ROI, Wal-mart and SKU reduction–and what we may learn about Social Media ROI

I've recently found myself in interesting discussions–one might call some of them debates–about ROI and Social Media.  In recent weeks, Social Media ROI was the agenda for meetings with several clients, the focus of a panel on which I participated at Digiday Social, and a lively topic of discussion at a dinner of marketing leaders in town for the OMMA Global event.  And today I read an article about Wal-Mart that got me to thinking about the dangers of too narrowly defining ROI.

It's interesting to hear the wide range of attitudes toward social media ROI.  Some companies measure quite a bit about their social media activities but do not evaluate ROI in its most literal definition:  The financial return generated by a specific monetary investment.  Others go through a great deal of effort to measure ROI, creating complex models to calculate an approximation of financial return. 

Some in the direct marketing space are beginning to value their social media efforts much as they do their PPC campaigns–assessing the cost of participation compared to the clicks, conversions and sales generated from trackable links seeded into tweets and Facebook posts.  This sort of measurement is essential and inevitable for companies that sell direct to consumers, but it's important companies not become overly narrow and begin to assess social media as just another click-generating channel. 

First of all, that attitude will tend to lead to behaviors that might generate short-term value but harm the brand in the long run.  Constantly posting offers into your Facebook stream will certainly create clicks and sales, but it will also turn off consumers who expect organizations to use social media for something more than just a new advertising medium.  Moreover, taking customers who have enough affinity to join your Facebook fan page and then conditioning them not to act unless an offer is presented seems to diminish rather than enhance brand value.

The final challenge with evaluating social media purely based on directly attributable sales is that doing so fails to consider the broader benefits of social media.  While not a social media example, Wal-Mart's recent experience with SKU reduction makes the case. 

The retailer embarked on an effort to reduce SKUs by removing items with lower sales from store shelves.  It seems a simple enough business decision, doesn't it?  But Wal-Mart has come to appreciate they made a mistake.  By focusing only on the sales generated by the product and not the impact that product has upon shopper visits, Wal-Mart missed the forest for the trees. 

What Wal-Mart found was that they had (in the words of an executive), "discontinue(d) items that don't sell but get you a trip."  Consumers noted their favorite products were missing and began to turn elsewhere, which resulted in fewer trips to Wal-Mart and lost sales of other items that would have gone into the shoppers' carts.  Wal-Mart had the ability to measure the sales of Glad bags, but they could not know the impact Glad bags had on the sales of other unrelated products until consumers started going elsewhere for Glad bags.  Now, Wal-Mart is reintroducing 300 or so products back into stores.

Social media is like Glad bags.  You can measure it directly and narrowly, but doing so ignores other important benefits to the brand.  You could remove social media from your marketing mix shelf and see how that works for you, but you'll only end up damaging relationships, harming sales and urgently seeking to restock it into your marketing efforts. 

The key is to measure everything and not just one business benefit, no matter how important that benefit.  If you are lucky enough to be able to measure direct sales, by all means do so, just don't turn good luck into bad by ignoring sentiment, purchase intent, awareness and all the traditional measures upon which marketers have always relied.