Magazine article Marketing

Proving Social Media's ROI

Magazine article Marketing

Proving Social Media's ROI

Article excerpt

McKinsey's report on the value of Web 2.0 may hit home at board level, writes Sarah Shearman.

When McKinsey announces breakthrough research, companies tend to listen So when the respected management consultancy last week headlined a report with: 'Web 2.0 finds its pay day', a new item appeared on the agenda at board meetings up and down the country.

For all the hype around Facebook, Twitter and blogging in general, selling it to the boardroom has been difficult for marketers seeking to invest in a social-media strategy, because ROI has been difficult to prove thus far.

The central claim of the McKinsey report is that companies engaging with Web 2.0 technologies are enjoying greater market share and higher margins than those that are not.

The authors, Jacques Bughin and Michael Chui, claim to have identified the rise of a new type of company - 'the networked enterprise'.

This is a business that uses social media such as Twitter and LinkedIn to communicate with customers. It also enables the sharing of information internally.

The report found that 27% of the 3249 respondents' companies reported having both market-share gains against their competitors and higher profit margins. McKinsey calculated that 'highly networked enterprises' are likely to fall into this category.

Crucially, McKinsey found that the 40% of companies that are 'networked' perform better than those that are not.

This raises two key questions. First, why is it still a minority approach, and second, how can companies become 'networked'?

Strategic credibility

John Allert, group head of brand at McLaren, welcomes the fact that the report has, for many, made an ROI case for social media.

The sports-car brand is ahead of the curve when it comes to the platform, but Allert warns that it can be too simplistic to see social media as something brands should just 'do'.

'There are few brands that think they cannot embrace this form of marketing, but it's not about whether you do it or not: it's about how credible your social media activity is,' he adds.

Dell is one company to have proved that social media can make money. The consumer electronics brand claims to have accrued dollars 6.5m (pounds 4m) through Twitter sales alone.

Yet Dell and McLaren, which has led the way in its sector when it comes to connecting with customers, are in the minority. For the majority of companies still figuring out what to do, McKinsey has devised some guidelines for businesses to follow if they want to become 'networked' (see box). …

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