI? Estimating return on social media ‘The growing marketing activity on socal media platforms such as Facebook and Twitter has exacerbated a longstanding problem for marketers: how to measure thelr return on marketing investment (ROM. The media is ful of stories about how people are adopting social media, consultants and digital marketing specialists are keen totalkabout theimportance cof investng in social medi, and many companies are happy to tak about their successes, but fewer ae willing to talk about examples where companies have not been successful with expensiture on social media. In such an environment, marketers can be under pressure to demonstrate that they have a social media marketing strategy, and to spend large sums ona social media strategy, without a way to test the effectiveness ofthat expenditure. ‘And theres some evidence that some companies havent achieved a good ROM! with thelr social mela investments For exemple, Woolworth has run a number of campaigns t encourage people to sign up as liking the brand on Facebook but had only achieved 3700 likes by late 2011—a number representing only around 0.2 per cent of Woolworths customer base, Another Australian study found that only very small percentage (ess than 1 percent of kes) were actively engaging ‘vith the brand online, Such results might nat be a prablem If spending on social media was cheap butt usually isnt. For ‘example, Westnachasa team of sk people tommanageits Twitter account, despite only having around 6400 Twitter followers by late 2011, Even if campaign get a large reaction, that doesnt necessarily result sales; n 2010, Pepsi spent around [50 per cent ofits American branding budget on socal media, and received a staggering 4 milion likes on Facebook, plus £80 milion votes nominating social causes fr Peps to fund. However, the resuits didi translate into sales one year late, Pepsihaslost around 5 percent of ts market share—about halfabillon dollars worth of ales Such exampleshaveled one leading marketing commentator to describe the use of social mecia by marketers as oversold and overated ‘without good ways to measure the ROM, many companies may be wasting money on social mea that they could spend much more effectively in other ways. There is. certainly no lack of agreement that its important for marketers to measure ROM @ 2011 study by IBM of 1700 chief marketing officers (CMOs] from 64 countries and 19 industries found ‘that nearly two-thirds of CMOs think ROMMI il be the primary measure of the marketing functions effectiveness by 2015 ‘This growing emphasis on ROM reflects the scrutiny the marketing function fs attracting, s businesses attempt to justify expenses with solid data about the effectiveness ofthat spending. However there s evidence that a large percentage of organisations are struggling to measure ROMI: even among the most successful enterprises inthe IBM study half of all CMs reported that they were insufficiently prepared to provide hard measures of ROM, Stil fewer (48 percent) felt fully prepared to beheld accountable for marketing ROL. For example, the CMOs nominated custamer intimacy as atop priority, and recognised the Importance of real-time data to measure OMI, but the study found that 88 per cent ofthe CMOs surveyed are sil focusing primarly on traditional sources of collecting information such as market research and competitive benchmarking. ‘One of the most dificult areas for CMIOs-to measure ROMs soclal media: measuring the retuin on investment on platforms suchas Facebook and Titer, CMOs viewed social mecia asa key engagement channel, but reported that they struggle with capturing valuable customer insights from the unstructured data thatlsavallable online about the behaviour ‘of customers and potential customers. In another study, 175 CMOs were asked to identiy social mecia activities with the highest ROM, but most didnt know the return on their socal media actuities. The authors of that study recommend a ierarchy of measures to assess the effectiveness of spending on socal media, ranging from the simplest—volume- ‘oriented measures—to the most sophisticated, modelling 1. Volume-oriented measures include the number of followers, traffic driven to a website, other hitrates, page openings, dlckcthroughs time spent online, responds versus non-fesponds, postings and comments, conversions and units sold, ‘While these measures provide useful information, they tend to reflect what has happened in the past, rather than predicting what islikely to happen, making them less useful for decision making. 2. Customer attudes and needs measures include customer satisfaction, cost-oF- acquisition, brand awareness, brand competitiveness and brand ikeabilty. These measures provide insight into customer attitudes, particulatly if they are cellected overtime. 3, Brand engagement, audience captvation and leve of Interest measures include customer share of wallet, reasons for changes in composition of customer lifetime value and satisfaction, channel effectiveness related to customer needs, and effect of ime tomarket, pricing power and brand equity. These provide dynamic measures of consumers! ‘involvement with a brand, 4. Modeling, he most robust use of data, combines diferent forms of data to create models which alow managers to ‘make what if calculations, ta compare the predicted value of different actions, and soto ports their marketing 45 TAC raedMarkoting dashboard sa sureary of te perfomance of key marketing rensres agaist ges Many companies are assembling marketing dashboards—meaninatu sets of marketing Performance measures in. single display used to set and adust thir marketing trateges, marketing investment. PART ONE The tate marketing process “There is no doubt that social media can be a valuable way to engage with customers, but equally, many businesses dort know if they are getting the best ROM by allocating marketing expenditure to socil media spending, One thing, however is for sure: with continuing pressure on corporate costs, there Is certainly going to be ongoing pressure on marketers to use measures lke these to get better estimates of thelr ROM Sources 6 Study Dita ra Tsong CMOS Agenda, Reveatng Gap In Readiness: Most chief marketers amit they we at sty armed we ele coments about the bronx 2 resi, 11 October 2011; Economist eligenceUntectve Brin So ante crprote vl ropstin 28 ine 211; Wak son, Socl media: Ovslé and overated Poesia aren, tebe saan fUtT pn. 1-2 Nstihen Creme Not may fear eating content bu that ght ote bud thing Age, 27 fray 2072 (QUESTIONS 4. Doyou agree that the use of social media for marketing i‘ovetrated and oversold’? Why or why not? Can you justify your belle with ROM! data? 12 Make a list ofall the costs that might be incurred by companies with a social media strategy. Make a list of potertial Denefits from a social media strategy. How might a company begin to measure each of these to develop an estimate ofits social media ROMI? 8 _sthere anythingelsethata company should be measuringin estimating the ROMLon ts marketinginvestment? (int; What else could It spend its money on?) Even if they don't have good measures of marketing ROI, companies are atiempting t increase their use of marketing performance measures such as brand awareness, sles or market share. Many companies are Ssembling such measures nto marketing dashboards—a summary of key marketing performance measures ina single display used to monitor strategic marketing performance. Just as car dashboards present drivers swith details on how their cars are performing, the marketing dashboard gives marketers a summary of the key teases they need to assess when deciding whether to adjust their marketing strategies. The dashboard will dfien use atraficlight system to monitor the performance of different measures against targets, so a measure ‘vic ison target i shown as green, a measure which is behind target is red, and a measure which is close to the target wil be orange. For example, VF Corporation uses a marketing dashboard to track the performance of its 30 lifestyle apparel brands—including Wrangler Lee and The North Face. VP's marketing dashlboard tracks brand equity and trends, share of voice, market share, online sentiment and marketing ROL in key markets worldwide, not only for VF brands but also for competing brands: Increasingly, however, beyond standard perfor ‘mance measures, marketers are using customercentred measures of marketing. impact, such as customer acquisition, customer retention, customer lifetime value land customer equity These measures capture not only current marketing performance but also the expected future performance resulting from stronger customer relationships. Figure 2.5 shows marketing expenditures asinvestients that produce return the frm of more profitable customer relationships." Efecive marketing {investments result in improved customer value andl satisfaction, which in tur increase customer attraction and retention, Customer retention increases individual customer lifetime values and the firm’ overall estomer ‘equity, Inereased customer equity in relation to the cost fof the marketing investments, determines return on