The Return on Investment in Social Commerce - Term Paper Example

? ROI in Social Commerce ROI in Social Commerce (2280) Introduction Social media as described by Marsden and Chaney(2012) refers to online activities that encompass getting customers to talk about, recommend or buy services or products of an organization through an online setting. More specifically, it refers to the activities aimed at getting people to like the products on Facebook, retweet the promotion code posted on Twitter account and so forth so as to enable the deal get adequate traction to achieve the intended purpose. It could also involve customers writing reviews on the products bought from a company in a similar manner books receive reviews on Amazon.com. In the modern business environment, social media provides a great opportunity for commerce because of the large audiences that this media draws. But business organizations grapple with how to determine the returns from investing in social media given that it does not give direct returns like the other known forms of investment. Indeed, the benefits accrued from investing in social media could be determined and this paper seeks to elaborate on how to make this achievement. The Big Five – Facebook, Twitter, LinkedIn, YouTube and Pinterest - as referred to as by Marsden and Chaney (2012) provide sales opportunities in the emerging social economy. Social commerce has increasingly been adopted by organizations to reach out to wider market coverage more effectively. Griffin (2009) refers to such a strategy as social commerce which the scholar defines as harnessing the wisdom of many from the Internet to assist shoppers in finding and buying products and services. The driving force behind this is the social media, which can no longer be considered as a fad but a part of today’s consumers’ daily lives. According to Fisher (2011), social media has transformed from being a place to just share content and converse to being a social channel which has changed shopping experience by allowing transfer of money on the same sites. While typical customers like an organization’s fan page on Facebook or tweet their friends on Twitter, they interact with brands and in the process share information on products. The fact that customers interact in, say, rating products which would be read by other shoppers explains the use of the terminology social. The commerce aspect appreciates the need for human intervention for a sale to take place (Clapperton, 2012). Increasingly adopted by organizations’ sales arms, social commerce provides a critical online sales strategy for firms as customers seek for fast product search tools. How to Use Social Media in Social Commerce Having the social media as the business tool and the great audience that comes with it would not be adequate in entirety. There has to be effective strategies in which organizations engage this audience through social media so as to convert the normal activities on the media into opportunities for sale. This is an aspect that organizations need to be well versed in as in the near future, social media would be so enshrined in regular business communication and would only be beneficial to those with effective conversion strategies. The first way in which social media would be used in social commerce involves sharing. According to Marsden and Chaney (2012), organizations now create sharable content allowing customers to easily share links on their products or important website pages by placing buttons that would enable the ‘like’ function for Facebook, ‘share by email’ or ‘Tweet’. Social sharing gives the ability for users to share content posted on the organization’s website to their social profiles. Additionally, it allows for inclusion of comments on the item that has been shared. Therefore, social sharing provides an effective way of driving traffic back to the organization’s site. Secondly, social media could be used as an effective tool to collect feedback through the ratings and reviews on products. While social sharing by word of mouth provided information on various products in the traditional set-up, the modern approach calls for online ratings and reviews. Through this review functionality, Singer (2013) appreciates that positive reviews serve to sell the reviewed products more. But according to Blue Research (2013), even negative reviews drive sales by providing businesses with feedback necessary to make appropriate amendments to their processes or products. In the modern world, this functionality has grown beyond being used for items like electronics to include even smaller purchases like baby food. According to Marsden and Chaney (2012), a 2010 research study indicated that 97% of consumers had their purchase decisions influenced by these product reviews. Thus, retailers that have rating and review functionality on their websites record higher order value and increased conversion rates. The third approach to use of social media for social commerce appreciates the importance of mobile technology through the check-in functionality. Mobile applications such as Foursquare have been known to lure possible consumers to local businesses through recommendations by friends and deals by merchants. Borrowing from Marsden and Chaney (2012), Foursquare alone provides the capacity to reach out to over 10 million customers using this approach. Other applications like SCVNGR which focuses on rewarding users who complete challenges as opposed to checking-in activities also promote engagement at physical locations. Blue Research (2013) also cites other possible ways through which social media could be used for social commerce. Among these include social logins where one fills a form with a click of a button on Yahoo, Google+ or Facebook thus speeding up the process of purchasing as one gets the customers’ profiles fast. This has moved away from the traditional account creation on websites that was lengthy due to the requirement for a customer to respond to many questions. The social graph also allows for social shopping as sites such as Amazon.com allows viewing of what friends buy. Together with polling capability, this capability provides retailers with increased reach to customers. Importance of Social Commerce on ROI and Business In spite of it being appreciated that social users drive sales at a higher rate than normal customers would, organizations still grapple with how to measure the impact that investing in social media has. As such, organizations remain in the dark in determining the return they get from investing in social media. In marketing, there would first be strategy development depending on the corporate and financial strategy of the brand with focus on competitors, customers, organizational resources and external factors. The success of these strategies would be measured by defining the appropriate metrics. While some of these would be interim metrics like awareness, others would be outcome metrics like revenue and sales volume. The importance of defining the relevant metrics borrows from the fact that the financial values used to calculate ROI would be based on the metrics chosen to reflect the business organization’s objectives for engaging in social commerce. To bring the concept of ROI into perspective, this paper borrows from Ingram and Albright (2007) who indicate that owners would invest in a business venture with the objective of receiving returns from their investments in any form. In the business world, ROI could therefore be defined as the proceeds to an organization as a result of entering into a business venture. This would be expressed as a ratio of such proceeds against the investment made. In social commerce, just as in other business environments, knowing the ROI plays an important role in decisions on refining marketing strategies, adjusting budgetary allocations and diagnosing problems before repeating the sales cycle again (Powell, Groves & Dimos, 2011). Following the curve on adoption of new products that includes innovators, early majority, late majority and the laggards, the recent increase in consideration of ROI for social media could be explained in a similar manner. The use of social media in social commerce could be said to be at the early majority adoption stage. Those who adopted the strategy earlier such as Zappos, iRobot, American Express and Intuit were driven by the belief that social media would gain customers for them though they did not have an appropriate measure for this. Appreciating that business professionals need to justify the business case for whatever initiative they undertake, Petouhoff (2012) observes that ROI for social media can now be calculated. Whatever choice of metric program, Evans (2010) advocates that organizations be clear in the difference in the end results being sought. In addition to ROI, target key performance indicators, KPIs like new registrations and conversions should also be defined. The metrics to be evaluated vary from an organization to another and would not be specific to one, hence the reason for lack of a specific answer on what and how to measure ROI in social media (Petouhoff, 2012). But take for instance a phone manufacturing firm that seeks to adopt social commerce marketing strategies. Such a firm could perhaps open a fan page on Facebook and share links that market their various phones. The fan page’s followers would repost such shared links on their Facebook walls, viewable by their friends who could further repost the same. To determine the benefit that the Facebook fan page brings to the firm, various metrics including the number of ‘likes’, number of reposts and volume of reviews and ratings. This would indicate the impact that Facebook has on the firm’s reaching out to the market. But most importantly as noted by Clapperton (2012) would be to convert these followers and fans into customers. This way, the organization realizes the value in investing in social media. Social page views could also be an important metrics, appreciating the fact that views on an organization’s Facebook page would be more valuable than on the website (Marsden & Chaney, 2012). Another important metrics would be the engagement rate. When a post gets posted or shared on social media, organizations should be observant on the returns and reactions generated by such posts. Such reactions impart in organizations the need to be careful of their posts and importantly help in evaluating market preferences and tastes. From the social media, an organization would also be able to determine the socially referred leads, a key factor in measuring ROI. Other metrics used to measure ROI for social media as discussed by Griffin (2009) include order value and customer conversion. Each organization would thus have its specific and measurable business goals including but not limited to improved customer satisfaction, increased sales, improved customer loyalty and retention, reduced customer service cost, increased traffic on the website and increased brand awareness. Solid metrics programs would require testing and evaluation over a period of time. These metrics basically refer to numbers describing the business indicators that either increase or decrease (Gold, 2012). When undertaking social media initiatives, it would be important to consider the data before and after the initiative so as to get a clear picture of the return on investment. At this point, it would be important to calculate ROI in the context of social commerce. Whereas ROI is not metrics, metrics would be needed in measuring business value for an undertaken initiative. The ratio of the value accrued from social media efforts against the cost incurred gives the ROI. The value accrued from social media would be given by subtracting the cost incurred from the revenue received. Consequently, Petouhoff (2012, p. 14) gives the below equation for measuring ROI for social media investments: This shows that ROI calculations involve determination of numbers on the benefits brought to an organization by social media program against the cost or investment in the program. Therefore, not all positive metrics indicate positive ROI as the ROI would be determined by factoring in the cost factor like the cost of marketing, technology and people involved among others. Social media has been widely accredited for positive ROI for most organizations (Marsden & Chaney, 2012). One approach that has been considered by many organizations has been on the cost savings associated with social media when compared to what would have been spent on paid media. Actual savings have been determined with the use of advertising prices charged on Twitter promoted tweets, Facebook ads, Google AdWords PPC and YouTube promoted videos. The revenue from social media in this aspect would be calculated by comparing the expenses on social media against the sum value generated from social impressions and actions. Conclusion Social commerce is fast gaining prominence in the business world. This is because, unlike before when organizations could not determine the returns realized from investing in the various social media platforms, various metrics now exist that could be evaluated and the benefits accruing from investing in social media determined. These include the number of views on the social media sites, socially referred leads, registrations and posts on such sites. The Return on Investment, ROI of social commerce enables organizations to determine the benefits accrued from marketing through the various social media hence more and more organizations tap into the capabilities of reviews and ratings, social login, social graph and social sharing. Social media has indeed transformed the way business is conducted and would even be more pronounced in the years to come. References Blue Research. (2013). 5 ways to use social media to increase your ecommerce ROI. DemandWare. Retrieved 5 May 2013 from http://www.demandware.com/blog/2013/02/08/5-ways-to-use-social-media-to-increase-your-ecommerce-roi/ Clapperton, G. (2012). This is social commerce: Turning social media into sales. West Sussex: John Wiley & Sons. Evans, D. (2010). Social media marketing: The next generation of business engagement. Indianapolis, Indiana: Wiley Publishing. Fisher, L. (2011, September 6). Social commerce: How money is changing social media. The Next Web. Retrieved 5 May 2013 from http://thenextweb.com/socialmedia/2011/09/06/social-commerce-how-money-is-changing-social-media/ Gold, H. (2012, December 18). 14 social media ROI metrics you can use right now! ClickZ. Retrieved 5 May 2013 from http://www.clickz.com/clickz/column/2178428/14-social-media-roi-metrics Griffin, J. (2009). Taming the search-and-switch customer: Earning customer loyalty in a compulsion-to-compare world. Hoboken, NJ: John Wiley & Sons. Ingram, R. W. & Albright, T. L. (2007). Financial accounting: Information for decisions (6th ed.). Mason, OH: Thomson Higher Education. Marsden, P. & Chaney, P. (2012). The social commerce handbook: 20 secrets for turning social media into social sales. Berkshire: McGraw-Hill. Petouhoff, N. L. (2012). ROI of social media: Myths, truths and how to measure. Radian6 Technologies. Retrieved from http://socialcommercetoday.com/documents/Radian6_2012.pdf Powell, G., Groves, S., & Dimos, J. (2011). ROI of social media: How to improve the return on your social marketing investment. Singapore: John Wiley & Sons. Singer, D. (2013, March 25). Why the social media skeptics are right, and why the ROI debate needs to change. The Drum. Retrieved 5 May 2013 from http://www.thedrum.com/opinion/2013/03/25/why-social-media-sceptics-are-right-and-why-roi-debate-needs-change Read More