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As managers become more comfortable with including blogs and social networks as part of their integrated marketing communications, they have naturally turned their attention to questions regarding the return on investment of social media. Clearly, there is no shortage of interest in the topic. A quick Google search recently for “ROI social media” returned over 2.5 million hits, many seemingly relevant. Internet marketing and online retailing conferences now devote attention to ROI issues, and managers are asking themselves every day, “What’s the ROI of [substitute social media application here]?” Blog posts, white papers and case studies prepared by social media gurus, consultants and industry analysts abound, yet the answer remains largely unsatisfying. That isn’t good, especially when the CEO and CFO are demanding evidence of potential ROI before allocating dollars to marketing efforts.1
We understand the pressures and the desire to quantify the return generated by investing in social media, but we believe most marketers are approaching the issue the wrong way.
Effective social media measurement should start by turning the traditional ROI approach on its head. That is, instead of emphasizing their own marketing investments and calculating the returns in terms of customer response, managers should begin by considering consumer motivations to use social media and then measure the social media investments customers make as they engage with the marketers’ brands.
Handling the measurements this way makes much more sense. It takes into account not only short-term goals such as increasing sales in the next month via a social media marketing campaign or reducing costs next quarter due to more responsive online support forums, but also the long-term returns of significant corporate investment in social media.
We will explain our reasoning in detail and suggest some guidelines for better integrating social media into your overall marketing strategy, but first a quick example of the kind of radical rethinking we believe is called for.
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1. Lenskold Group, “2009 Lenskold Group/MarketSphere Marketing ROI and Measurements Study” (Manasquan, New Jersey: Lenskold Group, 2009).
2. D.L. Hoffman and T.P. Novak, “Social Media Strategy,” in “Handbook on Marketing Strategy,” ed. V. Shankar and G.S. Carpenter (Northampton, Massachusetts: Edward Elgar Publishing, in press).
3. T.P. Novak and D.L. Hoffman, “Roles and Goals: Consumer Motivations to Use the Social Web” (paper presented at the INFORMS Marketing Science Conference, Cologne, Germany, June 19, 2010).
4. L. Littman, J. Nagy and N. Wortman, “Advertising on Social Networks Drives In-Store Sales,” 2008, www.thearf.org.
5. E.B. York, “Kellogg Says ROI on Digital Trounces TV by ‘Factor of 2’,” Advertising Age, Sept. 6, 2008.
6. B. Cummings, “J&J Takes Baby Steps Toward Social Media,” Brandweek, Apr.13, 2008.
7. C.C. Miller, “New Starbucks Ads Seek to Recruit Online Fans,” New York Times, May 18, 2009.
8. C. Baldwin, “Twitter Helps Dell Rake in Sales,” June 12, 2009, www.reuters.com.
9. P. Berg, “Southwest Airlines: Nuts About Online Communication” (presentation at the Inbound Marketing Summit, Boston, May 27-28, 2009).
10. K.T. Williams, “Case Study: Dell Hell,” Feb. 7, 2009, www.docstoc.com.