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Last week I published an article called ‘The 27 varieties of tweet used by retailers’ to show the breadth of topics covered on Twitter by retail firms. It also allowed me to answer the ‘but what will we tweet about?’ question sometimes posed by Twitter newcomers. 

Is social media ROI is worth waiting for?

To be clear, my position on social media is that it is helpful to businesses of all shapes and sizes, and that it can improve lots of key business metrics (sales, but more importantly profits, retention, customer satisfaction, etc).

Read that back: it can help all businesses, of all shapes and sizes. The trouble is that is going to be harder for the larger companies to implement social media, compared to smaller, more agile businesses. And is this effort likely to pay off? It's rather hard to say for sure... there's definitely a gamble involved here, and a real need to avoid the hype and bandwagon jumping that surrounds the social media space. 

Peter Cutler left a comment on my ’27 tweets’ post that raises this precise issue: "This is good. But where's the ROI? And time is money. So where's the Return On Investment?" 

Where indeed?

I’ll republish the comment here in full:

I know the Zappos story and it's a great one. Zappos models their company around outstanding service and great social interaction and two-way communication. But they also sell that as their brand, very successfully. The majority of companies are not set up that way. That's the main reason that Zappos does so well. 

Most companies are trying to add Social Media on top of their existing company structure and marketing. That seems a serious waste of time and effort. There are many better ways to use the web to directly improve their bottom line. They also take some time and effort, but the ROI is much higher. 

I know everyone is searching for ways to make Twitter and Facebook make sense for business. But the truth is, they often don't. If Twitter is a hammer, we want every problem to be a nail. And, in the case of most businesses, it's just not that type of nail. But this is where the current buzz is. So until that runs out, or Twitter becomes a platform that actually does offer a decent -- or even any -- ROI, we'll keep hearing a lot more about it I'm sure.

Peter’s pointed out that we’re still hearing a lot of hype about something that is unproven, in ROI terms. That remains true, although some companies are generating ROI today, whereas others may take a hit before seeing a return. If you buy into the idea that this might work, then you need to be prepared to wait in order to see some positive results.

The takeaway in Peter’s comment is that some companies are going to find it tougher than others to embrace social media, and there may be little or no ROI to speak of in the short term. Both of these points are accurate and valid.

However I believe that there’s a real opportunity here for companies to do the right thing for their customers, staff and shareholders by fully using aspects of social media to improve satisfaction, retention and profitability.

Implementation

Houses need to be put in order, and some houses are bigger than others. Some of the larger companies may need to totally transform their corporate culture. It’s a hell of a task, potentially, and the rulebooks have yet to be written. So it’s going to require innovation, lots of buy-in from stakeholders right across the business, significant effort, and probably investment too. 

But the changes required aren’t anything new. There are parallels with the great leaps into e-commerce a decade ago (amazingly some retailers have yet to dip their toes into the water). The cynics at the time doubted that selling things online would ever become a mass market no-brainer, as it is today. I wonder if the same applies to adopting social media?

There’s no doubt that the internet has done wonders for many companies. Tesco may pull in around £2bn of sales from its online operations this year, and perhaps £100m in clear profit. And John Lewis now counts its website as its biggest store, ahead of the huge ‘flagship store’ on Oxford Street. If that’s not progress, I don’t know what is. Not that it happened overnight. ROI obviously wasn’t generated immediately. Both Tesco and John Lewis needed to pony up a large wedge of development money in order to set up their websites, and to recruit appropriate people to run them. They had to pay to play, in order to transform their businesses. 

With the benefit of hindsight, e-commerce was definitely something worth restructuring a business for. If you wanted a transactional website in 1999 you pushed it at the IT department, but nowadays e-commerce typically has its own team or is part of the marketing department. I now know of e-commerce managers who have become marketing directors for the business as a whole, and one or two cases where they have made it onto the board of huge businesses. That tells you how much it matters.

E-commerce has, for multichannel operators like Tesco and John Lewis, helped their businesses to withstand difficult market conditions. They are less exposed to a single channel, and are in a better position to cross-promote, and – crucially - to boost customer satisfaction. 

Also, the circle has - in the space of a decade - turned almost fully, as pureplay firms open their own offline stores (look out for our interview with Bec Astley next Monday). Others, like retail powerhouse ASOS, have invested into classy own-brand magazines (essentially upmarket print catalogues) to boost sales and grow repeat business. Not only are they selling £165m worth of clothes a year via the internet, but they’re doing print too, and I’ll be staggered if we don’t see a high street store from ASOS in the next decade. 

In 1999, as Boo.com imploded, the notion of selling £165m of clothes online in one year would have been ridiculed. The point is, e-commerce works, and it has helped to broaden the retailer's ability to sell across multiple channels. But we've come a long way, and some serious leaps of faith were required in order to get to where we are today.

The road is long

So let’s now return to the question of social media. Is it the same as e-commerce? No. Does it have the same scope, in terms of value? Probably not.

Or does it? If we scratch deeper the answer about whether it provides value is really about how you’re defining ‘value’. If you’re measuring value based on the ability to grow revenue (as per e-commerce), then possibly not. But if you’re measuring on the basis of profits (as you should be), then social media has a huge role to play. Business is all about profits, not revenue.

Sure, it’s going to be tough for some companies to embrace social strategies, and there may not be any immediate ROI on these initiatives, but that’s not to say you should avoid trying it (no pain, no gain). In the long run, I reckon it will be worth it, from a profitability standpoint. Why? Well that’s best explained in my post on ‘10 ways to measure social media success’, but to save you reading the whole thing I’ll reprint the takeaway, which is that we are (hopefully) moving into an era of customer retention

The last decade - the e-commerce and Adwords decade - was all about blind acquisition and growing market share. The next one will hopefully be about great service, customer engagement and high levels of customer satisfaction. I’m obviously an idealist, but the companies that will stand out in the future will not simply be judged on price, but on performance. I believe that it is profitable to focus on acquiring the right type of customers, and then to change the culture of customer services, so that staff actually give a shit and are rewarded for growing repeat business and preventing churn.

I want to see a coup within the bigger companies. The totalitarian regime that governs many a customer services / call centre needs to be deposed. Customer services staff must be your greatest asset in the battle for customer retention, and can be your eyes and ears in the social media space. It just requires a headshift. Ties need to be loosened, watches reset, and group hugs all round. Let’s not be hippies here… but let’s not be fascists either. Customer service is broken, so to do nothing is to fail.

Finally, Peter’s right about Zappos: it is well set-up to do well from social media. But it is - lest anybody think otherwise - firmly in the business of selling shoes, despite its compelling mantra about being “a customer service company first and a shoe seller second”. It is a satisfaction-focused company, for sure. It actively chooses to focus on customer service, on satisfaction, and on engagement (but it remains a business). Now what’s to stop any other company from doing that, startup, behemoth or otherwise? The standards at Zappos will hopefully become the norm, rather than the exception, ten years from now. 

Nobody said it was ever going to be easy, but there is enough evidence to suggest that a shift towards engagement is going to make a difference for those companies that want to Do It Better. Now are you going to get some, or not?

[Image by deanmeyersnet via Flickr, various rights reserved]

Chris Lake

Published 18 September, 2009 by Chris Lake

Chris Lake is CEO at EmpiricalProof, and former Director of Content at Econsultancy. Follow him on Twitter, Google+ or connect via Linkedin.

582 more posts from this author

Comments (4)

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Partha Bhattacharya

Chris,

You have brought out a good analysis. However, whatever the logic, ROI measurement is here to stay because that is how our faculties work. Value is put to any effort only after the ROI can be and is measured.

Partha

over 6 years ago

Jonathan Moody

Jonathan Moody, Freelance at Language4Communications

Looks like social media ROI is shaping up to be a divisive issue. The alleged lack of  ROI metrics set by The Gap in a campaign their agency recently rolled out in the US caused a heated discussion:

http://www.jmorganmarketing.com/the-gap-and-akqa-say-roi-screw-roi/#disqus_thread

There's at least one attempt to define a monetary social web ROI and both it's creator, Olivier Blanchard (see his blog for details in an amusing PPT) and Jason Morgan defend the concept tooth and nail.

I'm inclined to agree with Karl's point about the cost of not incorporating social media into business functions - i.e. ROI = Risk Of Inaction. Small, experimental steps might be the way forward, but as pointed out elsewhere on this blog successful adoption of social media requires a major shift in the corporate mindset. What's more as argued in the George Clooney post "If you're going to half-ass it, stay home". Let's hope we see some good examples of companies getting the balance right - making a sufficient effort to make a difference but ensuring that they have a clear idea of what works, what doesn't and why.

over 6 years ago

Chris Lake

Chris Lake, CEO at Empirical Proof

@jonathan - I think it's a case of "just because you CAN measure everything doesn't mean you SHOULD". I really think that a widescreen view is needed with this stuff. It takes enough effort as is to interact on a meaningful level, and there's only so much effort to go around when managing ad campaigns.

I'm obviously all for measuring ROI, but am macro rather than nano when it comes to social media. Measuring TV ads is still finger in the air stuff, as is print and direct mail. Yes, you can do it (with varying degrees of accuracy), but marketers attribute success to campaigns if sales increase by x% in a given period. It's a bit like that with social media, as far as I'm concerned. Go long...

over 6 years ago

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John McTigue

I think issue isn't really whether or not social media ROI applies, it's how it can be applied. It's relatively straightforward in a targeted campaign where you have defined goals, resources and measurables, such as leads and sales over time. Where it breaks down is discussing general corporate strategy and PR. Then you enter the frontier of discussing vague measurables such as brand awareness without really knowing how a measurable translates into dollars and cents.

over 6 years ago

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