Calculate the ROI of Social Media (part 1 of 4)

This is the first post in a series of four
presenting the theory behind our
 ROI model for social media

Marketers complain that social media has no reach. They are right. The 50 million fans on the Coca Cola Facebook page are just a tiny fraction of the number of consumers the brand reaches with commercials every day. But reach and frequency metrics only tell half the story. The other half is told by two branded YouTube videos which both reached 100 million views, the same as a Super Bowl commercial. A typical $3.3 million Super Bowl ad gives its brand a temporary 1% sales lift while one of these two videos, Roller-Skating Babies, made its brand Evian more than $40 million and gave it a 7% lift in market share. The other, called Dove Evolution, even set off a 25% increase in market share, which equates to a whopping $135 million return on investment (ROI) for the cosmetics brand Dove. Classic marketing ROI models that look at reach and frequency only, fail to explain these enormous differences. What do these models miss? What is the other half of the story?

Watch both videos and ask yourself: would I pass these along to all my friends? When I ask audiences of marketers to raise their hand if they would pass along the Evian video, I see many hands, from both men and women. All hands stay down when we get to the Dove video. At that point I ask a second question: would you perhaps send this to some friends? This time around, quite a few women will raise their hand, saying: yes, but only to my sister and my closest friends. That very statement is the other half of the story of ROI of social media.

That other half is about social trust. The Dove video is about self-esteem, a topic men won’t even discuss with their best buddy and women only discuss with a few close friends. The Evian video, on the other hand, is cute—something people share happily with all their friends. The theories from sociologists like Granovetter, who make a clear distinction between the roles of friends and close friends in our lives— “weak ties” and “strong ties” in sociologist language—explain why Dove had almost four times as much success as Evian.

The average person has ten times as many friends as close friends, but spends as much quality time with her small circle of close friends as with the big circle of other friends. Through the many hours spent together, our close friends know everything about us and are able to give us very sound advice. We trust them implicitly, even with our most intimate feelings.

Brands play a crucial role in friendships. When we wear a brand’s logo or “like” it on Facebook, we signal to anyone around us who we are and where we belong. These signals have a profound effect on our relationships. A sociological study by the Rotterdam School of Management shows that when a consumer “likes” a brand, 7% of her acquaintances will consider the brand and 42% of trust the signals of their close friends so much that they will think of buying the brand. That’s 840% more than the 5% of consumers trusting the marketer of the Super Bowl commercial! This high social trust in the end drove the business success of the Dove video: as close friends passed the branded video around, brand preference and purchase intent for Dove went through the roof.

That’s the whole story of the ROI of social media: next to good-old reach and frequency, the financial returns of a social media campaign depend on the often millions of interactions between consumers as they pass along the branded content. Every “like,” share, comment, retweet, and repin has a trust-tag attached to it. In my next blog post I will show how this trust-tag translates into money for the brand.

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