The difference in customer value between fans and nonfans is not necessarily attributable to the company’s social media strategy.
Measuring the value of social media activities is important and challenging. New approaches are being developed all the time, and they have the potential to aid our understanding of how social media creates value. One such metric that is popular among digital marketers is the value of a “like” on social media. This value is typically calculated by determining the average value of customers who are fans on social media (in other words, the value of a customer who publicly endorses your company). Then you subtract the average value of customers who are not fans on social media (in other words, the value of a customer who is not publicly endorsing your company). Of course, there are important differences between fans/follows/“likes,” and so forth, but our recommendations are deliberately broad to accommodate use across many social media platforms. In sum, the metric measures the simple difference in value between two groups of customers: fans on social media versus nonfans.
Marketers seem to assume that the difference in customer value between fans and nonfans is attributable to the company’s social media strategy. An overwhelming majority of marketing managers in our survey saw a link between their social media spending and the value of a “like.” Syncapse, a social media strategy firm, suggests that when assessing the value of a Facebook fan, “marketers must understand the measurable differences between users who have ‘liked’ or Fanned a brand versus those who have not.”1 However useful this is, it does not mean that the cause of the differences in users’ value is attributable to a company’s social media strategy.
The reason that social media strategy shouldn’t be seen as the driver of value difference between fans and nonfans is because customers who are social media fans will differ from nonfans for reasons unrelated to the company’s social media strategy. For example, fans are probably more active on social media, more technologically literate, and typically younger. Our experience suggests that fans are often more favorable toward a brand to start with than nonfans are. Indeed, this is probably what motivated them to affiliate in the first place.
The difficulty here is attributing causation. If consumers “like” a brand on Facebook because of their previous favorable experience with the brand, the company’s social media strategy may have added little; it simply identified higher-value customers, as opposed to increasing the value of any customer. Since social media spending probably didn’t cause the difference, the difference in value between a customer who is a fan and a customer who isn’t a fan shouldn’t be used as a benchmark for marketing spending on social media campaigns.
In addition to the confusion over causation, “value” must be clearly defined in order to calculate the value of a “like.” Marketers often measure customer value based on revenue instead of contribution; our research found that a majority of marketers surveyed made this error. If a marketer is trying to establish the relationship between social media efforts and the value of customers, it is incorrect and misleading to use “average sale price”2 to measure value. Since revenue ignores costs, such a calculation overstates customer value.
Unmuddling the Value of a “Like”
Managers shouldn’t automatically assume that differences in value between two groups of customers were caused by social media marketing activity. When there are differences, managers need to investigate whether they existed prior to the social media marketing effort. Digital marketers can run fairly simple controlled, randomized experiments to understand the impact of their actions. For example, to see how coupons offered on social media can change behavior, marketers could assign different coupons to different customer groups randomly and then study the differences in behavior.
This material is excerpted from the article “The Metrics That Marketers Muddle,” by Neil T. Bendle and Charan K. Bagga. See the full article for advice on how to use five popular marketing metrics.