Social Media’s Value Problem

social-media-is-the-strategy-for-those-who-dont-have-a-true-digital-strategy

In this AdAge article, Coca-Cola’s CMO, Marcos de Quinto, was quoted saying “Social media is the strategy for those who don’t have a true digital strategy.” This is in the context that Coca-Cola has seen their TV investment returning $2.13 for every dollar spent on TV, while their digital investment is only returning $1.26 for every dollar spent. As such, Coke recently brought on a new Chief Digital Marketing Officer from Bank of America, whose focus will be “the digital transformation of global marketing and align our system around a single digital marketing agenda.”

de Quinto’s statement about social media resonated with me. I entered marketing through social media, working across General Motors brands (Chevy, Cadillac, Buick and GMC). In those early days before Facebook and Twitter went public and social media was still an earned media channel, I really believed that social media could help brands create stronger relationships with audiences that ultimately led to more commerce for brands. This was coming off of at least a decade of digital marketing where display ads lacked creativity and storytelling and were becoming increasingly disruptive. Social media forced brands to become storytellers again – to create great content that audiences love and engage with.

But, as I took on more roles across marketing, I too began to see what de Quinto is seeing: TV still drives high ROI for brands that can afford to spend there. Social media has become purely a paid media play, and the ROI on different channels is very different. For example, targeting on Facebook is pretty remarkable. And, despite recent struggles with their analytics, I’ve still been seeing high quality traffic compared to other social and digital advertising channels. Twitter on the other hand is purely an impressions play. You might get tons of impressions and even video views, but those do not convert at any meaningful rate to website traffic where you can continue to develop a relationship with your customer.

And, this is the rub with social. Whereas, social media used to be the place for brands to create fresh, memorable experiences for audiences, it’s become a place of fleeting moments and a lead generation tool to drive audiences to a different experience: a website, an app, a webinar, etc. To drive audiences to an experience that brands can own and use to develop a richer relationship with their audience. As marketers continue to face increasing pressure on the ROI they deliver across their activities, social will face more scrutiny. And, marketers will need to be more purposeful about their digital marketing efforts – selecting tools and channels that support the specific marketing problems they’re trying to solve.

CMO Mondays: Snapchat files for IPO

snapchat-logo

Last week, Snapchat’s parent company, Snap Inc., filed paperwork for an IPO, with an expected valuation of $25 billion or more. In 2014, Snapchat introduced advertising into the platform. In 2015, it generated $60 million in revenue from that advertising, and, in 2016, it expects to exceed its target of $350 million in revenue. Snapchat is targeting $1 billion in revenue in 2017.

Snapchat reports 150 million users daily and 235 million users monthly, including 41% of 18- to 34-year-olds in the U.S., according to Nielsen. Snapchat shows strong signs of being a healthy business. With continued user and revenue growth, Snapchat will be a hot company for several years to come – even with the new scrutiny of the public markets.

snapchat-monthly-active-users

But, long-term, Snapchat could face a similar issue as Twitter: being a company that offers only a niche audience advertisers. Unlike Google and Facebook that offer a large and broad range of audiences to advertisers, Snapchat caters mainly to younger Millennials and Generation Z audiences. Facebook touts ~1.71 billion monthly users – approximately 25% of the world’s population. By comparison, Twitter has ~313 million monthly users. Twitter has struggled in recent years to win over investors – primarily because it is compared to Facebook. Twitter has only ~18% of the monthly users that Facebook has. And, Twitter has been criticized for its slowing user and revenue growth while being unprofitable. Twitter’s stock price has dropped from $69 per share at its peak in January 2014 to $18.79 today.

trouble-at-twitter

 

While we can expect that Snapchat will continue to grow its user base at a nice rate for the foreseeable future, as it captures more of share the 34-year-old and under audience, the real test will come when Snapchat can no longer rely on that audience for user growth. It will need to stay relevant to the new young audiences entering their teens and twenties, while expanding its relevancy to older audiences. And, it will need to do this while achieving profitability. Otherwise, in a few years, we could be seeing Snapchat face similar issues that Twitter has faced in recent years.

CMO Mondays: Marketing in the Post-Capitalist Society

I spoke to a class of advertising and PR students at University of Texas last week. Below is the Slideshare of the presentation that I gave. This is an updated version of previous presentations I’ve given on my Reciprocity Theory and The Purpose Economy. I dive into foundational human behavior, technological revolutions, socio-economic evolutions of the last fifty years, and what this means for marketers.

On Writing

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I’m in Ann Arbor, Michigan this week working with a team of marketing academics and practitioners on a new digital marketing anthology. Each person was invited to author a chapter in an area of interest, which we had to submit in August. This week we’re meeting for the first time, peer-reviewing and editing our chapters and pulling them into one cohesive anthology that readers like you might read. The image above is the barn we holed up in yesterday to work. It’s has a beautiful view of the fall trees in the back, and it was nice to catch a walk around the neighborhood yesterday to create some mind space.

Over the summer, I decided to keep myself accountable to writing every week by starting the CMO Mondays series on my blog. And, as of last week, I decided to keep myself accountable to writing every day – even if it’s just a short thought.

I’ve always enjoyed writing and back in high school thought I might actually become a full-time writer. I wrote my first two feature film screenplays in high school, and went to undergrad at Syracuse to study screenwriting. But, when I entered “the real world”, I discovered I had a knack and interest for business. So, while I still love a good fictional story, most of my writing these days are focused on different aspects of business.

I started blogging in 2011 as a way to structure and codify my thoughts on social media and technology, as I had recently entered the space and was learning so much so quickly. But, once those thoughts were codified it was easy for me to ease up on the blogging and focus on work. The same thing happened last summer of 2015 after finishing my MBA, I had a lot of thoughts percolating that I needed to get out of my head. But, once again, I let focus on work derail my writing.

When my friend and former colleague Marcus Collins presented me with the opportunity to contribute a chapter to this new anthology, I decided that it was time to make writing a priority in my life. I’ve had some ideas for books that I want to write, but have pushed them off because I was too busy or simply didn’t want to make the time. Writing a twenty-page chapter was a nice way to dip my toes in the water to see if I have the desire to push through and write a whole book. The CMO Mondays series is a means to get the knowledge I’ve acquired over the years out of my head and into a format that (hopefully) can help other marketers. And, the decision to write daily is really about getting any other thoughts out of my head and into the world. I’m an introvert, and I have come to recognize that I sometimes let ideas sit in my head too long to formulate instead of sharing them with people that might accelerate an idea into becoming something bigger. I also recognize that I’m a better executive when I’m writing because the process of writing helps me codify thoughts, so that I can communicate them more effectively at work with colleagues.

So, going forward, expect that I’ll be publishing longer, more thoughtful content on Mondays on the topic of marketing, whereas the rest of the days might be a bit lighter, more random musings bouncing around in my head. Next year, our “Digital Marketing: Concept, Theory and Practice” anthology will be published. I’ll share when that happens, and hope you take time to read it.

CMO Mondays: Have We Become Too Specialized?

A CMO recently asked me what is one of the biggest pitfalls I see brands falling into. The number one issue that I see is that marketers have become too specialized and too siloed, and therefore the full potential value of the brand is not capitalized.

Growth in complexity from technologies, channels and data.

As you can see from the slides above, marketing has experienced a proliferation of new technologies and channels, and this intimidates marketers and executives. In an effort to make marketers’ jobs easier, companies building products for marketers have actually made their jobs harder and more complex. So, now you see this trend of marketers becoming over-specialized and marketing teams more siloed. Someone might only know analytics, or only know social, or PPC and display, or brand and creative. And, they advocate for one discipline over the other because that’s what they know and are comfortable with. It’s the lens through which they view the world. But, great marketing isn’t about technology or channels. It’s about audiences. It’s always been about understanding audiences’ human behavior to create products, communications and experiences that enroll those audiences to buy into the brand. If we know our audience inside and out, then deciding which technologies and channels to apply to engage those audiences becomes much easier.

The exponential growth in data hasn’t helped in this matter. The need for data has reinforced our nature to play it safe and created some false positives. This is symptomatic across business – not just marketing. “Advertising is dead.” “Why invest in creatives when the data will just tell us what content audiences want? Then, we can use tools to automate content creation.” These philosophies are easy to spout in an era when marketers are being pressured to lean budgets. But, when everyone is swimming in the same direction, opportunity presents itself in the opposite.

Great marketers think more like anthropologists and communicate like orators.

The growing need for general marketers.
The best marketers are Renaissance people. They don’t live solely in the art bucket or science bucket, but, rather, they bridge the two. Great marketers think like anthropologists and communicate like orators – painting a view of the world and enrolling us into that view. They study human behavior from a mix of hard data (think analytics), soft data (think observations) and experience (think intuition) to arrive at universal human truths about customers and their wants and needs. From these truths, great marketers create solutions to those needs – whether they be in the form of products, services, business models, experiences or, simply, stories.

Two Thinking Systems
Perhaps my favorite article on this subject is “The Second Road of Thought” by Tony Golsby-Smith. Here, Golsby-Smith discusses how “the western world bought the wrong thinking system from Aristotle.” An excerpt below:

“This ranks as one of the worst investment decisions our civilization has made, and it has led us into using the wrong toolkits for our enterprises ever since. The thinking system we invested in was Aristotle’s ‘analytics’, and we made the choice around the era of the Enlightenment which ushered in what we today call the Scientific Age. That decision has proven so sweeping that it now monopolizes what most people characterize as ‘thinking’. Thinking processes are dominated by the culture of the sciences, and you get no better evidence of this than our universities, the home of thinking, where any subject must position itself as a science to be taken seriously. Traditional approaches to strategy sit fairly and squarely at this table of logic and Science.

What few people realize is that Aristotle conceived of two thinking-systems, not one. We made the big mistake of just buying one, and allowing it to monopolize the whole territory of thought. We should have bought them both, and used them as partners. Instead we have only one thinking tool in our hands and we are using it for all the wrong purposes. Here is how it happened.

Aristotle was the first person to codify thinking into a system. He did this for a reason: he lived in perhaps the most dramatic social experiment of human history, the invention of democracy by the Greek leader Kleisthenes around 450 BC. This political system did what no other had tried to do: it delivered decision making into the hands of human beings. Prior to that, regimes were governed by the king of the gods. That meant that no matter how sophisticated they might have been in terms of Engineering or Mathematics, they were not sophisticated about human reasoning, especially where decision making was concerned. Clearly, Kleisthenes’ political reforms created a great need to codify the processes by which humans think and can arrive at ‘truths.’ If ever there was a do-it-yourself manual, this was it! Ordinary humans were playing god in Aristotle’s Greece.”

Golsby-Smith goes on to describe the two roads of thought:

  1. THE LOGIC (or ‘analytics’) ROAD: This is ‘where things cannot be other than they are’ and is tied to the realm of natural science.
  2. THE RHETORIC (or ‘dialectic’) ROAD: This is ‘where things can be other than they are’ and is tied to the realm of human decision making.

The Logic Road is the process by which we diagnose what already exists, whereas the Rhetoric Road is the process by which we humans design the future. I would argue that while marketing is experiencing a renaissance right now, it is headed squarely in the direction of ‘analytics’ because of the overwhelming technologies, channels and data discussed above. As business and finance has disappointingly placed statistics (which is the mathematical application of diagnosing the past to predict the future) at the center of its theory and practice, so now marketers are following this trend. But, the breakthrough brands that capture our hearts and minds (and wallets) in the future will be those that master the art of rhetoric as equally as they master the science of analytics.

The art of storytelling
David Ogilvy was quoted as saying “It takes a big idea to attract the attention of consumers and get them to buy your product. Unless your advertising contains a big idea, it will pass like a ship in the night. I doubt if more than one campaign in a hundred contains a big idea.” Never has this been more true. Audiences today experience an attention deficit from the devices, channels, messages and alerts that bombard their senses every waking moment. Content is more fleeting than ever, and audiences’ retention is shorter than ever. Yet, great storytelling increases audiences’ sense of trust and empathy and increases their retention. This enables us, as marketers, to direct human behavior. Indeed, neuroeconomist, Paul Zak, taught us that character-driven stories consistently cause the synthesis of cortisol (a hormone that focuses our attention) and oxytocin (a hormone that creates a sense of empathy and connection). In other words, the better crafted and more relevant the stories we marketers tell about the brand, the more our brand will stand out to and connect with audiences. There is, apparently, scientific benefit to the art of storytelling. See the video below for more details on Zak’s research.

So, all marketers should be trained in storytelling. The Coca-Cola Company has invested in having screenwriters train their marketers, and IBM has recently been hiring screenwriters. If you want your brand to stand out, invest in striking creative and crafting remarkable stories. Yes, by all means, leverage new sources of data to glean insights about your audiences that can inform that creative. But, people today – more than ever – need to be inspired. We need brave brands (and brave marketers behind those brands) to take chances and inspire audiences into action.

The science of analytics
Meanwhile, every marketer should be trained in basic market research and data science, so that they know how to run their own analysis, as well as review others’. Not every marketer needs to be a practicing statistician by any means. But, the important thing is to understand what questions to ask when reviewing data, so that we know how to interpret and apply its findings to actions that the brand should take. Critical is knowing what you’re looking for in the first place in order to design an analysis and measurement approach that can glean the knowledge you seek.

The tactics of channels and technologies
If you have a handle on storytelling and analytics, then channels and technologies become fairly simple. From the data, we glean what story might resonate with customers, what channels they engage in, what their behaviors are in each of those channels, what content formats they engage with most, and we have a sense for what we need to measure in order to learn and improve over time. The trick is then to tell the brand’s story consistently and natively in each of those channels. And, we look for technologies that meet the specifications we need in order to tell that story effectively in each of those channels, and to capture the data we need to measure and learn from our activities.

The need for speed
Given the pace of business is only increasing, it doesn’t make sense to have large groups of hyper-specialized individuals trying to figure out how to work with each other, interpret each other and take actions away from each individual’s contributions. When one does not have context (experience) for what another person does, it’s difficult to make create action. Rather, if we want to move at the speed of business, we should have less, more well-rounded people collaborating. Thus, every marketer should gain experience in both the art and science of marketing. Read Scaling Agile @ Spotify by Henrik Kniberg & Anders Ivarsson to see how this approach has worked in agile software development at Spotify.

CMO Mondays: Marketing as a Capital Expense

We’ve entered annual planning season for many companies. As with any other corporate function, marketing teams are developing their plans for the next fiscal year, including lobbying for budget. All too often, the budgets that marketers request are simply based off of the current year’s budget allocations. Occasionally, marketers are more proactive in seeking new budget to test new channels or programs. Perhaps they even piloted a program this year that had some measurable success and are lobbying for expanded investment for next year. But, most of the time, marketers are simply taking the budget that their CFO allocated to the CMO and being told to do what they can within what they’re given.

Why does this happen? Because marketing gets stuck being perceived as an operating expense instead of a capital expense.

Below is a definition of operating expenses from Investopedia:

“An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance and funds allocated toward research and development.”

Below is a definition of capital expenses from Investopedia:

“Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building, to purchasing a piece of equipment, or building a brand new factory.”

The issue with these definitions is that they fail to recognize that sound investments in marketing are investments in growth – in profitable revenues, in asset value and in scope of operations. So, should some marketing expenses be considered CAPEX?

Consider that each marketing discipline has a payback period on investment. Some are longer and some are shorter, depending on where they land in the buyer’s journey / sales funnel. For example, SEO and paid search are going to have a shorter payback period because these are primarily bottom of the funnel disciplines. Good SEO and paid search captures potential customers when they’re looking for a specific solution and have high intent and immediacy to acquire that solution. On the other hand, social media and display advertising tends to focus earlier in the buyer’s journey – driving brand/product awareness. Thus, social media and display tend to have a longer payback period. A marketing department should have a handle on three key metrics:

  • Customer acquisition cost (“CAC”): the cost to acquire a customer
  • Customer acquisition time (“CAT”): the time it takes to acquire a customer (i.e. the average duration of the buyer’s journey)
  • Customer lifetime value (“CLV”): the amount of revenue that each individual customer generates during the entire duration that the customer uses the company’s product

A strong marketing department will also have an understanding of how each marketing discipline / channel contributes to these metrics. This context then gives marketers a foundation to lobby for investment.

How much does your company want to grow next year?

Let’s look at a very basic example: assume we have a $50M revenue business, and we want to grow 20% year over year. That gives us target revenues of $60M for the next fiscal year, which means we need to acquire $10M in new revenues. If our product sales price is $200, then we know that we need to acquire 50,000 new customers ($10M / $200 = 50,000). And, if our CAC is $100, then we know we need to invest an additional $5M (50,000 * $100 = $5M) in order to achieve our revenue goals. (*Note for startups that are still figuring out their business models: your CAC should be less than your unit sales price in order for you to have a sustainable, profitable business.).

Running a basic calculation like this enables you to come into budget talks informed and prepared to make your case for budget based on business imperatives. Equally important is understanding how each marketing discipline – search, CRM, social, paid media, PR, etc. – contributes to your CAC and on what payback period, so that you can allocate your budget appropriately.

Think with Google is just one tool that helps us understand this. The below image shows us the general buyer’s journey to online purchase.

general-online-customer-journey

As you can see, each marketing discipline / channel plays its part in driving a buyer (i.e. customer) to make a purchase. Organic search, brand  paid search, email and referral are at the bottom of the sales funnel (i.e. closer to the point of purchase). Thus, these channels have a shorter payback period. As these channels are directly driving revenues, they may fit well in the OPEX budget. But, how about those activities with longer payback periods?

Consider social media. This discipline / channel typically plays two key roles in the buyer’s journey / sales funnel. See the sales funnel below:

customer-purchase-funnel-01-1

First, social media builds awareness for your brand. This is earlier in the buyer’s journey. But, social media also enables and amplifies advocacy on the tail end of the funnel / buyer’s journey. Advocacy is where customers share their enthusiasm and support for the brand/product. This advocacy helps in the consideration and preference stages of the funnel, as potential customers value the opinions of people in their social networks and other customers that have experienced a brand. Thus, when done well, social media can increase the value of your brand by lowering your CAC and increasing your CLV. Your brand is an asset to the company. So, while it may take longer to achieve the ROI on social media (i.e. there is a longer payback period), this should not preclude the business from investing in the channel. Also, since social media helps to build the value of an important business asset – the brand – over a longer period, should we consider social media a capital expenditure?

We could think of CRM in a similar fashion. A robust email list of customers and potential customers is a business asset. As you can see from the buyer’s journey image above, email sits at the bottom of the funnel – close to the purchase decision. So, how valuable is customer data that will enable the company to market more effectively and efficiently to drive revenue?

While moving organizations – and, in particular, finance teams – to think about marketing expenses as both OPEX and CAPEX (vs. just OPEX), depending on the marketing activity, may take some time, it’s a worthwhile exercise to consider. First, it will ensure that marketing teams are accountable for their primary objective – driving revenue- and that they are putting the right KPIs and analytics infrastructure in place to measure impact. Second, it safeguards the marketing organization from mid-year budget cuts all too typical in large organizations. It’s never made sense to me why companies cut marketing budgets when they don’t hit their numbers; this is when they should be investing more in marketing. See the Virgin Atlantic vs. British Airways case study that I reference in this blog post.

Another way to think about making this shift is considering the marketing P&L. Paul D’Arcy, CMO of Indeed.com, wrote about this in his blog post “It’s Time to Kill the Marketing Budget and Think About a Marketing P&L.”

Regardless of what approach you take, come to your planning meetings informed with data and couching your budget requests in the context of the business impact to expect to make. Your CFO speaks numbers; be prepared to speak her language.