Monitoring flows of attention and information can help companies measure the value of social media investments. Building strong and reciprocal relationships may be the way to capture it.
But digging deeper, it has been harder to frame a response in terms of the value of these investments. Indeed, from the outset, the use of social media technologies for customer engagement and business transformation has been inhibited by the challenge of measuring ROI.
Many leading thinkers in social media have asserted that metrics like pageviews, engagement, and positive sentiment are easily correlated with top-line growth; however, making that connection has proven difficult. Even more difficult has been justifying the investment of resources required not just to engage through social channels, but also to transform the organization's operations to empower employees and leverage these technologies effectively.
Rather than relying on financial metrics alone, "flows" among social networks—flows of attention, data, stories, labor, and capital— can provide a means of measuring the value of social media investments.
Understanding the value of social media has been challenging because most companies have been focused purely on the financial aspects of investment and return. As a result, many have failed to recognize that the very nature of the market has changed, expanding the concept of "returns" and their significance to the company.
In seeking to understand the non-monetary economic value of social media, we turned to the concept of "flows," which has been central in the work of Deloitte Consulting LLP colleagues John Hagel and John Seely Brown. Just as money flows through the economy, so too does information. For example, the stream of customer opinions expressed on popular social media sites about a product or service represents a flow of knowledge that can be extremely influential. Likewise, movements of data, labor, capital, and even customers' attention represent flows within the business system. These flows take place not only between the company and its customers, but among participants in the more broadly defined market. Participants may include former employees, families of employees, the general public, competitors, and even former customers.
What does this mean for measuring the value of social media? Based on our experience, social media doesn't just contribute to brand value; it can also actively express brand value through the newly visible flows of non-monetary economic value that traverse social networks. Perhaps most important, these flows can now be identified, measured, and converted into financial equivalents, thus enabling organizations to aggregate the disparate forms of returns into a more traditional view.
Flows of attention and labor are generally the most conducive to conversion based on metrics. For example, when customers invest their attention to watch a company's video online, the number of views can be converted into a financial equivalent using traditional advertising cost metrics, such as cost per thousand views (CPM). Applying an average CPM of $40, 10 million views would be the equivalent of $400,000 in returns on the cost of video production and promotion.
Crowd-sourced labor, by contrast, can be valued in terms of internal cost avoidance. For example, community self-support in social channels can be converted to a financial equivalent based on the cost per customer the company would have incurred to resolve the issues.
Converting data and stories is often more subjective, and requires an element of "art" to support the "science." Data relating to customers' identity, habits, and behaviors can be valued in terms of returns stemming from the improved ability to target marketing investments and product features. The stories customers share through social media about a company's products and services can be valued in terms of revenue gained or lost.
In today's connected society, the returns from social media investments cannot be determined from a single transaction or even traditional views of customer lifetime value. The organization should consider both customers and their networks, and the influence their experiences and stories have on their networks' future purchase decisions and brand perceptions. Moreover, these experiences are not only shared with the network, but with the public at large, creating a cascade of positive and negative sentiments that can affect countless other purchase decisions in the future. This means organizations should also understand the impact a customer's experience has on the market at large.
The potential for both positive and negative flows across the customer's network in the public sphere of social media requires that companies do right by customers (and employees, since these flows can just as easily come from within the company). Beyond this, to differentiate themselves from competitors, companies should develop genuine relationships that engender deeper loyalty and greater trust. The strategic importance of managing customer relationships is not new; however, it is potentially revolutionary to think about how these relationships can be leveraged to generate non-monetary economic gains.
Customers are likely to do more to help a company achieve its desired results if they know with certainty that a company is committed—demonstrated through the consistency of word and deed—to increasing the "shared value" for the customer, the company, and the market.¹ If value is shared, the company's policies and practices can both enhance its competitiveness and advance the economic and social conditions in the communities in which it operates. That is why, instead of focusing solely on increasing each transaction's profitability, it is important for companies to strive for relationships with customers that are "R.E.A.L.": Reciprocal, Empathetic, Authentic, and Long-lasting. Relationships based on these intrinsic values, and supported by systems of engagement that provide efficient and consistent communication and collaboration, can provide better opportunities to increase profitability. In short, a company that develops R.E.A.L. relationships may be able to more consistently win the hearts, hands, minds and wallets of its market.
The economic imperative of investing in relationships and the systems of engagement that can support them is illustrated by "The Engagement Curve." (See Figure 1.) To build R.E.A.L. relationships, companies should aim to move up this curve—shifting from marketing (talking at customers to drive sales) to market engagement (talking with customers to create shared value).
The Engagement Curve owes more than the inspiration for its name to The Experience Curve; it shares common DNA with respect to the effect of scale, competitive differentiation, and economic yield. Many industry leaders have contributed to the development of the Engagement Curve and believe the insights it illustrates have the potential to create a similar impact on strategic planning. As with most new discoveries, the first rewards will go to the courageous—those who choose to invest in demonstrating its potential to realize greater operational efficiencies, cultivate deeper customer loyalty, and seize market share.
The conversations that take place over social media are an expression of brand value—and that expression comes in the flows that traverse our social networks. Further supporting the rationale for investment, engagement through social media is at once personal, public, and persistent. Connecting the dots, the increased economic value captured from social media investments is the equivalent of the previously intangible constituent components of brand value. Given social media's power to make things visible, the fundamentals of business are being forever altered by our newfound ability to see and account for this value as it flows across the connected society in which we now live.
The transparent world created by social media gives companies opportunities for growth, if they can move beyond mass marketing by building genuine relationships with their customers and reduce the cost of change by becoming more nimble. Now is the time to seize these opportunities, because the switching costs in our connected society are getting exponentially higher.
Editor's Note: We invite readers to participate in a brief social media survey being conducted by MIT Sloan Management Review and Deloitte. Click here to take the survey.
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