Risk Avoidance and the ROI of Social Media, Insurance, Guitars and Tires

Image by kyz via Flickr

There is a lot of buzz about Social Media ROI, and since the topic is complex, there will continue to be buzz about it for years to come. Brands want to know that Social Media works, what works, and how to invest their money.

Much of the results generated by Social Media can be measured quantitatively and qualitatively: transactions, decreased customer service costs, increased awareness, improved sentiment, etc. But some of the advantages from Social Media cannot be measured, because much like investments in insurance and tires, the benefits come from risk avoidance.

Let me ask you a personal question: In 2009, what was the ROI of your investment in life insurance? The vast majority of you paid your premiums and filed no claims (or you wouldn’t be reading this). You received a negative ROI, so clearly that means you’re suspending your life insurance in 2010, correct?

Perhaps you might argue that the benefit received from your payment of insurance premiums can only be measured over the long term, and you’d be right—to a point. Even over the long term, most of us will still experience a negative ROI from our insurance investment. This is because insurance companies need to generate a surplus from many people to cover the cataclysmic costs of the unfortunate few. Some of us will pay life insurance premiums for 70 years, while others will meet our demise after paying a single premium.

So, if a rational person knows with great confidence that his or her likely lifetime insurance ROI is negative, should they cancel their life policies immediately? The answer is still no, because one of the benefits we receive from insurance—in fact, the most significant benefit—isn’t financial but emotional. We pay for insurance because it gives us peace of mind that our families are protected in the unlikely event tragedy strikes.

Social Media is like corporate reputation insurance. You pay premiums in the form of building relationships, listening, responding, creating widgets, and building communities. And because you’ve done so, you’ve earned protection that can help should a PR disaster strike—you have an existing group of people who have affinity for your brand and an existing channel in which to reach them.

Speaking of disasters, what is the value of avoiding disasters that you can’t know would otherwise occur? Take the tires on your car. How many miles do you have on them? You could ride on them another six months, saving you cash. Alternatively, you could replace them now, but where’s the ROI of that?

Buying tires now versus later is always a negative ROI because you lose the time value of money, and the benefit of the new tires is completely unquantifiable. If you replace the tires, you cannot know if they would have been fine for six months (no cost), or if you would’ve walked out of work to find a flat tire (low cost), or if you might’ve had a high-speed blowout (high cost).

If you change your Social Media tires, how can you know and quantify the costs you’ve saved by preventing problems you don’t have to face? I recently had a problem with an air carrier and tweeted as much. I received a rapid response, was satisfied with the response, and tweeted my satisfaction.

This company was minding its Social Media tires and because of that, they cannot know the positive ROI they generated by avoiding the negative ROI of a Social Media flat tire.  What possible outcomes might they have faced had they failed to listen and act?  Maybe I would not have tweeted again. Or maybe I would’ve created a video a la United Breaks Guitars and sparked 7.4 million negative impressions. A news organization actually contacted me about the incident, and I declined to share my story because the company met my expectations; it’s likely the company’s quick Social Media response helped them to evade a negative online article that would’ve been seen by tens of thousands and lived for years in Google’s database.

What is the ROI of the road not taken? What disasters might your organization’s Social Media programs avoid? How do you calculate the cost of incidents you don’t experience and cannot imagine? I’m not suggesting much of Social Media ROI is not calculable, just that all of it isn’t. If you don’t approach Social Media with an eye toward the risks managed and avoided, then you really aren’t considering all the benefits Social Media ROI delivers.

Of course, while the ROI may not be fully and completely calculable, it can be fully estimated. Forrester has an approach known as Total Economic Impact, which incorporates costs, benefits, risks, likelihoods, and future opportunities into the evaluation. Watch for Forrester reports that use the TEI model to better define Social ROI in the future; in fact, I had the privilege of reviewing an upcoming report that explores TEI for B2B Social Media ROI from Laura Ramos today.

If marketers demand hard and demonstrable ROI from all of their Social Media efforts, then they will fail to invest properly and wisely. This same attitude might also cause them to stop paying insurance premiums or ride on bald tires, but I’m not expecting those are trends we’ll see in 2010.

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Our "new" analyst in Europe

[Posted by Christine Overby]

 

I’m excited welcome Principal Analyst Nate Elliott back to our London offices. Although he’s from New York and spent the last year working in Vancouver, many of our European clients will already be familiar with Nate's analysis: he previously spent 2 years based in London and another 2 in Berlin covering interactive marketing in Europe.

For those of you who don’t know Nate, we think you’ll find his work innovative and insightful. He’s got 12 years of experience in the space – including 4 years developing new ad products and formats for DoubleClick, and time spent setting industry standards for the IAB and for Macromedia – and he’s one of our most respected voices on social media marketing, influence marketing, and video and rich media advertising.

 

Nate’s first task now that he’s back in London will be to update our European Interactive Marketing Forecast. In the coming months you can also look for new research on mobile marketing in Europe and our 2010 European Social Technographics update. Nate will continue to write about online video marketing across all Forrester’s markets – including his popular online video advertising benchmark reports for both the US and Europe, and upcoming research on best practices for viral video.

Welcome back to Europe, Nate!

Is Twitter Fading? For Marketers It’s not Twitter that Matters but Twitterers

If you saw the headlines yesterday, you might be excused for thinking Twitter was in decline:  “Twitter's growth slows dramatically,” “Twitter popularity declines, growth slows down,” and “Is Twitter 'Traffic' Tanking?”

Twitter was the story of 2009, growing from less than 5 million monthly users to almost 30 million in the course of six months.  People joined, brands rushed in, and words like “Tweet” entered our common vocabulary. 

It was a heady year for Twitter, but has it had its day in the sun?  What do the headlines mean?

First of all, Twitter isn’t going anywhere any time soon.  It’s become ingrained into consumers’ and companies’ communication channels.   And it’s just getting started—under development are more tools to help enterprise customers manage and learn from the billions of tweets produced globally.

Secondly, who said Twitter is for everyone?  It serves a great purpose for many people, but it lacks Facebook’s wide range of applications (and thus wide appeal).  It also lacks a great deal of the noise that many find makes Facebook a less than ideal business networking, news, and sharing environment. 

Lastly (and most importantly) is what the headlines are not conveying.  Yes, overall growth is slowing—how could it not after posting 1,000%-plus growth in such a short time?–but the key for marketers is not the number of Twitterers but the habits, Technographics and psychographics of Twitterers.  As Sean Corcoran and Josh Bernoff demonstrated in their December 2009 report, “Who Flocks To Twitter?,” Twitters are the connected of the connected, overindexing at all Social Media habits.  For example, Twitterers are three times more likely to be Creators (people who create and share content via blog posts and YouTube) as the general US population. 

Twitter’s growth may slow (or perhaps it will see an @oprah-like bounce now that @billgates has joined and is generating PR), but its value to those who Twitter and to marketers is not in question into the very foreseeable future. 

A new Rung on the Social Technographics Ladder

  We are bringing the Social Technographics ladder into 2010 with a new rung called "Conversationalists" to represent the very active communication style that has arisen recently within social media platforms like Twitter and Facebook.

Many months ago, several of us at Forrester started monitoring these emerging behaviors and mulling over how to represent them appropriately. We toyed with adding tweets and status updates to the "Creator" activities, but that would overshadow the more measured content contributions of bloggers and viral video creators. We thought of adding themto "Joiner" behavior, but that masked the fact that this wasn't about being part of a social graph, but rather communicating within the graph in a new and important way. 

The beauty of the ladder is in its simplicity: the bottom represents the most passive social media participation, and types of participation increase as you go up, with "Creators" at the top. Now we will place "Conversationalists" between Creators and Critics. Deciding to change it wasn't easy; It's proven to be so valuable at showing growth in various social behaviors that we haven't needed to change it, until now. Today, we have a new ladder that keeps the best of the original, but adds to it new important behaviors for Interactive Marketers to learn about.

There are three key reasons for Interactive Marketers to care about Conversationalists:

• 33 % of adults are Conversationalists. In other words, they represent one third of your online target audience.
• By following Conversationalists, you get free consumer insights. Conversationalists are your customers and they are talking about you. Listen to them!
• By communicating with Conversationalists, you embrace change. Interacting with your customers in an ongoing way, in a conversation, creates lasting learning on both sides.

The purpose of the ladder is to provide consumer behavior insight to Interactive Marketers, so we reserve the right to alter it to fulfill this purpose. If you have thoughts about the new rung, or other behaviors emerging on the social landscape, let us know!

To see the entire ladder, and get more insight, check out the report here.

Interview on Marketing Voices

[Posted by Nate Elliott. Follow me on twitter.]

I was pleased to have the chance recently to speak with Jennifer Jones of the Marketing Voices podcast. We talked about reaching Gen X through social media marketing and word of mouth, as well as how marketers can measure the impact of their social media efforts (one of my favorite topics). To listen to the interview — and see a very large photo of me — head over to Jennifer's site.

Thanks Jennifer!

Social Media’s Impact on B2B Marketing Budgets?

[Posted by Laura Ramos]

For the third year, MarketingProfs and Forrester teamed up to author and field a survey that looks at business-to-business marketing mix and budget trends.
With many parts of North America and Europe (my home state of
California for one) still feeling the effects of last year’s economic
downturn, I believe that this year’s survey will show some marked
changes on which tactics marketers choose to spend their limited budget
dollars – we're especially interested in the impact of social media on the marketing mix. 

Call for participation: Using social media for financial services marketing

[Posted by Nate Elliott. Follow me on twitter.]

I’ve had the opportunity over the past year to work with a lot of banks and credit unions, insurance providers, and investment management firms. Marketers at financial services companies face a number of challenges other marketers don’t — most importantly, confusing and often ill-defined government regulations — but yet I’ve been impressed with the social media efforts I’ve seen from many companies in this category.

I’ve decided to research and write a report on how financial services marketers can most effectively use social media. We’ll be including lots of our data on how different types of financial customers engage with social media, of course — but I’d also like to collect more insight from the marketers’ perspective.

If you’re a financial services marketer, and you’re willing to walk us through examples of how you’ve used social media, talk to us about how you manage risk and work with your legal and compliance departments, and share with us some of the lessons you’ve learned in social media marketing, then we’d love to talk to you. You can contact me directly at: nelliott at forrester dot com. Thanks!

Forrester is Hiring an Interactive Marketing Analyst

   Happy New Year! It's hard to believe we're already halfway done with January. If you made a New Year's resolution to find a new gig, then you are in luck – we are hiring a Senior Analyst for our NYC office.

The Interactive Marketing team is growing fast as marketers gain back their budgets and their confidence. We're looking for a senior member to help cover a few key topics including data and targeting, measurement, budgeting and planning for both interactive (display, search, etc.) AND social media. Being an analyst is a great change from the daily grind. You get to write research, consult with clients and become a public part of the industry.

Interested? Then click here to learn more: http://forrester.myvurv.com/main/careerportal/Job_Profile.cfm?szOrderID=434&szReturnToSearch=1&szWordsToHighlight=

Social Media is the New Super Bowl: Pepsi Refresh and What It Means to Marketers

If you track Social Media news, I'm sure you saw the eye-catching headline: "Pepsi's Big Gamble: Ditching Super Bowl for Social Media".  For the first time in 23 years–23 years!–the brand will not be purchasing a Super Bowl spot.  Instead, it is sinking $20M into a Social Media program called Pepsi Refresh. The Pepsi Refresh site will allow people to vote for worthwhile community projects, and Pepsi expects to sponsor thousands of local efforts via this program. 

What does this news mean to marketers?  Some potential ramifications (and non-ramifications) include:

• No, this doesn't mean TV is going away, but it will be fighting for marketing dollars on an increasingly level playing field with Social and Interactive tactics.  Despite the meltdown in traditional media, TV advertising will continue to be a big line item in the marketing budget for top consumer brands, but expect it to continue to shrink as a portion of the overall marketing budget.  Shar VanBoskirk said it well:  "Advertising budgets will decline. But marketing investments won't."  Moreover, as Lisa Bradner points out in her report, Adaptive Brand Marketing, the era of annual TV budgets is ending.  Expect more iterative budget setting based on "test and learn" cycles where the best and most successful ideas can quickly command more funding regardless of channel.   
   
• Social Media programs don't begin and end with Social Media:  There can be a mistaken assumption that Social Media Marketing means brands being on Twitter and Facebook.  As the Pepsi program demonstrates, Social Media is the means to an end, and not the end itself.  

  It doesn't matter that you have followers, fans, or a community; those are assets, not return.  It is how you use those assets that matters.  In Pepsi's case, they've clearly found a way to gain new followers and fans, but that's not the objective of the program; instead, the brand is putting Social Media to work for a higher goal–making the world a better place and associating the brand with that vision.  

• Social Media measurement = brand measurement:  Do you think Pepsi is going to measure the effectiveness of this program merely by how many fans or page views they get?  They may count retweets, but what are the chances the $20M investment will be evaluated based upon 140-character pass-alongs?  

  The success of this program won't be measured primarily with Social Media metrics (fans, followers, RTs, votes, etc.) but on traditional brand and marketing metrics.  How much PR does Pepsi earn from the program and the funding of thousands of community projects?  How many people hear about the program, and how does it affect their purchase intent for the brand?  How many points increase does Pepsi see when it asks questions such as, "Pepsi is a brand that cares about me and my community?" and "Pepsi is a brand I'd recommend to friends?"  Does the brand see a lift in sales?  Those are the types of metrics that matter in this (or most every other) marketing program.  My peer Nate Elliot points out that you must "choose metrics based on objectives rather than technologies."  
   

• Another nail in the coffin of merely likable advertising.  Super Bowl advertising has become its own kind of sport.  Shortly after the big game, the scoreboard goes up (USA Today's Ad Meter) and the winning team does an end zone victory dance (agency press releases bragging about the results).  All this hullabaloo implies that ads are entertainment and likability is all that matters, but it is just one element–and hardly the most important–in effective advertising.  

  Pepsi's actions demonstrate a commitment to something deeper than jokey ads.  Pepsi is betting the brand can win by making a deeper connection (consumer involvement versus seeing an ad) for a greater purpose (making the world a better place versus a laugh at the end of a 30-second spot.)   As my online friend Brandon Sutton recently wrote on his blog, "Instead of trying to get clever with your messaging, why not try thinking smarter by understanding how humans think and behave and how your brand fits into the bigger picture of this dynamic?" 
    

• Social Media changes everything.  Social Media alters the playing field for everyone within the enterprise; formerly successful strategies and tactics are being challenged, while old and tired methodologies are getting new legs.  For example, Best Buy is using Social Media to improve itscustomer support in new ways;  Starbucks is embracing consumers' ideas and driving innovationand loyalty; and, as we see, Pepsi is using Social Media to give new energy to cause marketing.

  Cause marketing is hardly new, but Social Media gives brands the ability to power it in new ways.  Previously, cause marketing tended to be about a company making a donation and leveraging that for PR, advertising and in-bound links. Today, cause marketing can be about embracing customers' values and ideas about how to spend charitable dollars and then energizing consumers and employees to get involved and make a difference.  Social Media offers us new ways to breathe life into this old marketing idea! 
    

Early next year we'll find out how Pepsi's decision to trade the Super Bowl for Social Media plays out, but it's already earned the brand enormous visibility. Articles about their decision can be found on ABC, CNN,NPR, Reuters,  AP, Wall Street Journal, and others.  Of course, the first brand to dump Super Bowl advertising in place of Social Media marketing will earn headlines; the fifth brand to do so will not. 

So, how are you going to use Social Media to give old tactics and strategies new life in 2010?