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How Social Media Drives Value Creation

Posted by Ron Watson on 31.03.10

Toronto, On | March 31st, 2010. Value is an expression of the worth of something. There are many different ways people assess a value. For example, Neoral is a drug used for patients that have recently received an organ transplant. If you were a patient that just underwent a transplant the value placed on this product would be quite significant. However, if you are fortunate enough to still have all your original parts, it could be argued that the value of this product, to that individual, is somewhat negligible.

Not surprisingly the “value” discussion surrounding social media is currently a very hot topic. Social media marketers and traditional marketers are both obsessed with finding ways to drive interest and traffic using this new medium. However, where many marketers are falling short is in articulating how these efforts are creating value to the organization. As a result, many initial attempts in social media are being met with a feeling of being prescribed Neoral in the absence of a new organ!

Although social media may be a new marketing channel, it does not follow that traditional business methods of analyzing and measuring value creation have changed. To the contrary, in order to be successful and win repeat business it is becoming increasingly critical that empirical measurements of value be demonstrated to your clients.

There is no shortage of discussion around social media and value measurements. Interestingly, they almost always focus on revenues. In actuality, revenues only represent one element of how value is measured; equally important are the costs and the discount rate. Let me explain this further. From a financial standpoint the value of a business comes down to the net present value of future cash flows, discounted at a rate of return which reflects the risk of the business. Cash flows for this purpose basically mean profits.

For this blog post, let’s focus on the expense side (costs). I will follow up with a post on how social media can lower your discount rate to produce more value. The bottom line in social media marketing is if done properly, the cost of investing in this form of marketing is significantly lower than traditional forms of media with greater results.

Let me substantiate this with an example. Recently, we ran a campaign for an international consumer brand. The campaign had a traditional media spend and a social media spend all driving traffic to a website for a contest. The cost of the traditional media spend was ≈ 150 K. The cost of the social media spend was included in the overall contest site which was ≈ 30 K. When the final results were tallied the social media initiative drove 25% of the traffic/registrations, and the traditional media budget 20%. Not only were the costs dramatically lower, the results were also considerably better, thereby enhancing the business value creation for this client.

The internet and social media in particular have the ability to drastically enhance operating margins in an organization. Savvy marketers that are aware of the proper software tools can develop purposeful campaigns at a fraction of the cost. Thus, driving greatly improved operating margins for their business. I think it is important to always remember that at the end of the day the marketer’s job is all about augmenting their companies’ cash flow. It is our job to help them understand by how much!

Ron Watson

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Comments

  • Kyle McGuffin 22.04.2010 Great article Ron. Now lets hope companies take this challenge. I believe the business world is stuck depending on agencies that are not providing this value. Great to know companies have other alternatives that provide a greater ROI!
  • Chris Becker 05.04.2010 Great way to look at it.. tying the relative marketing spend to the corresponding results. I like it!

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