Can Companies Measure Social Media ROI?

A new Gallup study challenges the effectiveness of social media ads.

Jul 3, 2014 at 8:04AM

(Editor's note: The original version of this article attributed the ownership of the Oreo brand to Kraft. It is owned by the Nabisco division of Mondelez International. The Motley Fool regrets the error.)

According to a recent Gallup survey, 62% of Americans report that social media advertising has no effect on their purchasing decisions. Especially surprising is that this finding extends to Millennials, or adults born before 2000, a group especially dedicated to the genre. Nearly 50% of Millennials report social media advertising does not influence their buying decisions.

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The Way of the crumbled cookie
For brand managers, the results of this survey have to be about as welcome as a dirty diaper in a swimming pool. After all, it's a tricky business to make a case for return on investment, or ROI, on social media. In an analysis of social media ROI, there is a lot of what Time described as "proving" the media.

Nabisco, for example, has garnered widespread credit for its online Oreo campaign, but has been tight-lipped about sales results (an inquiry made to Nabisco was unanswered). What is known is that Oreo is a $2 billion worldwide brand for Mondelez International, with half of those sales in the U.S. market.

It may be that Nabisco isn't returning media calls because it doesn't want to talk too much about a good thing – the power of social media. Real-estate agents have a marvelous expression: "Buyer are liars." This sentiment refers to the self-deception involved when we purchase. This quirk has been studied in depth, and it turns out that we consumers really don't know ourselves very well.

The psychology of purchasing behavior
The impact of advertising has been under study for a long time. In 1904, Walter D. Scott, a professor at Northwestern University published an article in The Atlantic Monthly titled "The Psychology of Advertising." He labeled advertising as "the nervous system of the business world … to awaken as many possible images as the object itself can excite." In the modern field of consumer study, this is known as "affective conditioning."

In a 2010 article in The Journal of Consumer Research, a Ph.D writing in Psychology Today summarizes: "We live in a world of advertising. It is a world of our making, of course. We don't like to pay the full price of things, so we allow other people to pay part of that price in exchange for letting them pass a message to us.... That information ultimately affects the way we make choices, whether we know it or not."

It seems that no one likes to admit that advertising influences them; we're too smart for that, right?

Further evidence indicates that, indeed, "buyers are liars." In a study published in a 2009 issue of The Journal of Database Management and Consumer Strategy Management, "ROI in social media: a look at the arguments," it was reported that 49% of consumers "made a purchase decision based on the information they found through social media sites," and that 45% of people who searched for information via social media sites "engaged in word of mouth," compared to 36% who found information on a company or news site. A hundred years earlier, our old friend Professor Walters said the "only method of advertising known to the ancients was the word of mouth."

The ROI debate
It turns out that social media ROI results are measurable. Mondelez, for example, increased sales of its Toblerone chocolate in the Philippines by 132% after 500,000 website hits were achieved through a social media marketing campaign; Coffee Groundz increased sales by 25% as the result of a Twitter campaign; and Jimmy Choo, an upscale shoe company, increased sales by 30% via a Twitter campaign.

No doubt, the Gallup results are accurate. It just turns out that we are not the individuals we imagine. Our consumer behavior is predictable, including our denial of that behavior.

However, Gallup offers another rationale for its findings: "In the State of the American Consumer report, Gallup reveals that consumers who engage with brands often do so when they are already attached to a product or service. Companies that engage their customers -- by providing exceptional service and a pleasurable in-store experience -- will, in turn, drive those customers to interact with them on social media. Simply promoting products and services on Facebook or Twitter is unlikely to lead to sales."

It's a classic chicken-or-the-egg dilemma. Do consumers engage brands because they are already customers, or do we become buyers because of the brand exposure on social media? This is research that needs to be conducted. 

The debate, however, is further confused by the fact that advertising now appears on eggs. CBS recently printed laser messages to promote its fall lineup on 35 million eggs. This "outernet" strategy to "engage consumers … as they go about their daily lives" is perhaps confirmation that, per Professor Walters, everything old is new again.

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John Mitchell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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