Understanding Social Media ROI in SMEs

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1 Available Online at Book of Proceedings published by (c) International Organization for Research and Development IORD ISSN: Book of Proceedings ISBN: IRC-2015 Istanbul-Turkey. Understanding Social Media ROI in SMEs Aspasia Vlachvei a and Ourania Notta b a Technological Educational Institute of West Macedonia, Dept. of International Trade, Kastoria Campus, Fourka Area, 52100, vlahvei@kastoria.teikoz.gr Kastoria,Greece b Technological Educational Institute of Thessaloniki, Dept. of Agricultural Technology, (Agricultural Economics Program) P.O.Box 141, 57400, ournotta@farm.teithe.gr Thessaloniki, Greece Abstract The objective of this study is to review both the academic and industry literature on ROI of social media along with social media marketing tools, goals and measures especially in case of small and medium firms. Several researchers and experts have identified/discussed key elements from a complex set of ROI measurement issues of social media, such as direct and indirect measures (Mangiuc, 2009), short vs. long term impact (Pooja, et al., 2012), financial vs. non-financial indicators (Blanchard, 2009) and a need for a social media balanced scorecard approach (Nair, 2011). Gilfoil and Jobs (2012) provides a business unit of analysis framework, while Peters et al. (2013) propose a holistic framework that covers the major elements of social media, drawing on theories from marketing, psychology, and sociology and support and detail these elements namely motives, content, network structure, and social roles & interactions. More recently, Coleman and Herriot (2014) develop a conceptual model of the social media marketing process, where key results measures for awareness, engagement and performance are proposed for influencers, consumers and customers. Our study aims to go further this conceptual framework for a better understanding, implementing and measuring Social Media effectiveness or ROI for the firm involved. Our purpose is to categorize the possible goals for a firm involved along with their targeted financial or non financial outcomes, and the metrics that has to be used for each of them. Four primary goals present themselves: brand building (B), community building (C), customer satisfaction and loyalty (C) and economic performance (P). It is the first time that financial outcomes are separated into true earnings, savings and earnings though driving prospects to an e-commerce page. Keywords: Social Media, ROI, SMEs 1. Introduction More and more global companies are using social media some because they know it works, others because they re afraid not to use it. There is no question that social media is becoming big business. According to a report of Forrester, social media spending in the US are expected to reach $18.7 billion by 2019, up from $8.2 billion in growing at a five-year compound annual growth rate (CAGR) of 17.9%, while total social media advertising spending within the 17 Western European countries covered in this forecast is expected to reach 4.3 billion by 2019, up from 2.6 billion in 2014, growing at a five-year compound annual growth rate (CAGR) of 10.5%. The understanding of social media effectiveness, or return on investment (ROI), is a key factor in the long term success of social media marketing and management programs. The empirical literature contains several models for the deployment of social media. Representative of many examples of this approach is the process model guiding the practitioner through the concept, definition, design, deployment and optimization stages of social media marketing (Murdough, 2009). The proposed measurement pillars of this model are: Reach, Discussions and Outcomes. Broadly speaking the literature is divided into two groups of studies: In the first group we are interested in the reasons that people use social media. Research has

2 Aspasia Vlachvei & Ourania. Notta identified literally hundreds of motivations underlying why people use social media in a wide variety of contexts including blogs, Twitter, virtual worlds, YouTube and many others (Novak 2008). In a review of more than 30 articles that examined over 100 objectives, goals or motivations for using social media, Novak (2008) uncovered no fewer than 22 distinct motivational categories of social media use. These include, for example, achievement (Kuznetsov 2006), information (Weiss, Lurie, Macinnis 2008), peer pressure (Jung, Youn and McClung 2007), positive experience (Hoffman and Novak 2009), self understanding (Zhao, Grasmuck and Martin 2008) and social interaction (Lenhardt and Fox 2006), among others. Hoffman and Novak (2011) argue that the fundamental interactivity of social media allows for four higher-order goals: connect, create, consume and control. Kietzmann et al. (2012) suggests a honeycomb model with identity, presence, relationships, conversations, groups, reputations and sharing as key constructs for understanding social media and community engagement needs. In the second group of studies we are interested in identifying the goals or motivations for using social media and the effectiveness of social media for business purposes. Hoffman and Fodor (2010) suggest that instead of emphasizing Social media marketing investments and calculating the returns in terms of customer response, managers should begin by considering consumer motivations to use social media and then measure the social media investments customers make as they engage with the marketers brands. Pooja, et al., (2012), suggest that some Indirect SM measures can be used to ultimately impact financial ROI (purchasing behavior); measures Customer Lifetime Value (CLV), while Kaske, Kugler, and Smolnik (2012) present an extended financial ROI model that incorporates longer term marketing and CLV concepts into a financial ROI formula. Other research suggests a number of important consumer engagement measures such as site visits, tweets, followers, product reviews and other similar items. More comprehensive models focus on the need to measure across multiple environments to fully determine the value and return associated with social media marketing efforts. Although they are indirect contributors to the bottom line, qualitative activities on social media platforms may affect long term profitability. Examples of suggested measures include: Activity, Tone or Sentiment, Velocity, Attention and Participation (Owyang, 2007). Nair (2011) recommends the adoption of a SM Balanced Scorecard to incorporate a strategic approach and tactical implementation of SM projects; Nair provides a healthcare case study to illustrate monitoring, managing and measurement of SM efforts. According to Peters et al (2013), managers and researchers need to comprehend how marketing input interacts with social media to produce desired marketing outcomes. This logic relates to the Stimulus (S) Organism (O) Response (R) paradigm with its feedback loop from Social Learning Theory (e.g., Bandura 1971; see Belk 1975 for an early marketing application). They develop a framework where marketing inputs (Stimuli) compare to frequently used marketing instruments (e.g., information, advertising, pricing), whereas social media represent the organism (Organism). Managerial outcomes (Response) are either specific (intermediate) success metrics, e.g., for customer relationship management (customer lifetime value; see also Malthouse et al. (2013), for more details) or brand management (awareness, liking; see Gensler et al. (2013)), or general success metrics (e.g., market share, profit; Farris et al. 2006). Gilfoil and Jobs (2012) attempted to proffer a 3D conceptual model which considers the complexities of SM measurement, and posits an integrative unit of analysis approach to understanding the current state of disarray, along with a practical set of business process steps and guidelines for implementing SM programs/projects. The importance of Relationship Quality as a critical measure of Consumer-Performance was demonstrated again in research measuring the effects of brand community efforts via social media on brand trust and loyalty (Laroche, Habibi & Richard, 2013). The results indicate moderate to strong effects of social media community building on the perceived quality of consumer-company interactions. In a study focused on business to business sales efforts, Rodriquez, Peterson and Krishnan (2012) assessed the impact of social media usage on several key salesperson activities: creating opportunity, understanding customers, relationship management, relationship sales performance and outcome based sales performance. Strong positive effects were reported for creating opportunity (identifying and contacting potential new customers) and modest effects were evident upon relationship management and relationship sales performance. However, the effects upon understanding customers and outcome based sales performance (quota achievement, average customer revenue and revenue gains) were not significant. In a very impressive time series analysis set in the microlending industry, the long term effects of online social media publicity by traditional media outlets were compared with the effects of publicity in blogs and online communities by consumers (Stephen & Galak, 2012). Both sales and repeat sales were shown to be positively

3 Understanting Social Media ROI in SMEs affected by social media activity. Their findings offer strong support for the ROI related Customer-performance component. Not surprisingly, reviews in traditional social media outlets had a much larger per event effect on both initial sales and repeat sales than blogs and community forum posts due to broader reach. Coleman and Heriot (2014) developed very recently a conceptual model of the social media marketing process where key results measures for awareness, engagement and performance are proposed for influencers, consumers and customers. According to this study, although measures of Awareness and Engagement are similar across Influencers and Consumers, the suggested performance measures differ, as is also the case for Customers. For Influencers, we focus on outcomes like the quantity and tone of reviews and recommendations, the size of their influence network and the level of credibility. For Consumers, performance should be measured by the rate at which they authorize further contact or convert into fans or members. For Customers, however, the key performance indicators are ROI related items such as purchases, revenue and profit. The purposes of this paper are: first to propose a conceptual framework for research regarding the use of social media by Small and medium sized firms, and second to categorize the possible firm s goals along with their targeted financial or non financial outcomes, and the metrics that has to be used for each of them. 2. Proposed Framework (BCCP) Before a firm can enter the social media arena, it must determine the appropriate goals associated with the social media implementation. It needs to identify and understand the value proposition for the customer, and for the firm. We use to say that social media is about engagement and collaboration. The benefits cannot be unidirectional or one-sided. Customers need to receive, or at the very least perceive, value from the social media effort. The same needs the company. This will vary by industry, company, and even customer. ROI is a success metric that is widely used and accepted in practice. It fulfills business leaders need for a tangible profit from investment, which both general customer marketing investments and social media projects have to provide. In its basic form, ROI is defined as the net proceeds from an investment over its costs. So one of the goals for the firms is associated with assets. Marketing actions generally aim to build longterm assets. In a customer-centric approach, this asset is known as customer equity. Customer equity can be transformed into shortterm profitability. Marketing efforts can, therefore, leverage long-term, market-based assets and transform these assets into short-term profits. When analyzing marketing actions, long-term results are thus particularly important. A single-period framework would not represent marketing actions full effect due to their long-term effects. Nonfinancial metrics designed for marketing management have shown the switch to customer-centered strategies by stressing customer satisfaction, customer value, and market orientation. According to Lenskold (2003) effective ROI measures need to be flexible, dynamic, and focused on each incremental investment. A central ROI framework concept is the customer lifetime value (CLV). CLV is defined as the amount by which a person, household, or firm s revenues over time exceed the firm costs of attracting, selling, and servicing that customer. CLV is valued as a concept because it acknowledges marketing s long-term effect and because today s investments will have an impact in multiple future periods. Discounting and summing all of a firm s present and future customers yield customer equity (Kaske et al, 2012). Four primary benefits of using social media present themselves: brand building and awareness (B), community building and engagement (C), customer satisfaction and loyalty (C) and economic performance (P). A firm s involvement in Social Media does not mean necessarily that will achieve all the above four targets. It depends on the campaign and firm has to consider first which are the goals of each Social media campaign and second if the design of the social media campaign is appropriate to achieve the above goals. For example not all social media campaigns are designed to make money, some are designed to save money. Brand Building (B) Brand awareness may not be responsible for directly generating sales leads, but it is the gateway that customers pass through as part of sales funnel (Holloman, 2014) If the goal is to build awareness, measurement of success will revolve around increasing traffic (which can be measured by page views, unique visitors, total visitors), improved search ranking, gain visibility, improved reach, positive press, positive wom, Blog comments, time on site and employment applications. Community building (C)

4 Aspasia Vlachvei & Ourania. Notta The idea behind community is that firm can support others, and they can support company. Social media have created the potential of a better customer insight and more accurate market intelligence. A platform where prospects/users/customers are comfortable sharing, networking, giving or receiving help, is highly appreciated. SM platforms can help people find things at a better price, teach them how to do things correctly, allow them to give creative inputs that help re-design products, help them find information quickly, etc. In short, people want a significant reason to engage with the company. That is why SMEs have to find out what people would like to hear; what they would like to talk about; what they might find interesting, enjoyable, and valuable and then to develop and post content that fits those expectations. Social media constitute an empowerment of the firm. Social media are a very powerful tool with which to monitor customer-to-customer communication and intervene when necessary. Customers learn about other customers experiences, and firms learn about customer feelings towards their products. Social media are therefore a significant driver to eliminate market inefficiencies and improve the competitive environment, as they help to weed out poor quality products over time. The success of a community building can be measured by FB friends, Twitter Followers, Gain newsletters sign-up, Mentions, Recommendations, Respond to criticism, Retweets, Shares, Call to action. Customer satisfaction and loyalty.(c) One of the main goals of marketing is to keep existing customers happy, which means that firms provide better customer service to those customers and it increases revenues through those customers repeat business. Social media is an excellent channel for two-way communication with existing customer base, to answer questions, to respond to feedback, to share elicit client success stories, to get an immediate response before spending a lot of money to develop products that customers do not want or need. This insight can be used by an SME to improve its products, to solve customer problems and to improve internal processes to provide better services. The customer can often provide immediate feedback to the company based on current products or services, or even propose new ones via forums such as My Starbucks Idea (Greenberg 2010), which can be routed directly to the research and development (R&D) or new product development group. In real time, the customer and company may now collaborate to identify what products and services the market demands, how they can be improved, and when they are expected. Listening is a primary component in building trust with a customer. Customers want to be heard, understood, and appreciated. Social media not only allows that to happen, but at its core, it promotes and encourages listening (Andzulis et al.2012). Several ways to measure customer service: Number of Customer complaints and response, Customization, On line product services Performance (P) We can have three possible ways to have financial outcomes from the use of social media. The first one is through our social media to drive prospects to an e-commerce page. This means that we can measure the success of our social media campaign by Increased Sales, Revenue per customer, Repeat Purchase Rate, Average Customer Life. The second way is to recognize the earnings that firm has through savings. Which means that a firm can reduce substantially the cost of customer service, by managing a customer complaint via social media. By comparing the cost of traditional customer service to the cost of social media customer service, companies can make a calculation on whether or not they have improved efficiencies by using social media customer service. (Turner and Shah, 2014). But a firm can also have substantially decrease in the cost of traditional advertising, through an efficient social media involvement. Measures that can be used are: Reduced advertising cost, Reduced customer retention cost, Reduced cost of managing a customer complaint. The third way is to make money through social media (when firm s campaign is designed to do so), which can be measured by increased sales or generate leads. If the goal is to increase sales, measurement of the social media program s success must take into account web traffic, time spent on the site, bounce rate, repeat visits, content acceptance rate, followers, social mentions, and share of voice. Table 1. Understanding Social Media in case of SMEs along with each goal separately (BCCP)

5 Understanting Social Media ROI in SMEs Goals Brand Building (Awareness) Increasing traffic( page views, unique visitors, total visitors) Improved search ranking Gain visibility Improved reach Positive press Positive wom Blog comments Time on site Employment applications Community Building (Engagement) FB friends Twitter Followers Gain newsletters sign-up Mentions Recommendations Respond to criticism Retweets Shares Call to action Customer Service (Satisfaction) Metrics Customer complaints Customization On line product services Listening to conversations Earnings (make money) Increased sales Generate leads Performance Savings (save money) Reduced adv cost Reduced customer retention cost Listening to conversations Reduced cost of managing a customer complaint E-commerce sales through SM Increased Sales Revenue per customer Repeat Purchase Rate Average Customer Life 3. Conclusion and Implications SM ROI measurement has been approached from a variety of different angles and many have given their views of what it should, and shouldn t be. This paper has attempted to provide a framework where it is clear that the efficiency of SM involvement has to do with determination by the firm if appropriate goals associated with the social media implementation Before a firm can enter the social media arena needs to identify and understand the value proposition for the customer, and for the firm. According to BCCP model four goals present themselves: brand building and awareness (B), community building and engagement (C), customer satisfaction and loyalty (C) and economic performance (P). For each of these goals the efficiency of involvement in SM can be measured with the proposed metrics. It is the first time that except non-financial outcomes, financial outcomes are separated into true earnings, savings and earnings though driving prospects to an e-commerce page. References Andzulis, J., Papagopoulos, N. and Rapp, A. (2012). A review of social media and implications for the sales process. Journal of Personal Selling & Sales Management, vol. XXXII, no. 3 (summer 2012), pp Blanchard, O. (2009). Basics of Social Media ROI, Social Fresh Conference. Slideshare.Net. Retrieved June 14, 2012, from Coleman and Herriot (2014). Social Media Effectiveness for Small Businesses: Concept and Measurement Journal of Business and Economics, ISSN , USA June 2014, Volume 5, No. 6, pp Farris, Paul W., Neil T. Bendle, Phillip E. Pfeifer, and David J. Reibstein (2006). Marketing Metrics: 50+ Metrics Every Executive Should Master.Upper Saddle River, NJ: Prentice Hall. Forrester Research. US Interactive Marketing Forecast, 2011 To Gensler, Sonja, Franziska Völckner, Yuping Liu-Thompkins, and Caroline Wiertz (2013). Managing Brands in the Social Media Environment, Journal of Interactive Marketing, 27, 4, Gilfoil and Jobs (2012). Return on Investment For Social Media: A Proposed Framework For Understanding, Implementing, And Measuring The Return Journal of Business & Economics Research (JBER), 2012 Greenberg Paul (2010). The Impact of CRM 2.0 on Customer Insight, Journal of Business and Industrial Marketing, 25 (6), Hoffman, Donna L. and Marek Fodor (2010), Can You Measure the ROI of Social Media Marketing?, MIT Sloan Management Review, 52, 1, Hoffman, Donna L. and Thomas P. Novak (2011), Social Media Strategy, in Handbook on Marketing Strategy, Venkatesh Shankar and Gregory S. Carpenter, eds. Gloucestershire, UK: Edward Elgar Publishing, Ltd.

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