Measuring Social Media ROI in Multichannel Retail

By Justus Wilde | 22 Oct 2012

Measuring social ROI has become something of the Holy Grail of e-commerce and multichannel retail. Managing Director of Amblique, Justus Wilde, shares his knowledge of the matter.

I have often been asked how important is social to our (digital) retail strategy? How do we make an educated decision on the level of investment and how do we measure the return on this?

There is no doubt social is an important customer acquisition, service and retention tool – but just how important is it in terms of driving sales?

I want to preface this article by saying that this is a complex problem as not all required data can be 100 percent accurately measured. The proposed approach below does rely on some assumptions but provides a basis for measurement.

A formula for deriving social media ROI from Justus Wilde.

To get a feel for scale of social impact on retail, we started by looking at Hitwise Australia traffic data for September 2012, which tells us that approximately 10 percent of all shopping traffic comes from social networks (users going directly from a social network to a retailer) and nine percent go from retailer sites to social networks.

In reality, this number is much greater, as users don’t always go straight from a social network to a retailer; but the engagement with that network may still influence their behaviour on the retailer’s site.

A graphic depicting traffic rates inbound to retail sites from social media.

So we know that 10 percent or more of retail traffic on average is triggered by social. How much is that worth? Most retailers would tell you less than 10 percent of sales.

We did some analysis across 10 women’s apparel multichannel retailers earlier this year to find a metric around the online sales value of a Facebook like (fan). Based on ‘last click attribution’, we found that those retailers received 1.8 visits per fan and 1.7 percent – on average – of the fan base transacted, which gave us an average of $1.52 per fan per year. This number will obviously vary for each retailer, but is easy to measure via Google Analytics or any other analytics tool.

While this suggests that for these specific retailers 100,000 fans on Facebook would have resulted in $152,000 in online sales on average, it is definitely not a complete picture.

Facebook 'like' statistics for retailers.

One key element missing is a measure of advocacy. There is no way of precisely tracking conversations between friends on social networks where recommendations take place, which then result in sales.

One approach for estimating this is to use the Net Promoter Score (NPS) method of assessing advocacy. NPS is calculated by asking a sample of customers one specific question. For example, “On a scale of 1-10 how likely are you to recommend our company to a friend or colleague?” You then group the responses into promoters (9-10 rating), passives (7-8 rating) and detractors (0-6 rating). The NPS is the percentage of promoters less the percentage of detractors. Amazon.com for example is reported to have an NPS of 76 percent.

To work NPS into the ROI equation you need to consider the reach of your fan base. Facebook Insights will give you the numbers for your page and there are some third party tools that can analyse the reach of Twitter followers.

Say your fans have 100 friends each and the NPS is 70 percent. In theory, that means the advocacy reach is at maximum:

100,000 fans x 100 friends x NPS score 70% = 7 million potential customers

Recent research by Pew Internet  has shown that only 20-30 percent of social users frequently engage on the networks. If we assume 20 percent that reduces the number to 1.4 million. Now, your active social followers would not engage with all of their social following or have advocacy influence on all of their social following, so this number needs to be reduced significantly. Say just one percent of this potential reach is influenced and then converts at the 1.7 percent rate we identified earlier –  it would equal another $0.36 per fan bringing the total value per fan to $1.88.

What impact does social have on in-store sales? Figures from Macy’s are often quoted saying they generate $5.77 in-store for every $1 spent online. For the purpose of measuring social ROI, we propose to establish an in-store multiplier metric that could be used for measurement. One approach to create such a multiplier is to run a promotion via Facebook/Twitter (i.e. a coupon offer) and track redemptions in store vs. online.

In one such campaign we found that redemptions were 75 percent in-store and 25 percent online.

We then suggest using this metric to estimate the amount of sales driven by social in the physical word, so in this case that would triple the value of online, meaning each fan would be worth $7.52. In this scenario 100,000 fans would therefore contribute $752k in sales as opposed to $152k which is the base number reported via the analytics tool.

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