Social Media ROI: Customer Engagement, Brand Interactivity, and Revenue

Social Media ROI: Customer Engagement, Brand Interactivity, and Revenue Between July and August 2010, Aberdeen surveyed 65 retailers regarding their use of social media marketing to interact with customers (see definition in sidebar). Results indicate that 85% of these organizations have an initiative in place to help manage brand reputation and encourage revenue-building consumer interactivity. Despite its pervasiveness, however, significant challenges remain to achieve a full Return on Investment (ROI) from social media adoption. Fifty six percent (56%) of retailers have indicated that they are unable to quantify the effect of social media. The purpose of this Analyst Insight is to assess the different motivational factors and corresponding actions inherent in a social media marketing initiative, and the strategies retailers are taking to yield ROI benefits from these initiatives. August, 2010 Analyst Insight Aberdeen s Insights provide the analyst perspective of the research as drawn from an aggregated view of the research surveys, interviews, and data analysis Social Media for Shopping and Research Top Retail Adoption Pressures In the face of difficult market conditions, including a sluggish lift in consumer spend, retailers are noting an increasingly option-conscious consumer who has new sources of information to utilize before making a purchase. For example, according to Aberdeen's August 2009 Retail E-Commerce benchmark, the top pressure driving Best-in-Class retailers to improve their e-commerce functionality is low customer loyalty (40%). Given this reality, it is no wonder that increased consumer utilization of social media as a primary shopping vehicle was the top adoption pressure (53%), as shown in Figure 1. Figure 1: Top Retail Social Media Pressures Increased consumer utilization of social media as primary shopping vehicle Increased competitive use of social media Rapidly changing customer affinities Decreased consumer response to existing marketing campaigns 19% 28% Social Media Marketing for Retailers Defined Aberdeen defines social media marketing as the dynamic exchange of information between a retailer and consumer via an online community destination, such as a company blog, on-line forum, website or any other type of social media outlet or tool. This dynamic content includes (but is not limited to): Blogging Micro-blogging Product commenting Social networks (i.e. LinkedIn, Facebook) Online video widgets Presentation or document sharing Social bookmarking Podcasting Product ratings 47% 53% 0% 10% 20% 30% 40% 50% 60% Source: Aberdeen Group, August 2010

Page 2 The increased utilization of social media has challenged retailers to rethink the way they interact with their customers. Using traditional media such as a web site, or a product description or image, allows retailers to control the look, feel and messaging of the consumer-retailer interaction. Social media, on the other hand, forces retailers to share this real estate with consumers, who can offer a widely varying set of opinions. In some cases, such as with popular social pages, retailers must also share this space with their competitors, who are fighting for an equal share of consumer attention. In either case, retailers must make the best use of this space for the highest possible appeal. Fortunately, there are many different ways to accomplish this task. Social media monitoring, for example, allows retailers to appropriately track and respond to the way consumers articulate their experiences. Similarly, virtual product manipulation may also encourage consumers to spend more time with a particular retailer. Apparel retailer Wet Seal, for example, has made use of a virtual apparel try-on program, whereby consumers can match pieces of an outfit together, and post these pictures to their own sites to gauge opinion. Whatever the strategy, the fact that more than half of respondents identify this as a top pressure speaks volumes as to the pervasiveness of social media as tool of choice for making (or researching) an online purchase. Another major business pressure associated with social media is from a competitive standpoint. Retailers that regularly compete with each other can use this medium to provide specialized marketing or product outreach. Indeed, increased competitive use of social media was the second highest adoption pressure among retailers (47%). Due to the fact that social media initiatives can be executed in different forms, retailers can be creative with how they use social media to compete. Two examples of successful social media usage are Target and Home Depot: Target utilized a video of The Like, a popular girl band, preparing for a concert in their hotel room proudly donning a signature clothing line. The retailer relied on the success of that viral marketing initiative as the video made the rounds on YouTube, collecting thousands of hits over a short period of time. This gives them competitive differentiation against Wal-Mart by allowing their younger customer groups to connect pop culture interests and internet video downloading to product catalogs and promotions. Home Depot has successfully integrated customer service and promotion delivery through the use of Twitter. With nearly 22,000 followers, Home Depot promotes in-store and web specials, and responds in real-time to customer complaints or suggestions. Home Depot's social media program competes with Lowe's social media strategy, but the difference is Home Depot's high level of consumer pervasiveness, and the ability to connect social interactivity with "Our virtual runway within social media pages generates three times the existing amount of customer comments than from fan page interaction alone." ~ John Kubo Chief Information Officer Wet Seal

Page 3 local representatives who are available for specialized, regionspecific support. Social Media Adoption Strategies Vary by the Size of the Retailer According to Aberdeen data, no single particular social media strategy fits all retailers. Given that social media retailing is relatively new (50% of initiatives are less than two years old), retailers are likely to have different priorities as they continue to invest in this new medium. For example, Aberdeen data reveals that the size of a retailer makes an impact on how social media is utilized. The top social media action for Small to Midsize Enterprises (SMEs) in the retail sector (see definition in sidebar), is a focus on social media monitoring (58%). For larger retailers, on the other hand, the top strategic action is to focus on establishing an enterprise-wide social media strategy (45%), as shown in Figure 2. Figure 2: Top Social Media Initiative Actions Aberdeen's Definition of Company Size In terms of company size, Aberdeen separates retail respondents into two different categories: Small to Midsize Enterprises (SMEs), and Large enterprises: SMEs: Retailers with annual revenues of $1 billion or less Large retailers: annual revenues above US $1 billion Deploy social media monitoring: own e- commerce domain, external sites 18% 58% Establish a formalized enterprise-wide social media strategy 29% 45% 0% 10% 20% 30% 40% 50% 60% 70% SME Retailers n=43 Large Retailers Source: Aberdeen Group, August 2010 Large Retailers Focus on Enterprise-wide Social Media Planning According to Aberdeen data, larger size retailers have prioritized an enterprise-wide involvement in social media planning (45%). Considering that different departments can have different interests in how social media is utilized, it is no wonder that these retailers are seeking input from various different parts of their enterprise. These different departments can include, among others, marketing, customer service, and product development: Marketing. Eighty seven percent (77%) of large retailers are sharing social media insight with their marketing department. Marketing departments can use social media insight to coordinate and execute campaigns targeted specifically to active social media users who, through their social media activity, show a dedicated interest in their organization or particular product.

Page 4 Customer service. Forty six percent (46%) of large retailers are sharing social media insight with their customer service department. Customer service departments can use social media insight to respond to specific customer issues and challenges. Increasingly, these issues and complaints are articulated not on a phone call to a customer service representative, but on a public social media channel, such as Facebook or Twitter. Product development. Twenty three percent (23%) of large retailers are sharing social media insight with their product development departments. Product development managers can use social media insight to identify potential products or new features / functionality that is highly relevant to and desirable among their target consumer base. Small- to Mid-Size Retailers Prioritize Social Media Monitoring According to Aberdeen data, 38% of SME retailers have prioritized social media monitoring as the most significant part of their social media initiative. Social media monitoring tools provide a way to capture and analyze customer comments, both positive and negative. Although these tools may not be able to change stated opinion, they do allow retailers to monitor and react to these opinions to the best of their ability. Comments from an unhappy customer, for example, may be dissipated by solution suggestions from the retailer. Conversely, positive feedback may be captured and highlighted in a retailer's marketing programs, or linked directly to a specific product offering. In either case, the ability to monitor this process can provide valuable feedback as to which specific products, campaigns, or policies are likely to succeed on a long-terms basis, and which are in need of adjustment. One example of effective social media monitoring is by apparel retailer Chico's, whose social media program monitors and reports potential increased sales from different existing and potential product offerings. Aberdeen Insights KPIs for Social Media According to Aberdeen data, the majority of social media initiatives are still in their relative infancy. This is not surprising considering the relative infancy of social media technology as a whole. Fifty percent (50%) of these initiatives are two years old or less. As such, it is not surprising to see a desire to move social media from simple adoption to a tool that is justified through the ability to quantify increased sales and influenced opinions. In fact, one of the top three actions associated with social media initiatives is to define KPIs relevant to measuring the success of social media initiatives (25%), as shown in Figure 2. However, for retailers, this is easier said than done. More than half of respondents (56%) indicated that they are unable to quantify the effect of social media on their organization, and an additional 24% indicated "gut feel" measurement. continued

Page 5 Aberdeen Insights KPIs for Social Media Retailers are also undecided as to which specific KPIs are relevant to their social media initiatives. According to Aberdeen data, quality of consumer insights, number of repeat visitors, and quantity and quality of new sales leads were all within 12 percentage points of each other (respondents were asked to rate on a 1 to five scale which KPIs had the most social media measurement relevance). Granted, the usefulness of a particular KPI is likely to differ from one retailer to another. However, retailers would be wise to explore which KPI provides the most value to the retailer, and use accordingly. Figure 3: Top Social Media KPIs for Retailers Quality of customer insights 43% Number of repeat visitors 39% Quality of new sales leads 36% Quantity of new sales leads 31% Number of comments 17% Frequency of postings 11% 0% 10% 20% 30% 40% 50% Source: Aberdeen Group, August 2010 Executive-level Support Tops Key Social Media Capabilities According to Aberdeen research, four key capabilities have emerged as top strategies retailers are embracing to enhance their social media initiatives (Figure 4). These include: Executive-level support for social media initiatives (64%) Dedicated resources/team devoted to social media activities (47%) Marketing executives meet/talk regularly with customers to ascertain needs (33%) Clear understanding of which marketing channels are most effective (31%)

Page 6 Executive-level Support for Social Media Executive-level support for social media initiatives is a top adoption capability (64%). Given the difficulty in obtaining a quantifiable ROI from social media, it is not surprising to see retailers start their social media initiatives with an executive-level sponsor. Top-level retail executives have the benefit of insight from not only one departmental perspective, but from an enterprise-wide perspective as well. For example, if a marketing department can only articulate the benefits of social media in terms of increased estimated campaign exposure, an executive-level sponsor will be able to supplement this information with insight regarding the effect on customer service, product development, sales, etc. The result is an easier justification for increased investment of future initiatives. Dedicated Resources / Team Devoted to Social Media Nearly half of all retailers (47%) are focusing on allocating dedicated resources to social media. These resources include not only technology investments, but human capital support as well. This human capital may be tasked with monitoring social media pages for positive or negative feedback. They may also be tasked with coordinating marketing campaigns with increased interest in a particular product or service. For example, if apparel retailer Wet Seal is monitoring increased interest in a particular outfit that their virtual "try-on" program has yielded, they may choose to offer a specific promotion tailored around those products. Given that less than half of small, medium, and large retailers are currently utilizing automatic social media monitoring programs (Figure 2), dedicated human capital resources may be necessary to record such interest with appropriate depth of information, and coordinate this activity with existing marketing programs. Social Media Marketing Communication with Consumers Thirty-three percent (33%) of retailers are tasking their marketing executives with establishing regular communications with customers to ascertain their social media needs. An apparel retailer, for example, may seek to understand which technologies are preferred by the consumer to best interact with products (video, product try-on, data from the manufacturer, etc). They may also wish to understand which method of consumer expression is easiest for the consumer to participate in (ratings and reviews, commenting, blogging, etc.). Similarly, electronics retailers may need to understand specific required types of product data and interactivity that needs to be available in the social media space (product measurements, demos, virtual product interaction, etc.) Whatever the type of retailer, having a regular interaction with consumers enables retailers to provide a social media platform that is conducive to their needs. "We see a direct link between social media and increased customer loyalty. [For the purposes of building loyalty], customers seamlessly turned towards twitter, and Twelp force helps [Best Buy] on a real-time basis by responding to 30,000 inquiries in one month. ~ Matt Smith Vice President of Financial Services Marketing, Best Buy Identification of Highly Effective Marketing Channels Thirty one percent (31%) of retailers are focused on understanding which social media marketing channels are the most effective. Considering the myriad of different forms of social media that are available to retailers, it is important to identify which particular channel is most effective for use as a marketing tool. Home Depot and UPS, for example, both heavily use micro-

Page 7 blogging to monitor and respond to customer service challenges. Other retailers, such as Barneys New York, prioritize social media fan pages to push their product promotions, including the regular "Barney's Babble" outreach program. Figure 4: Top Social Media Capabilities Executive-level support for Social Media initiatives 64% Dedicated resource/team devoted to social media activities 47% Marketing executives meet / talk regularly with customers to ascertain needs Clear understanding of which marketing channels are most effective Regular monitoring of social media performance against costs/budget Analytics resources devoted to leveraging social media data 33% 31% 30% 26% 0% 10% 20% 30% 40% 50% 60% 70% Source: Aberdeen Group, August 2010 Social Media Enablers Focus on Visual and Literary Coordination According to Aberdeen research, retailers place high value in the use of visual and literary interactivity when it comes to social media. Social networks were the number one social media enabler (85%), as shown in Figure 5. Additionally, micro-blogging, a way to mass distribute short announcements, was the second most popular medium at 51% of respondents, as well as blogging, at 43% of respondents. Social Networks Social networks such as Facebook and MySpace have the distinct advantage of both visual and literary display interactivity. Retailers can take advantage of this medium to provide visual descriptions, such as pictures and videos, to promote their product. At the same time, they can provide accompanying text describing the product and specific promotions that may support its sale. Most retailers use this environment to offer brief product and sale information, and then link back to their own e-commerce site to provide more information and complete the transaction. Some retailers, however, such as 1-800-FLOWERS, allow customers to buy products directly from these social networks. As retailers continue to find new ways of interacting with consumers using social media, the 1-800-FLOWERS model may become more pervasive. In fact, many point-solution providers are emerging that specialize in e-commerce/social network integration, as well as an increased focus from best-of-breed platform providers.

Page 8 Micro-blogging Micro-blogging is a social media tool (such as Twitter) based exclusively on literary interaction with the consumer. Unlike sites such as Facebook and Myspace, this tool is dependant on short phrases or sentences designed to attract attention to sales promotions, new events, and product upgrades. The tool also works as a medium of approval/disapproval from consumers, which is where the benefits of social media monitoring come in. One such case is Dell, which uses monitoring to scan customer opinions articulated in micro-blogging forums (see 'Social Media Monitoring', Page 5). Blogging Blogging is an expanded use of literary cross-communication between retailer and consumer. Unlike micro-blogging, which limits its writer to a certain number of characters, blogging allows for unlimited commentary. Many retailers, such as Amazon.com, offer consumers unlimited blogging opportunities (whether positive or negative). Additionally, many third party sites have emerged that are dedicated to product commenting. Either way, many consumers are now willing to take part in the blogging process posttransaction, which forces retailers to actively monitor and respond to this commentary accordingly. Figure 5: Top Social Media Enablers Social networks 85% Microblogging 51% Blogging 43% Online video Widgets 38% Product commenting 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: Aberdeen Group, August 2010 Conclusion: Retailers Must Take Social Media Interaction to the Next Level The fact that 85% of retailers are investing time and money in social media participation speaks volumes about its perceived value for brand management and its potential as a key retail marketing medium. Indeed, of those investing in social media initiatives, a near universal 92% of respondents are sharing social media data with their marketing departments, and a smaller but still significant number are sharing this same data with customer service (53%) and product development (36%) departments. Despite this pervasiveness, however, just 15% of respondents indicated they have found ways to validate the ROI from their social media initiatives.

Page 9 Although this can be partially attributed to the infancy of social media in general, it does not mean that this initiative does not need to be quantified. Quantification not only helps retailers understand specifically where their social media successes exist, but it also helps justify additional expenses both internally to executive management, and externally for stock holder and other stakeholders. Fortunately, social media is offered in different forms, such as blogs, social pages, ratings and reviews, Wikis, videos, etc., leaving room for creative interpretation. Assuming retailers engage their social media strategy in a beneficial and quantifiable way, increased customer satisfaction, brand value, and revenue are all possible results. Recommendations for Action Aberdeen data suggests mid-market retailers take the following steps toward achieving internal process management performance: Monitor potential brand management threats to mitigate a negative impact on future sales. Currently, 78% of retailers do not have a formal process in place to detect potential threats to their company's brand reputation. Given that social media is an ideal forum for the disgruntled shopper, and given that there is no way to fact-check any comments made, retailers must be acutely aware of what is being said about their brand, and determine a way to mitigate damage. While it is difficult to remove negative comments entirely, a monitoring strategy would allow retailers to identify the extent of the comments, and offer suggestions to make a difficult situation more palatable. Integrate analytics resources into social media initiatives to increase organizational visibility. Just 26% of retailers are utilizing analytics resources devoted to leveraging social media data. Considering that nearly half of retailers (47%) are making social media an enterprise-wide strategy, analytics resources would help to facilitate this process by centralizing and breaking down this data into relevant, actionable conclusions to be shared with relevant stakeholders. Although 24% of retailers are still relying on "gut feel" decision-making, analytics resources can be used to centralize any conclusions, and distribute accordingly. Analytics tools can also make the sharing process a regular, defined initiative, which is a current deficiency for 76% of retail respondents. Embrace non-traditional social media tools for an increased competitive advantage. According to Aberdeen data, just 17% of retailers are using document sharing, 15% are using podcasting, and 14% are using social bookmarking. It is understandable that the vast majority (85%) of retailers are embracing social pages such as Facebook and Twitter, given their popularity. However, other channels that are currently not in the mainstream could be used as a competitive advantage (a top pressure by 47% of respondents). Podcasting of expert testimonials, for example, can be used to support product descriptions. Similarly,

Page 10 document sharing can be utilized to provide instruction books and other relevant product data for would-be purchasers, either in the product description, or in a forum designed to increase product awareness. While Facebook and Twitter may seem like obvious first starts for some retailers, they must not forget that differentiation is what will set them apart from their competitors. Consider customer engagement frequency as a potential KPI for increased customer visibility. According to Aberdeen data, just 11% of retailers consider "frequency of postings" as a top social media KPI. This is surprising, considering that the more frequent a comment is made, the more relevance both the message and the medium will carry. Granted, there are other KPIs that have similar importance, such as quality of comments, quantity and quality of social media-related sales leads, etc. However, retailers would be wise not to dismiss this metric as they try to determine which social media channel has the most relevance for their organization. Examine benefits of re-platforming for increased focus on customer interactivity. According to the August 2009 High Definition Retail E-Commerce benchmark report, 38% of retailers who have an existing social media initiative are re-platforming their existing e-commerce site. Re-platforming an e-commerce site provides an opportunity for retailers to re-address site design, merchandising strategies and other related functionalities to support increased consumer interaction, personalization, as well as affinitybased selling (commonly used for social media programs). For more information on this or other research topics, please visit www.aberdeen.com. Restocking the Marketer's Toolbox in the Digital Age: June, 2010 High Definition Retail E-Commerce: Higher Customer Conversions Through Effective Online Merchandising; August 2009 Related Research Retail E-Commerce Analytics: Cornerstone of the Complete Customer Profile; February, 2010 Online Retailers Embrace E-commerce Analytics for Increased Visibility into Customer Activity; July 2010 Author: Greg Belkin, Research Analyst, Retail, Hospitality, and Banking (greg.belkin@aberdeen.com) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte-Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. 010110a