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Does social media work?

The social media industry has hordes of hysterical cheerleaders and they all love to talk about "joining the conversation" and other such useful-sounding outcomes. But underneath all the rhetoric, where’s the real value?

By Danny Bradbury
September 7, 2011

You can’t throw a rock in downtown Vancouver or Toronto without hitting a social media consultant and—given the rates many charge—plenty of business owners would like to try. But short of showing you how to set up a Twitter account and not make a fool of yourself, are they really bringing anything to the party? Come to that, is social media really bringing much value to your business? And if so, how do you measure it?

Donna Wolff saw value from Facebook, but then again, her goals were fairly modest. She opened The Caledonian pub in Toronto last fall and created a Web site with a link to its new Facebook group. That group now has more than 200 members.

Wolff didn’t hire a social media consultant when she set up its Facebook page, but she is used to building things herself, having made the tables in the bar. “Throughout those two months of work, I had people interacting on Facebook. People would come by and encourage us,” she said. “Now, it’s a great tool for the Scottish to follow us and get to know about the events. Many people have this as a link to something they feel part of.”

The pub uses Facebook to publicize its events. “Our followers are loyal. They will repost information about our whisky tastings,” she said. “We can post something that day and lots of people will be in that night.”

Wolff is happy with Facebook’s contribution to her business, but the question, of course, is how many of those people would come in anyway? Teasing out the actual value of social media is difficult, especially for a new business that has never done it any other way. The real challenge lies in getting past the rhetoric to the actual numbers.

Consumers know best

Yahoo! Canada has numbers by the bucketload, but they might not be those you’d expect. Last November, the company conducted a survey entitled Consumers know best, looking at consumer information and its relationship to brand engagement.

Paula Presley, executive sales director for Yahoo! Canada, found social media is much more appropriate when used as part of a broader campaign encompassing other media, rather than being a panacea that will solve all of your marketing problems.

The study breaks down media into three categories: Paid, Owned and Earned. Paid space is the realm of traditional paid online advertising. Social media spans the last two categories. A company with a Facebook page or a Twitter account owns that space, but it may not have earned its customers’ respect with it. That Earned space is where satisfied customers hang out, willing to share their experiences with the company of their own accord.

Yahoo!’s research found that the true value of social media to customers didn’t kick in until later in the sales cycle. The sales cycles are well understood among marketers. They start with brand awareness, march tentatively through interest and information gathering, and teeter timidly on the edge of decision before the customer finally makes a purchase.

Forty-three per cent of people got their first awareness of a brand through advertising. Another 38 per cent found a brand through in-store promotion. (So much for the death of the high street.) When looking for more information, 41 per cent of people turned to a sales assistant, rather than a Facebook buddy, 38 per cent looked at advertising and 45 per cent went straight to the brand’s Web site.

In the research, “talking to friends” didn’t kick in at all until stage four of the sales cycle: making trustworthy recommendations. At that point, 42 per cent of people queried friends.

“From what I’ve seen of the research, it is still important to have all the components in there,” said Presley of the mix between traditional and Web-based advertising and social media. “People are turning to social media more during the post-purchase phase, where they still need to find out what’s being done with a particular brand.” Those post-purchase consumers will also be able to recommend things to friends who are asking.

According to Yahoo!, companies would be wiser to use traditional, non-social methods when raising brand awareness. It’s brand engagement where social media really shines.

Selling a new sizzle

There are advertisements on social media networks, too. Does that mean they don’t work? Matt Astifan, founder of social media training company WebFriendly, throws in a caveat: Groupon, WagJag and other daily deals sites show up frequently on Facebook for a reason.

“People didn’t know to look for group buying and daily deals sites,” he said, arguing that innovative new products and services will do better when advertised on social media sites. So will time-critical products and services. “If it’s an existing product that people want, then marketing it via traditional search engine optimization is good, but social media works otherwise.

“During the Vancouver riots, people set up pages asking bystanders to post pictures of rioters,” he said, illustrating his point. This was a concept that developed organically and went viral. “No one was Googling ‘Where to post pictures of Vancouver rioters.’”

Connecting financial dots

Dell, which uses social media to address its huge customer base, takes a scientific approach to measuring social media value. Rishi Dave, executive director and online editor at Dell, serves as the company’s social media guru. “When we start using these platforms in the experimental phases, we focus on secondary indicators or metrics,” he said. “How many likes and followers do you have, and how many people are sharing that information? We get very quickly from there to profit and loss in a couple of ways.”

For example, the firm monitored what happened when it inserted social media content in the purchase path–the series of Web pages presented during an e-commerce transaction. It saw a 134 per cent increase in revenue per visitor in the U.S., Dave said. Such content includes product reviews and other user-generated content from across the Web.

“Another way is that we have a sense for when big customers come into our communities,” he said. “We have a lot of personal relationships, and so we look at our customers as a single entity across both online and offline.” That can help the firm to move the sales cycle forward.

As you might expect from a company focusing heavily on e-commerce analytics, Dell has a social media command centre that Dave likens to NASA. “We have huge screens and people monitoring the 25,000 online mentions of Dell that we see each day,” he said, explaining that they respond quickly to both positive and negative comments.

Companies such as Cisco have produced social listening or “sentiment mining” tools such as SocialMiner to automate these processes, helping enterprise customers scale their operations.

It’s about the customer, stupid

Looking at your customers as single entities is particularly important, said Rupert Staines, managing director of online advertising network RadiumOne. Tackling that challenge forces you to redefine what social media really is.

“We put the user at the centre of the network, rather than focusing on the social media channel,” he said. “It’s naive of clients to continually place themselves as sub-brands to Facebook within the Facebook walled garden. You’re giving away your brand equity.”

A customer-centric approach to social media helps companies understand how they react across various channels, which creates a broader picture of their social media activity. “Analytics is a big part of this, and we look to third parties, because we can provide very black and white numbers,” Staines said.

This can be done in various ways. Owen Clark, a social media trainer who runs a workshop on managing social media in less than 30 minutes a day, shows his students how to do it manually. “I get everyone to measure their brand engagement. When they create their posts for the month, they list them in an Excel spreadsheet,” said Clark, who teaches students to schedule their social media posts ahead of time. “They create columns such as date, post, number of Facebook likes, Twitter replies, LinkedIn responses and so on, and then they can go in at the end of the week and update those columns.”

Do you like-like me?

But measuring how many Facebook likes or Twitter retweets they got will be like counting angels on the head of a pin for average small business CEOs unless they can map it directly to sales or some other key performance indicator. It comes down to the same question: where’s the value, and how this is simply navel-gazing?

Answering that requires a level of competence on the company’s part that goes beyond knowing how to give good tweet. They need some form of data gathering mechanism, whether automated or manual, that enables them to link social media activities to business metrics.

Some companies are beginning to build such analytics directly into front-end social media tools. Vancouver’s HootSuite, for example, cut its teeth building a social media tool enabling people to get social media posts out across various channels at once. However, it quickly expanded into analytics that help people track online campaigns, creating reports detailing social media engagements that turn into sales conversions, for example.

“By using URL tracking, Google Analytics, Facebook Insight and social analytic reports, you can gather and measure the statistics you need and track engagement through to sales and ultimately customer retention,” said HootSuite’s marketing director Dave Olson. “In other words, if you can’t measure it, the value is zero. If you can measure it precisely, you can determine the exact value, no matter which problem you set out to solve.”

Measure what’s important

HootSuite identifies three broad areas that will be of interest to CEOs: sales, revenue and cost. Connecting social media activities to these is key, and HootSuite does it through three key marketing goals: lead generation, customer retention and brand awareness. Each of these has its own particular metrics, which will be of interest to the chief marketing officer when translating social media results for the rest of the board.

Brand awareness uses traditional metrics that have been around since the early days of marketing. Cost per impression (generally measured by how many thousands of times people see your brand), cost per click and cost per engagement (aka cost per acquisition) are the important ones here.

For customer retention, metrics such as average revenue per purchase, average transactions per customer and a customer’s lifetime value are key. This is particularly relevant for social media, if Yahoo! Canada’s research is accurate. “People are turning to social more post-purchase,” said Yahoo!’s Presley.

Lead generation is a particularly important element because customer acquisition is often the most expensive part of marketing. In this area, the cost per lead, cost per sale and lead conversion rate will be key benchmarks, as will the average revenue per sale.

Deep integration

Companies that are technologically savvy might be able to capitalize on social media data far more effectively with deeper back-end links. For example, connecting social media tools with customer relationship management software could give a whole new perspective on customers and help craft more effective sales campaigns.

Salesforce is already folding social media monitoring tools into its Service Cloud, which underpins its online offerings. It also purchased social media CRM company Radian6 in March for $326 million, indicating the importance it places on this area. Radian6 enables teams of people to monitor social media posts, tagging sources and distributing them among team members for processing. One of the advantages the tool offers is the ability to identify sales prospects at the point of need. For example, if someone is looking for foodie Christmas gift ideas, perhaps your online hamper business might pick it up, enabling you to ping the person with an offer.

But do you really need to be a spreadsheet-wielding data jockey to engage in social media? Here’s its dirty little secret, Astifan said: for most small firms with relatively small funding, marketing directly to the customer doesn’t work.

“Small businesses probably get a thousand visitors in a month, so there’s not a lot of stuff you need to track. For solo entrepreneurs, nine times out of 10 the analytics stuff won’t matter as much.”

Just make friends

Instead, Astifan focuses on teaching customers how to build relationships with other businesses using social media. Step one: find businesses selling products or services that are either related to yours, that enhance them or that customers buy naturally before or after they buy yours. Step two: find ways to help these complementary businesses by getting to know them via social media.

“Few entrepreneurs are able to get an outside view of what’s happening with their business,” Astifan said, arguing that it’s easier for other entrepreneurs to spot potential improvements. “By using your skills to help others, they will then help you in exchange.”

The upside to this approach? It doesn’t require a fetish for statistics, and it can yield big results quickly. Rather than slugging it out daily, trying to tweet your way to tens of thousands of direct sales, “one strong connection can be worth far more than $10,000.”

A company’s ability to engage social media depends on its own culture, of course. Some may be too staid to take part, said Jon Arnold, founder of analyst firm Jon Arnold & Associates. “For businesses that are really built around the Internet, such as software companies and those who are using the Web all day long in a very functional way, social media will be less of a threat to everyday business tools that we all trust,” he said. “A lot comes down to trust.”

Those wary companies will be those that don’t see the return on investment, and aren’t willing to invest the time and energy to find out. But perhaps, at the end of the day, asking how much you stand to gain monetarily from social media is the wrong question. Clark sums it up by comparing it to another irrelevant question: “What’s the ROI on your cellphone?” Even if you can’t answer that accurately, you still wouldn’t be without it.

Also read:
Every crisis is a social media crisis
Companies are establishing social media listening posts to better hear what customers are saying
What cloud computing and social media tools bring to corporate Canada
Social media blog posts

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