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THE BOTTOM LINE
Nucleus’s analysis of social monitoring and social engagement solutions have shown that
there are real returns to be gained from social CRM efforts, and smart companies are
looking beyond the “nice to haves” of greater customer engagement to what social can
deliver in real, achievable returns that the CFO will buy.
Nucleus has looked at hundreds of social CRM deployments over the past year, followed
the acquisition announcements as competing vendors work to build out their social
listening and campaign portfolios, and heard a lot of pitches about customer experience,
customer engagement, and customer centricity. All the activity and innovation are great,
but what does it mean for the CFO who actually has to write the check? There are no new
rules for calculating the ROI from social CRM. The same old rules of ROI and credibility
apply when you’re looking at making the business case for a social technology investment,
be it internal, external, listening, or campaigning.
THE BENEFITS OF SOCIAL CRM
There are only three types of benefits: those that increase revenues, those that reduce
costs, and those that increase productivity. The key to building a credible business case is
determining which application of social technologies is likely to deliver on one of those
areas and how it is likely to be achieved.
There are no new rules for calculating the ROI from social CRM.
In building the business case for a social CRM investment, companies need to first look at
breadth and repeatability to see where they’re likely to get the greatest bang for their
buck. The more people using an application (breadth) and the greater frequency with
which they use it (repeatability), the greater the potential ROI. As you look at your laundry
list of potential social CRM projects, rating them in terms of breadth and repeatability will
quickly tell you the ones that are likely to get you a positive, provable ROI − and result in
more budget for other projects.
RESEARCH NOTE
SELLING SOCIAL CRM TO THE CFO
July 2013 Document N105
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July 2013 Document N105
Once you’ve identified your best potential projects, you’ll want to identify the top benefits
of those projects and what types of benefits they are.
FIRST-ORDER BENEFITS
First order benefits are direct cost savings that everyone believes will be achieved. In the
case of social, these tend to be reduction in microsite or ad development costs, reductions
in agency fees, or reduced services costs associated with bringing all your listening and
campaign activities on one platform. In the case of JetBlue, for example, the company was
able to reduce the direct costs associated with a lot of rework outside agencies charged
each time a new microsite was needed for a promotion. Now the team uses a cloud-
based social platform to quickly spin microsites up themselves, and the reduction in fees
alone were enough to justify the cost of the project.
Another important type of first-order benefit that you don’t want to overlook – particularly
in emerging technology areas like social – is avoided cost. One retailer that was using
social CRM to engage with customers found it was able to accelerate the time to solve
customer inquiries and complaints without adding additional customer service agents –
driving greater customer satisfaction. The alternative would have been to hire additional
order agents. The tip here is that an avoided cost is also a first-order benefit. In emerging
technology areas, new innovations and capabilities often enable companies to do things
that never would have been cost-effective to do before with traditional means (like
additional agents, for example). If you expect to increase customer engagement with
social, what is the alternative? Could you do it with additional advertising spend or
additional customer service agents? If so, cost avoidance is a reasonable benefit for your
business case.
SECOND-ORDER BENEFITS
Second-order benefits are just like first-order benefits but they contain a hedging word:
We think we can reduce advertising spend
We hope to reduce customer service agent hours
We expect we can trim our Web development budgets
We should be able to increase sales
Second-order benefits are not bad, they’re just a step away from first-order ones in
credibility and achievability. With second- order benefits, your CFO is likely going to
demand a little more due diligence, and a more detailed action plan, on exactly how you
expect to achieve them. Second-order benefit success is often political (about getting
other groups on board) or structural (about changing traditional workflows, project
timelines, or approval structures), so they take more work to achieve. If you find yourself
with a lot of second-order benefits, your best strategy is to go back to your breadth and
repeatability checklist and identify a small pilot project you can hit out of the park.
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THIRD-ORDER BENEFITS
Third-order benefits are all about productivity. Although Nucleus has found most social
CRM efforts have some productivity impact, in most cases productivity gains make up
fewer than 30 percent of the overall returns from a social campaigns or listening project.
This is largely because of the relatively low penetration of social technologies today (with
only a few campaigns or marketing experts using existing tools on a limited basis).
Whenever you’re measuring the impact of third-order benefits, you’ll want to recognize
that just like individuals that drive them, third-order benefits have a lot of variability. If
you expect the campaigns team will each save 3 hours a week by using the new tools,
what additional work will they do because of that time savings? The more credibly you
can answer that question (or prove those results), the more likely you’ll have a credible
case for a third-order benefit.
The other way to increase the credibility of a third-order benefit is to use a correction
factor to account for the inefficient transfer of time from time saved to additional time
worked. For example, if the team plans to save three hours a week and they’re already
overworked and working overtime, they’ll probably use at least 50 percent of that time
saved to do more work.
FOURTH-ORDER BENEFITS
Fourth-order benefits are a social marketer’s delight – but don’t mean much to the CFO. If
your benefits statement sounds like a narrative tale, it’s probably a fourth-order benefit.
Here are some common examples Nucleus has seen with customers:
We increase responses to social questions and because our response rates are better
and we reduce the likelihood that unaddressed social questions will result in a crisis.
Because we have social listening and communities we get better feedback on our
products and our product development teams can do a better job with new products
and so customers will buy more.
Customers are more engaged and we gain more insight into their daily operations so
we can sell them more.
With each of these examples, you’re a few steps away from achieving benefit. That doesn’t
mean it won’t happen, it just means the financial decision maker is unlikely to write a
check for it. If you look a little deeper, however, there’s first-order benefit potential in
each of these fourth-order stories:
We increase responses to social questions and because our response rates are better
and we reduce the likelihood that unaddressed social questions will result in a crisis -
can we increase the volume of responses and response rates while avoiding new
agents?
Because we have social listening and communities we get better feedback on our
products and our product development teams can do a better job with new products
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© 2013 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited.
Nucleus Research is the leading provider of value-focused technology research and advice.
NucleusResearch.com
July 2013 Document N105
and so customers will buy more. Can we avoid focus group or survey costs that
would otherwise be needed to gain the same insights?
Customers are more engaged and we gain more insight into their daily operations so
we can sell them more. How many more sales engineers or lead nurturing programs
would we need to engage customers to achieve the same impact? Can we avoid
those costs?
CONCLUSION
Beyond the marketing hype, Nucleus has seen that adoption of social monitoring and
engagement solutions can deliver significant return on investment. In an emerging
technology area, however, CFOs are less likely to spend without a compelling and
believable business case. Applying a common structure to evaluate benefits from most
direct (first order) to most indirect (fourth order) can help you separate marketing from
value and identify the projects that are most likely to pass the CFO test. Ultimately, it will
also help you to keep projects on track and show measurable ROI from your social CRM
efforts.