Ok, its not ALWAYS stupid — but more often than not its stupid to measure ROI in marketing and social media. That’s not to say that you should ignore the numbers, but you have to measure the right things.
Why its Stupid to Measure ROI
First, and foremost, ROI only addresses the profit motives of the business.
But, we know businesses have other motives. The important thing is to recognize these other motives often help the business succeed in the long run. Businesses want to give back to their employees and communities, they want to be ethical, and they want to do specific things that they do well. That’s why businesses often fail when they seek to increase profits by doing something they don’t know such as when Coke bought Columbia Pictures. Other than maybe enjoying a Coke at the movies, the 2 companies had nothing in common and later split.
ROI is very short term focused
So, the corollary to it being stupid to measure ROI because its profit motivated is that its short term. This is very short term focus as we ignore doing things that contribute to sales IN THE LONG RUN. For example, having good customer service contributes to increased sales over the long run and, in fact, creates competitive advantage because its so difficult to copy. We KNOW good customer service impacts sales because we know WE don’t go places where the customer service is BAD.
ROI ignores processes leading to increased ROI
In marketing we talk about a hierarchy of effects from awareness to purchase — now, I personally think this model a little simplistic, but the basic concept is true. Consumers buy products they know about and are interested in — and creating awareness and interest don’t figure into many ROI calculations where only sales matter. Marketing and social media invite people down the hierarchy toward purchase rather than directly generating purchases. A big part of this process is building strong brand perceptions. Another big part of the process is building trusting relationships and social media is an excellent vehicle for building relationships. Engagement also figures prominently in creating future purchases.
ROI measures commonly ignore secondary transmission
In social media, this is an especially important oversight from a single-minded focus on ROI. Because much of the value of social media relies on customer-to-customer interactions, engaging in activities that motive customers to share your message can be very valuable, but are often ignored in assessing ROI.
Its difficult to tease out the effects of any one activity
Assessments of ROI assume a cause-effect relationship between the actions and revenue. In marketing, tracing these cause-effect relationships is difficult, unless you’re doing some type of direct marketing. Even using direct marketing, unless that’s the only promotion running, you’ll never be sure what caused buying behavior.
They’re talking even if you’re not listening
For instance, firms use unmeasurable or untraceable improvements in ROI as an excuse not to do social media. The problem is that people are still talking about you in social media even if you’re not listening. It is only prudent to listen to what they’re saying and counter negative comments with facts and positive comments. Negative word of mouth travels farther and faster than positive, so you need to be quick to counter negative word of mouth.
Overemphasis on ROI stifles innovation
New products are inherently risky and the more innovative the product the riskier it is. Ignoring innovation, however, is a sure way to fail — at least in the long run. No firm can survive forever without new products that meet customer needs better. If you don’t create these new products yourself, your competitors will and, soon, demand for your products will plummet.
Just because measuring ROI is stupid doesn’t mean you should just run the business by the seat of your pants.
You just have to work harder to assess how you’re doing and go beyond looking at your accounting records. Here are some ways you can determine whether your marketing efforts are paying off:
- Assess process improvement –
- brand perceptions
- Track sentiments
- positive mentions
- negative mentions
- how many people engage with you across social networks, ie ReTweets, comments, sharing posts, etc.
- influence of those engaged with you
- number of coupons redeemed
- number of new products
- investment in new product development
- time spent seeking innovative ideas