social media roi: the real value of social
DESCRIPTION
Presentation given at Michigan State University Social Media Executive Seminar on the calculating the return on social media based on customer lifetime value. Understand the metrics and value calculations of social ROI Learn how to quantify social media contributions to the bottom-line Determine the impact that social media has on sales and other parts of the business, and their interrelatednessTRANSCRIPT
Social Media ROI: The Real Value of Social
Marcel Santilli - @santilli April 20, 2011
© 2011 IBM Corporation
Placing a monetary value on social
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
© 2011 IBM Corporation 13 ADS TARGET AUDIENCE REACH
Fewer ads Reached more people with undivided attention
More ads Reach less people paying less attention
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
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“Success is rare”
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Best in class approach to social media
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How social media plugs into the organization
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Marketing
Advertising
Public Relations
Reputation Management
Research
Customer Service
Customer Support
Business Development
HR Legal IT Internal Communications
Collaboration
Measurement
Data Analysis
Business Functions Business Processes
© 2011 IBM Corporation
How social media creates value for the brand
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Reshaping the relationship: Nike
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Nike Plus Community
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OPEN Forum (American Express)
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
© 2011 IBM Corporation
Does the marketing funnel still work?
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Challenge with attributing revenue to right touch point
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Searches on Google and clicks
on paid search
Visits four pages and subscribes
to newsletter
From newsletter, registers for webcast and
follows on Twitter
Reads several blog posts and engages
on social media
Watches webcast and poses question
on Twitter (gets answer right away)
Watches YouTube video and clicks on product page
Downloads a trial Purchase
What do we attribute sales to?
First touch
Last touch
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How do you measure intangible benefits?
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Three biggest challenges Barriers to achieving buy-in on strategic social investments
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
© 2011 IBM Corporation
Framework
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# of Customers Impacted
Cost (Tech, people, process) VS
Business objective: Reduce churn
Customer-centric KPI: Customer satisfaction
Social transactional metrics: Sentiment, mentions, etc
Enterprise Approach How can social media create customer value?
Customer Lifetime value
Acquisition cost
Yield
Frequency Retention
Reach
Retention cost
Sales cycle
Efficiency Effectiveness Acceleration
Customer Experience
Unique social experience
Customer touch points (supporting social)
External factors (peers, competitors, etc)
Brand + customer value Conversations
© 2011 IBM Corporation
ROI and CLV equations
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The investment-return relationship
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Investment Action Reaction Non-
financial impact
Financial impact
ROI should be measured here
This is very important but ROI doesn’t live here.
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Engagement is key
Unaware Interested 1st time participant
Regular participant
Passionate participant
Awareness & interest
Call to action Incentive to return
Progressive benefit
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
© 2011 IBM Corporation
Customer value
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Definition: The perceived worth of the set of benefits received by a customer in exchange for the total cost of the offering, taking into consideration available competitive offerings and pricings.
Customers define value (in terms of utility and not product or service)
Value is opaque even to the customers
Value is contextual – the end user, end use situation and environment
Value is multi-dimensional – Functional, emotional and economic
Value is a trade-off between benefits and costs
Value is relative – Relative to the next best alternative
Value is a mindset – the sole purpose of the firm is to create value not products or services
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Four pillars of profit
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Customer satisfaction Loyalty
Engagement Customer value
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From satisfaction to profit
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Increasing the customer retention rate by 5% increases the average lifetime value of the firm’s customers by at least 25%
- Reichald, The Loyalty Effect, HBS Press.
Increased Consumption
Greater Share of Wallet
Longer customer lifecycles
Forgiveness for occasional lapses
Operational cost savings
Cross-selling opportunities Price insensitivity Referrals
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Customer lifetime value (CLV)
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CLV sensitivity analysis
From To New CLV Change in CLV
Customer retention 50% 55% $ 93.74 ▲21%
Transactions per customer 2.00 2.20 $ 107.47 ▲39%
Average transaction size $250 $275 $ 107.47 ▲39%
Acquisition cost $150 $135 $ 92.18 ▲19%
Retention cost $50 $45 $ 84.76 ▲10%
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1% improvement = 13% increase in CLV
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Example: Customer acquisition cost
Business objective KPI Metrics Reduce customer acquisition cost
• Cost per lead • Lead conversion rate • Marketing effectiveness
• Click-through rate by channel
• Engagement metrics (Retweets, likes, comments)
• Organic search
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Questions to ask: • Are customers impacted by social media cheaper to “acquire”? • How does social media impact CLV for these customers? • What metrics correlate to business objective? Why or why not? • What is the impact of social interactions on KPIs?
© 2011 IBM Corporation
The “I” in ROI
1. Technology Infrastructure, software, hosting and professional services
2. People Development, strategy and planning, labor hours
3. Process-related Training, workflow reengineering
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7 Steps to ROI
1. Set enterprise-wide business objectives
2. Determine related KPIs and relevant metrics
3. Estimate necessary investment (technology, people and process)
4. Compare customers impacted by social media against those that were not
5. Calculate CLV
6. Estimate number of customers impacted in relation to investment
7. Show relative ROI
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IBM example Using social media internally to surface IBMers’ expertise
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Outcome = $100 Billion
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Why social media matters
Evolution of communication and interaction
Role of social media in the organization
Challenges with measuring ROI
Framework to measure ROI
The “R” and “I” in ROI
Recommendations and key takeaways
© 2011 IBM Corporation
Recommendations and key takeaways
1. Start with business objectives
2. Think of how social media can change the way you do business
3. Put social experience at the center
4. Focus on creating value for your customer
5. Prove ROI through CLV
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Credit (white papers, research, pictures, blogs, articles, videos, etc)
http://www.brandrepublic.com/news/969874/Social-networks-making-people-likely-complain-online/ http://www.thestrategyweb.com/social-networks-make-people-more-likely-to-complain http://www.adobe.com/engagement/pdfs/Forrester_Adobe_TEI.pdf http://www.techzone360.com/topics/techzone/articles/131154-ibm-social-channelmedia-social-crm-trends.htm http://www.theappgap.com/top-5-social-media-myths.html http://www.realinnovation.com/content/c081103a.asp http://thebrandstop.wordpress.com/marketing-frameworks/lifetime-value-customer-equity/ http://www.slideshare.net/brieuc/whats-the-roi-of-your-mother-a-presentation-about-roi-and-social-media http://pb-hass.deviantart.com/art/mother-and-daughter-24676572 http://www.scribd.com/doc/49442666/The-Virtuous-Circle-The-Role-of-Search-and-Social-Media-in-the-Purchase-Pathway-Research-from-GroupM-Search http://www.brandrepublic.com/news/969874/Social-networks-making-people-likely-complain-online/
Closing the CMO Leadership Deficit in Social Media, Marketing Leadership Council (July 2010)
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