June 17, 2010, 12:11 PM

Taking a closer look at social media’s ROI

Retailers should look at ROI before investing heavily in social media, ForeSee Results says.

Lead Photo

Larry Freed, ForeSee Results CEO

When something’s hot, it may not be as valuable as it seems. Then again, maybe it is—and more.

Social media is a good example, says Larry Freed, CEO of ForeSee Results, a provider of voice-of-customer survey applications. Many e-commerce companies appear to have no idea how effective social media is in generating sales, yet they still throw lots of money and staff resources at it.

“Most businesses have accepted the marketing value of social media without any real proof points,” Freed says. “We can count how many Facebook fans, how many tweets, how many complaints, and how many people click through ads on social sites, but we haven’t had a way to calculate a tangible return on investment for social media efforts, not to mention other marketing initiatives.”

Until now, he adds. ForeSee launched this week the Social Media Value Calculation as a new form of survey research that gathers information from web site visitors about their purchases, or lack of them, along with information on what social media properties may have led them to a retailer’s web site.

“Linking what drove a customer to visit with what they actually spent or did as a result allows you to actually calculate a return on social media investment,” says Drew Bennett, senior product director at ForeSee Results. “You can accurately compare what you spend on social media marketing against the direct revenue it generates to see if you’re investing wisely in social media.” ForeSee uses a scientific methodology developed at the University of Michigan to measure online customer satisfaction and assess its effect on future online behavior.

John Lovett, senior partner at consultants Web Analytics Demystified, who has reviewed the new ForeSee survey application, says it’s designed to help marketers get a better feel for how social media fits into their overall marketing plans. “The Social Media Value Calculation empowers organizations to assess the contributions of their social media marketing in the context of their entire business objectives,” he says. “It gives companies a comparative view of performance that enables them to quantify the value of social media.”

Among the preliminary findings in the new surveys, ForeSee has learned that some e-commerce companies are spending millions in advertising and staffing to support their presence in social networks and other forms of media—only to find that social media is influencing only 1% of their customers’ purchases, the company says. “Meanwhile, promotional e-mails have been neglected in favor of social media, and e-mails are influencing 32% of purchases,” it says.

At the same time, however, ForeSee says it has also found that other companies are finding social media, even with little investment in it, to be a primary influencer of 5% to 6% of sales.

“Every business is going to have a different model for success, which is why it’s so critical that companies understand their customers and not allocate marketing spending based only on hunches,” Freed says.

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