The CMO Survey Blog

Measuring the Impact of Social Media on Your Business

This post was co-authored with Becky Ross and Shannon Gorman, both MBA students at the Fuqua School of Business, Duke University.

Spending on social media continues to soar, but measuring its impact remains a challenge for most companies. When The CMO Survey asked marketers how they show the impact of social media on their business, only 15% cited they have been able to prove the impact quantitatively. This low percentage is not completely surprising given that social media is a recent innovation that companies are quickly trying to understand and direct to the most profitable ends.

Additionally, The CMO Survey asked marketing leaders to report on the metrics they are using to track and analyze their social media activities (see Table). The most common metric is “hits/visits/page views” which represents the beginning of the funnel—awareness—but is not very diagnostic of purchase. The metrics that show the largest increases over time, are “engagement metrics,” such as number of friends/followers (+88%), net promoter score (+71%), buzz indicators (+54%), product/service ratings (+71%), and other types of text analysis such as sentiment analysis or keyword analysis on Twitter or anywhere customers post text about companies (+77%). Although abandoned shopping carts also increased, in general, we observe fewer companies using actual purchase activities or financial outcomes, such as profits or revenues, as metrics to evaluate their social media programs which was discussed in a prior post.

Table. Frequency of Social Media Metrics Used by Companies

Given these findings from The CMO Survey, we interviewed social media experts to better understand the challenges of demonstrating the impact of social media and the types of metrics used to do so. Here are eleven insights gained from these interviews.

  1. Use goal-driven metrics. Set specific goals for each social media campaign and then develop metrics based on those goals. If a social media campaign is designed to generate brand awareness, then engagement is an appropriate metric. However, if a social media campaign is intended to drive purchase, then the conversion rate from visitor to buyer might be a more suitable metric. This insight may seem obvious but there is often a disconnect between goals and metrics.
  2. Demonstrate metric validity. Metrics must be vetted to ensure they are valid—meaning they measure what they are designed to measure. For example, at what point should marketers classify a consumer’s interaction with a company on social media as “engagement”? Is it when a consumer likes or shares a post? Proving metrics requires linkages to key outcomes, customer interviews, and managerial judgment.
  3. Uncover and verify leading indicators. Social media engagement, measured by the number of page views, click-throughs, comments, shares, and likes, is often used as a leading indicator of downstream sales outcomes. Identifying and tracking such leading indicators is valuable as companies can gain an early sense of how well their strategies will pay off.
  4. Create dashboards. Most companies with a social media presence track metrics from multiple sources. As a result, it is helpful to create a social media dashboard that aggregates these different sources and shows a comprehensive view of the company’s or brand’s performance. A dashboard saves monitoring time and ensures that marketers have real-time access to how important metrics are trending.
  5. Develop meaningful benchmarks. Comparing results to meaningful benchmarks provides important context when assessing the impact of social media campaigns. Building a database of social media campaigns and their corresponding outcomes enables your company to develop these benchmarks. Your agency may also be able to provide a broader view of these benchmarks if they have access to a range of campaigns from various companies.
  6. Conduct experiments. To truly understand the impact of social media, companies must be willing to conduct experiments. Small experiments such as pre- and post-tests that measure consumer activity before and after a social media campaign are a useful way of assessing performance. Even better, include a control group that is matched on observable characteristics for comparison to the treatment group. For example, use geo-targeted social media in one city and compare results to a control-group city in which the campaign did not run.
  7. Allocate funds to measurement. According to The CMO Survey, companies spend only 2.3% of their marketing budgets on measuring ROI. Measuring the impact of social media requires investing in metrics. This investment might include dedicated staff, agency partnerships, tools and technology, models, or customer databases.
  8. Consider the cost of ignoring social media. One social media expert we interviewed offered the insight that the inability to perfectly measure social media’s return on investment (ROI) should not limit investments in it. Instead, he encourages his organization to also consider the Cost of Ignoring (COI) social media – “What is the cost to our business of ignoring this new business platform?”
  9. Build predictive models. Metrics are often used to analyze what has happened, but they also can be used to predict what is likely to happen depending on the tactics employed, such as spending levels and media placement. To gain the most out of your metrics, leverage them to build predictive models and then plug in different inputs to simulate possible outcomes.
  10. Guide future actions. Measures should ideally be designed to offer developmental feedback. Ask yourself, if your social media campaign is not working, what information do you need to know in order to improve? Build your metrics or add additional metrics to capture this information so you know how to course correct and do better in the future.
  11. Stick with your metrics. Vendors are constantly developing new tools to measure the impact of social media. Nevertheless, marketers should focus on utilizing a handful of tracking tools that fit their goals and have passed important validity hurdles. Be careful not to flit between different metrics as doing so will hinder learning and waste valuable resources.

Although metrics are out there, debates about what these metrics mean and how they should be used can become both statistically and philosophically complex. At a recent conference, Tony Fagan, Google’s Director of Quantitative Research, noted that his staff was implementing propensity score matching in order to improve their ability to make causal inferences from observational data. His comment made it clear that marketers are not in Kansas anymore when it comes to social media measurement. We hope these insights offer a few signposts to marketers on this path.

Sponsored by the American Marketing Association, Duke University’s Fuqua School of Business, and McKinsey, Inc., The CMO Survey collects and disseminates the opinions of top marketers in order to predict the future of markets, track marketing excellence, and improve the value of marketing in firms and in society. For report downloads, visit cmosurvey.org/results.  

Tweet this: Social media important to company performance but difficult to prove

New results from The CMO Survey point to this disconnect. Social media spending is currently 9.4% of marketing budgets and is expected to increase 128% to 21.4% in the next five years (see Figure 1). However, the 351 marketing leaders responding to August 2014 survey overwhelmingly report that proof lags spending and only 15% of marketers report their companies can show the impact of social media using quantitative approaches.

What’s the buzz? Companies experienced a 25% percent increase in sales through the Internet in the last year—from 8.9% to 11.3% of sales. There does appear to be a sizable opportunity in reaching customers through the Internet that underlies this spending push. Consistent with this view, digital marketing, more broadly, is expected to increase 10.8% in the next year, while traditional advertising budgets are predicted to decrease 3.6%. In other words, there is a signal in all this buzz.

Figure 1. Social media spending as a percent of marketing budget

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Pinning it down: Demonstrating the effect of these spending increases on businesses remains a challenge. Forty-five percent of marketers have not been able to demonstrate this impact at all while 40% have qualitative proof only. Getting that all-important quantitative proof, which only 15% have, is essential to justifying this spending (see Figure 2).

Figure 2. How companies demonstrate the impact of social media spending

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Doing so will likely require more spending on measuring marketing ROI. Survey results indicate that companies spend only 2.3% of marketing budgets on measuring marketing ROI. It will also require companies to rethink the way they approach such measurement. Survey results also indicate that only 11.9% of companies surveyed use experiments—a method that allows marketers to know with certainty what, whether, and to what degree social media spending impacts performance.

Who Has the Biggest Marketing Budgets?

Marketing budgets are rebounding. They are expected to increase 6.7% in the next twelve months according to the February 2014 edition of The CMO Survey. This is a sizable increase over projected increases of 4.3% in August 2013 and a massive boost over the 0.5% increase reported in February 2009. Bounce!

To put these figures in perspective, The CMO Survey reports that marketing budgets represent approximately 10.9% of overall firm budgets. These figures have hovered around this average since this question was first asked in February 2011. On the other hand, marketing budgets as a percent of firm revenues improved to 9.3% from 7.9% in 2013 indicating that marketing budget growth outpaced revenue growth. One question that survey users often ask about these figures is whether or not they include salaries for marketing employees. Analysis indicates that these marketing spend estimates include both employee and non-employee investments in marketing.

I examined all three marketing spending metrics across several firm and industry characteristics. These are summarized in Tables 1-3. As shown in Table 1 across these three indicators, B2C-Product companies have the largest marketing budgets (as a percent of budgets and revenues) and the largest expected growth in marketing budgets across the four economic sectors. I expected a large increase over the B2B companies which may be reaching customers with their own or their channel’s salesforce. However, I did not expect to find B2C-Product companies also dominating B2C-Service companies by 20-30% differences. Would love to hear from marketing leaders in this sector about this differential.

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Does Pressure to Prove the Value of Marketing Help or Hurt Company Performance?

Two-thirds of all top marketers feel pressure from their CEO or Board to prove the value of marketing according to August 2013 results from The CMO Survey. Of those, 60% describe that pressure as increasing. These numbers are consistent with the fact that most CMOs continue to find proving the value of marketing elusive. Survey results indicate that only 36% of top marketers report being able to prove the value of marketing quantitatively in the short-run and 31% in the long-run. Demonstrations of the value of social media are even more elusive with only 15% able to offer quantitative evidence for the value of social media spending.

A key question that needs to be asked is whether pressure on CMOs to prove the value of marketing helps or hurts company performance. These are reasonably good arguments on both sides. On the positive side, increasing pressure might make marketers work harder. On the negative side, increasing pressure could make marketers focus on strategies that are easily measured or that only provide short-term boosts so that proof is in hand when the CEO or board comes knocking. This means that instead of designing and selecting strategies that are optimal for company goals, strategies are selected to help marketers defend their spending decisions.
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Big Data’s Big Puzzle

Companies are spending big dollars on big data. Approximately 5.5% of marketing budgets currently are spent on marketing analytics and this is expected to increase to 8.7% in the next three years as reported in The CMO Survey. Expectations are running high and many companies are trying to figure out how to crack the code to generate good strategic insight from the data.

I’m in favor of the trend to capture and use data to drive decisions. However, that is where the problem lies. As the stash of data grows, companies are using a smaller percentage of it. I first asked the question, “In what percent of projects does your company use available or requested marketing analytics before a decision made” in February 2012 and the result was 37%, which I thought was the bottom. However, when asked that same question in August 2013, the percentage dropped to 29%. Figure 1 shows the continuous decline over the last 18 months.

Figure 1. Percent of Projects Using Requested or Available Marketing Analytics
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This finding is not completely unexpected, however. Reviewing the thirty-year history of research on this topic, usage rates have always been low for many types of marketing information—marketing research, advertising research, and, now, social media research. This marketing analytics utilization gap is a challenge to big data’s contribution to the bottom line.
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Chief Marketing Officer Optimism at Four-Year High; Proving the Value of Marketing Remains Elusive

New results from The CMO Survey offer encouraging predictions about the future of markets and document ongoing challenges to marketing excellence and leadership. The 410 top marketers surveyed in August report their highest levels of optimism for the overall U.S. economy in four years. On a scale of 0-100, with 0 being the least optimistic, CMO scores came in at 65.7. This is nearly a 20-point increase over the same measure taken in August 2009 near the low point of the recession. Almost 50% of top marketers answered they are “more optimistic” about the overall U.S. economy compared to last quarter. Back in 2009, the optimists came in at just 14.9%. “Pessimists” went in the opposite direction with those reporting to be “less optimistic” dropping from 59.3% in 2009 to 13.2%.

Now for the rough news. Demonstrating the impact of marketing spending remains a challenge for marketing leaders. Only one-third of top marketers surveyed report their companies are able to demonstrate quantitatively the impact of their marketing spending. This percentage worsens when considering social media investments. Only 15% of CMOs surveyed report proven quantitative impacts from their social media marketing expenditures. Another 36% respond they have a good sense of the qualitative impact, but not the quantitative impact. Almost half of the CMOs surveyed (49%) have not been able to show that their company’s social media activities have an impact on their business (Figure 1). Despite this, marketers are expected to increase expenditures in social media from 6.6% to 15.8% over the next five years (Figure 2). (more…)

Measuring Social Media ROI: Companies Emphasize Voice Metrics

The influential economist Albert O. Hirschman argues that customers can have a disciplining effect on companies and markets through their exit and voice behaviors. Instead of simply “quitting” a product, Hirschman urged customers to voice their complaints so companies could improve and learn. Hirschman would be a happy camper these days because social media puts a megaphone on the voice of the customer. Results from The CMO Survey® show that companies, in turn, are also starting to see the value of emphasizing voice-based metrics.

The CMO Survey investigated which metrics companies are using to measure the impact of social media investments. In August 2010 and then again in February 2013, top marketers were asked to share which metrics they use to evaluate social media. Looking across the results, we can see which metrics companies most often use. The survey did not, however, ask respondents to rank or rate each metric in terms of importance. (more…)

In Search of Marketing Excellence: Ten Differences Between High-Performing and Low-Performing Companies

Marketing excellence—marketing leaders strive to attain it and marketing professors try to dissect it. For the first time, The CMO Survey-August 2012 asked top marketers “How would you rate your company’s marketing excellence?” on a 7-point scale where 7=one of the best in the world, 6=a leader but not one of the best, 5=strong, 4=good, 3=fair, 2=weak, 1=very weak. The mean score was 4.4 (standard deviation=1.4). Figure 1 contains the full distribution of responses.

Figure 1. Marketing Excellence Ratings in Companies

Over time, The CMO Survey will develop a longitudinal database and provide more definitive answers to the questions surrounding marketing excellence. However, using only the August 2012 data, I can share some of the performance, spending, strategy, leadership, and organizational choices/outcomes that are and are not correlated with marketing excellence.

To generate these insights, I classified companies participating in The CMO Survey according to whether they performed above or below the mean on the marketing excellence question. The high-performing group (n=184 firms) has a mean marketing excellence score of 5.52 (s.d.=0.66) and the low-performing group (n=170 firms) has a mean marketing excellence score of 3.22 (s.d.=0.88).
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Six Reasons Marketing Budgets are on the Rise

Marketing budgets as a percent of overall firm budgets and as a percent of firm revenues are both on the rise as noted in my prior post. Why are firms spending more on marketing? Here are six reasons I see in The CMO Survey™ data and in my research.

  1. New jobs: Marketing appears to be taking a leadership role in managing social media activities in companies. Given social media spending as a percent of marketing budgets is expected to rise from 7.6% to 18.8% over the next 5 years, this means new funds are flowing toward marketing.
  2. New skills: Companies plan to increase marketing training by 3.7% in February 2012 to 7.2% in August 2012. In particular, I see many companies in investing in programs to build marketing capabilities. A good example is GE’s Experienced Commercial Leadership Program, which develops cohorts of young marketers for the company. Another example is Becton Dickinson’s Marketing Excellence Initiative, which provides non-marketers with a big dose of training in key marketing tools and processes.
  3. New knowledge: Big Data has captured the imaginations of leaders in companies big and small. The ability to leverage information about customers in order to deliver and demonstrate value opens the door for marketers to fill the role as analysts and “data whisperers” as McKinsey calls them. As noted by McKinsey in its Chief Marketing and Sales Officer forum, “Data whisperers are those analysts who can coax meaning and insights from the increasingly sophisticated and massive data sets available today.” (more…)

Marketing Spend on the Rise – Three Trends Worth Watching

Results from The CMO Survey™ (August 2012) contain three indicators that marketing spend is on the rise in companies.

First and the weakest, CMOs reported that marketing spend is expected to grow by 6.4% in the next year. This number is positive, supporting my thesis, but the number is actually down from expected growth of 9.1% from August 2011. Given continued depressed firm growth and slow economic growth, this decrease is not altogether unexpected. It is positive nonetheless.

Second and more telling is the fact that marketing budgets as a percent of firm budgets increased 40% from 8.1% in February 2011 to 11.4% in August 2012. The Figure shows that this percentage has increased steadily over the last 18 months, pointing to the fact that companies are placing a greater emphasis on marketing spend relative to other types of strategic spend.

Figure. Marketing Budgets as a Percent of Firm Budgets

Third, marketing spending as a percent of firm revenues increased 30% from 8.5% in February 2012, the first time The CMO Survey™ asked the question, to 11% in August 2012.
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