Welcome back. In Part 2, we took a look at the importance of addressing all three pillars of inbound business development in your social business program: customer acquisition, customer development, and customer retention. I even asked you to do some homework, so hold on to that data. At the end of this post and in Part 4, we are going to take a closer look at how to use it to get some needles moving for you. (If you want to start at the beginning, click here for Part 1.)
Before we can move forward though, let me stress once again that this customer lifecycle approach to business development (which neatly ties in to LTV calculations) should not be limited to your digital and/or social strategy. It should be business-wide. Every aspect of your business, from product management to sales to customer service and everything in between, should be geared towards always driving one or more of the following: creating a new customer, helping an existing customer become a better customer, and making sure an existing customer will remain loyal to you (and recommend you to their peers). If your organization focuses on the sale without focusing on the customer behind the sale, it will fail. Perhaps not today, perhaps not tomorrow, but soon. That’s why you have to start thinking beyond advertising when you think about marketing. That’s why you have to start looking at your own company through consumers’ eyes, from the outside in, instead of looking at your company in terms of departments and business functions and spending as much energy as possible every month to meet numbers that, in the mid to long term, mean absolutely nothing.
Companies should be building communities of loyal customers, not wasting 6x-10x what they need to on acquiring the same customers over and over again month after month through ineffective and scattershot marketing campaigns only to keep losing them again and again. Not that there is anything wrong with leveraging high spend campaigns to drive short term gains (as long as you end up in the black) but if you don’t have a low spend/long term gains mechanism in place to follow through, you’re just spending a lot of resources filling a leaky bucket. From a business standpoint, that’s just absurd. (Remember how I asked you to look into your customer erosion numbers? Don’t stop. Keep those numbers close. We’re going to need those in Part 4.)
How brand-builder mentalities kill operational myopia:
Building brands works for the same reason that building relationships works, and those two pieces of the business puzzle are inextricably linked: We already know that people prefer doing business with people they know, with brands they trust, with companies that provide them with positive and above average experiences. The part that often gets a lot of lip service but no actual attention whatsoever is the one where companies remember not to treat their customers like numbers, like strangers, like dumb cash cows. Customer lifecycle mentality vs. sales mentality. Managing lifetime customer value vs. selling to someone today because your boss is chasing a bonus this month, even if it means that they will never do business with you again. You should be starting to see the difference between those two approaches.
Remember how Apple became Apple, how Starbucks became Starbucks, how Ford became… well… a lot cooler than it used to be. Was it via digital advertising? Was it because of keyword-optimized social content? Did the cleverest hashtag win the day? No. In fact, Starbucks didn’t bother with advertising, did it? Do you know why its Twitter account was one of the first to reach a million active followers in the early days of Social Business? (Hint: it wasn’t because it outsourced its digital content to the lowest bidder.) Do you know how Dell managed to be among the first brands in social media to be able to show a direct link between social spend and net new product sales? (Hint: it wasn’t because it spent millions on digital ads or sponsored tweets – not that sponsored tweets existed back then anyway.) So what did these companies do? What made them different? In fact, what makes thousands of small businesses more successful on social channels than global super brands with massive (advertising) budgets? Simple: they focus on leveraging social channels to become better businesses, not just to score more useless impressions and likes. They are there to build something of value for themselves and their community of customers.
As Porter Gale once famously explained when she was at Virgin America: “The community closes the sale.” She was as right then as she would be now. If all you’re doing on social channels is trying to sell, sell, sell (market, market, market; advertise, advertise, advertise), guess what: you’re going to have to do it all day, every day, again and again and again, until people finally tune you out. (Guess why ad agencies keep having to resort to casting monkeys in ads just to get audiences to pay attention.) But build a community, a real one, through customer development and retention programs, and not only will they keep doing business with you but they will do the selling for you as well. Not all of it, but a chunk of it. (I will have some numbers for you later in this piece if you want to give your calculator a little jolt today.) This isn’t just theory. This means real cost savings and revenue generation. Real money. Real ROI from doing things right instead of doing things in the most expensive and ineffective way possible just because that’s the way it’s always been done.
If more than 30% of your social business strategy looks and feels like advertising, it’s time for a reboot.
There is a massive difference between advertising and customer experience, between getting people to consider a one-time purchase and getting them to love doing business with you every chance they get. Anybody can do customer acquisition. All you need is a budget. You don’t even need a heartbeat anymore. It can all be automated at this point: throw together some ads, put them in front of as many people as possible, and voila. Some percentage of those eyeballs will visit your website, come to your store, and search for your products, at the very least, and some percentage of that number will even buy your stuff (around 4% on average, as I recall). It isn’t rocket science. If you do it right (and you’re lucky), the amount you spent on your ad campaigns will be lower than the amount you gained from sales resulting from said ad campaigns, and you will have a good case for positive ROI.
Good stuff. All you have to do is come up with more money to spend on ads and you’ll be able to do it all over again. Again and again and again. On more channels. On more platforms. And if you can’t figure out if you should shift 7% of your ad budget from TV to social or mobile or something else, then you’ll just need to increase the size of your ad budget because, you know, channel proliferation and attention segmentation and “that’s just the way it is.”
“You do want to advertise to Millennials, right? Yeah… that’s probably going to cost extra. They’re so media savvy, you know. We’ll need to get really social on them. We have to be everywhere. Short attention spans… tough nut to crack. We should try to partner with some influencers…”
Most companies operate under the assumption (or at least the operational illusion) that sales are driven by advertising, therefore more advertising = more sales. Okay. That isn’t entirely false. But consider that most advertising is customer lifecycle agnostic: it targets non customers and existing customers in the same exact way, which is pretty silly when you think about it. Traditional advertising (which is most advertising, even on digital channels) operates inside an endless cycle of customer acquisition. It speaks to potential customers and existing customers in the same way, as if they were motivated by the same things, as if purchase triggers were the same no matter where they are in their relationship with a product or brand. Why? Because that’s how dad did it, and that’s how grandpa did it too: “Don’t rock the boat, sonny boy. We’ve got a good thing going on: companies give us lots of money, see, and all we have to do is create content and buy ad space and count impressions and likes, and then keep a healthy cut for ourselves. Who cares if it works as long as we get paid and everybody pretends this is the best way of doing things? If the client isn’t happy, we can always blame it on how small their budget was. With another million or two, oh what we could accomplish…“
Why work twice as hard to build relationships with customers, use social channels to figure out how to become a better business and try to hold on to customers we spent so much money acquiring in the first place when we can just keep doing things the way we always have? Just bill them, kid. Don’t rock the boat. They’ve already budgeted for all of this. It’s what everyone else is doing anyway. Keep it simple. Keep it light. If we have to, we’ll just as for more money or do something around the Superbowl or the World Cup or something like that. That’s where the big money is. The big audiences. Hundreds of millions of impressions just waiting to be measured! The biggest billboard in the universe! That’s the Holy Grail of marketing spend, isn’t it? Impressions are the ultimate media metric, right?
Except no. Remember this study published by AdAge just a few months ago? Here’s the short version: 80% of Superbowl advertising doesn’t sell anything. Sure, you can talk about how much “awareness” and “brand recall” ads generate (which is probably why marketers , in recent years, have shifted to a convenient “advertising’s purpose is to drive awareness” philosophy, where twenty years ago, the purpose of advertising was still to generate sales and create customers – you know… that whole sell soap thing), but “awareness” that doesn’t result in net new business or repeat business is worth pretty much zip. Nada.
“What did I get for my $3M?” No wait… don’t ask unless you really want to know.
Here it is again: 80% of Superbowl ads had no impact on sales. Think about that. They didn’t create new customers. They didn’t drive existing customers to make a purchase or even a recommendation. Collectively, that’s getting close to a quarter $billion nowadays, being wasted by companies on “brand awareness” but no change in sales behavior (source). At $2M – $4M a pop, that’s a lot of petty cash going down the drain. Now take a step back. if the best, most expensive ads in the world thrown at the biggest audience you can imagine don’t work, how effective do you think your cheap social content will fare? (By the way, I am really sorry if you just blew $2M on tweets, dark Facebook posts and social ads this year. Unless that yielded serious sales and/or retention numbers, it’s definitely time to reboot.)
But fine, okay… that’s just the Superbowl. What about all of the other advertising out there? What do the numbers say? Sorry. As a whole advertising doesn’t fare much better. (By the way, you should spend a few minutes on this very honest and spot-on assessment from Jerry Thomas on why that is.) Not that anyone has definitive numbers to prove the effectiveness of advertising one way or another, but we know from a number of studies not involving the Superbowl that most advertising doesn’t drive sales. The general consensus (though I haven’t seen data to support the claim) is that half of advertising is generally effective (or ineffective, depending on how you want to look at it). That’s a convenient number: a 50/50 chance that your spend will be effective, right? slightly better than Vegas odds. Here’s a more sobering number: for that 50% chance that your ad spend won’t be a complete waste, the elasticity of sales to advertising is .1. (source 1; source 2) In English: even when ads are effective in some way (increasing brand awareness or brand recall) they typically don’t have a huge impact on driving sales. (Why? Because most ads aren’t geared towards driving sales behaviors anymore. They aim to drive awareness and recall, which are much safer measures of success for agencies looking to either a) use major clients’ ad budgets to showcase their creative capabilities to future clients rather than actually drive sales for them (look for ads that tend to benefit the agency more than the client) or b) spend as little as possible of their clients’ ad budgets on… you know… the actual ads.)
Note: It isn’t to say that advertising can’t or doesn’t drive sales or business. I wouldn’t still be in this business if advertising always had zero impact on sales. But companies that still think of advertising spend as some kind of game of roulette in a casino can’t expect to have any control over the outcome. That’s just throwing good money after bad, year after year after year. If all you’re doing is playing the odds, I hope you have massive reserves of cash at your disposal and a team of spin doctors putting together your reports because it’s going to be a rough ride if someone ever decides to try and connect the dots between your advertising spend (social, digital or otherwise) and either new business or recurring business. If you are going to spend money on something, do it right. Be smart. Learn how to make it work for you.
There is a better way to build a business and healthy, growth-oriented community of customers, and though some of the channels may be new, the fundamentals are not. Here’s a non-sport analogy for you: Want to keep catching fish? Awesome. I want you to keep catching fish too. But you need to stop wasting your money on brand new nets that won’t fix a problem that has nothing to do with nets. In spite of what the new guy you just hired to help you catch more fish has to say, you don’t need new nets or bigger boats that can go farther out to sea and better bait. You’re looking at the problem from the wrong angle. That guy is just trying to make a name for himself so he can move on to a bigger and better job somewhere else. he has no idea what he is even talking about. Rethink the problem. Why is the fish so hard to catch? Why are you spending more and more of your resources to catch less and less of it? Stop. There’s a better way: take that new net and bigger boat and better bait money, and invest in is building a better ecosystem for the fish.
Moving the needle again begins with this: learning to ask the right questions again.
So why are so many companies now treating social media channels exactly like advertising channels? Why is so much “earned media” now being treated like paid media? Why is the focus in social still mostly on customer acquisition (assuming like/fan/follower acquisition even translates into net new customers, which is a rather dubious assumption for most brands) rather than the full acquisition, development and retention model that actually drives long term business growth? It doesn’t make much sense, does it, doing the same thing over and over again, year after year, new channel after new channel, and expecting different results? With all these tools and channels and technology and knowledge at our disposal, why are so many marketing departments and digital agencies still operating as if we were stuck in 1998? Because it’s easy? Because companies still haven’t held their marketing partners’ feet to the fire and demanded real accountability? Because most CMOs today aren’t operationally savvy enough to understand how social really works? Because social business and everything it entails should have never been handed over to Marketing in the first place? It’s complicated, but… yes. It’s a little bit of everything and then some, but what’s done is done. No need to dwell on it any more than we already have. (Not here anyway. This series is about moving forward. If you want to read more about what may be contributing to the failure of social business programs though, check out this piece from Frank Eliason and this piece from Shel Israel.)
Here is the first target of your reboot: Customer acquisition, customer development and customer retention: 100% of your business development focus should be split between these three objectives. Period. (Not just impressions and awareness and brand recall.) And since advertising (social or not) doesn’t drive customer development and customer retention, you need to start thinking about how you might be able to use social channels (and other customer touch-points) to drive both. If you still aren’t convinced, let me share a few stats with you – (You already know the first one but it bears repeating).
1. It costs 6-7 times more to acquire a new customer than to retain an existing one – Bain & Company
Pull up your excel sheets and get out your calculator. Exercise #1: How much are you spending per year on customer acquisition? Exercise #2: How much is that per net new customer? Exercise #3: What is the average spend from a net new customer? (A) First purchase. B) First 6 months. C) First 12 months.) Analysis: how is your customer acquisition spend working out for you? Are you in the red? Are you in the black? What could you be doing better? Work it out.
2. 80% of a company’s future profits will come from 20% of their existing customers – Gartner
Look at your top 20% customers today. What are you doing to keep them happy? How are you engaging them? What kind of relationship do you have with them? How long have they been customers? (For reference, what is the average lifespan of a customer for your company? Where do they fall along that curve?) Now pull out your calculator: Exercise #4: what happens if A) 1% of that business goes away tomorrow? B) 5%? B) 20%? (Refer to your current erosion rate.) What does that look like in terms of lost revenue? Work it out. Write it down. Consider how important this is. We will talk about how to keep that from happening in Part 4.
3. A 5% increase in customer loyalty can produce profit increases from 25% to 85% – Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” HBR September–October 1990.
Exercise #5: Apply those numbers to your numbers. What would 25%-85% profitability mean for your business? Good stuff, right? Maybe even a game changer. Is what you are doing now, marketing-wise, social media-wise, driving a 5% improvement in customer loyalty? If so, great. If not, time to start thinking about getting on that horse. If you aren’t doing this, you’re spinning your wheels and helping your competitors instead of yourself. (Easy fix. Tune in for Part 4.)
4. A 2% increase in customer retention has the same effect as decreasing costs by 10% – Leading on the edge of chaos, Emmet Murphy and Mark Murphy
Exercise #6: You know what I am going to say: apply this to your numbers. How would you like to report that sort of success to your boss or board in 6 months? Are you doing anything to drive that kind of change now? No? No worries. We’ll talk about that in Part 4, but for now, start thinking about this.
I hope this gave you something to think about. Do the exercises and start thinking about ways to get back in the game. No more autopilot for you. No more cutting corners and crossing fingers and hoping for the best. Treat your agency like a true partner, not just like an outsourced content provider. We’re rebooting your social media program from scratch, and if you trust me a little and do the work, I promise you it’s going to be a beautiful thing.
PS: If you have a specific question, post it in the comments. The answer might become its own post within this series.
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.
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If this post provides the kinds of practical insight that can help your business, you will find 300 pages of it in Social Media ROI – Managing and Measuring Social Media Efforts in your Organization. It didn’t become the #1 Social Business desk reference for executives and digital managers 3 years in a row by accident. Pick up a few copies for yourself and your team if you haven’t already. You’ll be glad you did.
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