Relationships Sell Products
When is the last time you measured the return on investment of that $300 business card sized ad in the local rag mag? Does anyone measure the return on investment of the $8,000 web site you just developed? What is the ROI on a Tweet?
- Let me float this out there: If you’re not where the people are, you’ll sell fewer products. Period.
- If you’re a local restaurant and the local people follow a local weekly news magazine for all their local food news…you better bet your butt you should be in that magazine.
- If you notice that your customer base is friending you on Facebook, I guarantee that if you interact with them there, you’ll sell more product.
- If people in your community are holding odd things called tweet-ups and are walking around with their eyes glued to smart phones…send out some choice tweets and those birdies will flock to you.
I recently read this tweet, “So far, there’s been little proof that social networking sells wine.” To be honest, I think this is bull shit (forgive my mouth, Mother). Social networking is the main thing that sells wine! The only variable is WHERE and HOW you choose to be social. Some wineries and businesses network by joining local groups. Others are social by e-mailing their client list. Some choose to network at charity events while others get social on Twitter and Facebook. Wine is social and social networking is good business. He who has the most conversations sells the most products!
In a recent post called “Return on Investment and Social Media Marketing,” Tom Wark says, “There are other ways to spend one’s time and money that deliver a GREATER return on that investment. It is not a matter of jumping into the electronic pool and seeing profits mount, even if you make a big splash.” Again, I disagree. I think there is no greater potential to a return on investment than personal and real conversation and engagement with people through relationship marketing like Twitter and Facebook. If I could pick up the phone and engage with hundreds of my fans / followers / likers simultaneously…imaging the power. If I could reach out and share my product or business development with thousands of people daily through email…imagine the power. If I could connect with people while they shop, dine, lounge and live their lives…imagine the power. Social networking (relationship marketing) is the cost of entry to good business just like the web site was 10 years ago. He who does it well has an intrinsic advantage over their competitor.
Let’s Talk ROI
Return on investment can be essentially measured in two ways: increased revenue or decreased expenses. Any investment of your money for your business should ask these basic questions:
- What is the desired outcome
- What metric will I measure
- How will I measure it
If all you are interested in is brand awareness…how will you measure it? Can you track mentions in the online space through Google? Will advertising in publication X result in the same results as advertizing in publications Y and Z at a reduced cost? What is the value of 5000 Facebook fans? Interacting online may require time (and yes teacher, time = money), but zero conversations results in zero revenue. There are “other ways to spend ones time that deliver a greater return on investment” for the SHORT term but long term success is built on long term relationships and there fewer ways to develop relationships than with today’s social tools.
Plans and Requirements
Lately I’ve been building a lot of Business Requirement Documents (BRD’s) and Communication Plans at work. At the beginning of each of these documents are sections for Critical to Quality Specifications (CTQ’s) and Success Measures. With CTQ’s we’re required to outline the current baseline, projected target and how we are going to measure it. Do you know the current baseline of your advertising results? How much business does that weekly newspaper ad generate? Don’t know? Ditch it. Whatever the program, make sure you know what your success measure is, how you’re going to measure it and what result is considered successful. Do you want to measure social media? Establish a baseline of sales or mentions or interaction (with your web site). Pick the metric you are going to measure (sales, visitor count, web page views). Develop a campaign to drive the results. This should be true with any marketing expense your business has. Is your yellow pages ad worth it? Does your regional magazine ad call people to action? Develop your marketing campaigns with purpose (including social media) and you’ll see tangible results.
Social networking (currently through Twitter, Facebook and Four Square) is the business model of the near term future. The quickest way to reduce cost is to build a network of brand ambassadors who will help spread the word about the business. This efforts results in a social currency that can be redeemed for direct sales.
You want a specific example of ROI on social platforms? Friday I was travelling to Yakima, WA and I tweeted “Where Am I Now?” from a local winery. A neighboring winery said, “Looks like you’re at one of our Red Mountain neighbors, you should stop by.” Shocked that they were so close, I made a brief detour, visited their winery and BOUGHT a $50 red wine blend for later that night. The value of that tweet $50. Repeat this scenario several times over as your follower / fan base grows.
Social media isn’t going anywhere (even if it changes popular platforms). We have entered the “new world” where everyone is hyper-connected to each other. Quality Social connections on Facebook and Twitter are infinitely more valuable than some of your basic collateral (magazine ads, print ads, web banners). Wark concludes his post with, “It’s critical to put in place a marketing plan that utilizes the most efficient tools that are most likely to deliver the greatest return on investment.” I agree here only to say that over time the greatest return on investment will be your social currency in places like Facebook, Twitter, You tube, and wherever your customers are.
Outstanding post Josh! You bring up some really great points, and I think you are exactly right. People are looking at social media all wrong. The point is that it is an extension of the kind of work that they are already doing in other arenas. Any business, and especially any retail business, is built on relational marketing and social networking. The only difference here is that this is moved onto online platforms like Twitter, Facebook, and Foursquare. These are only tools, just like a telephone, that can be used to extend the reach of the work that wineries would normally do in the tasting room. I think you also bring up a good point about selecting the metrics that you are going to track to measure success. The problem that a lot of businesses on Twitter have is that they have no plan or direction. They are just aimlessly tweeting, which will not provide the kind of ROI that they could get if they were more strategic with their efforts.
Brilliant, I need to print this out and file it away for future use. I too was a bit surprised with Tom Wark’s statements in his ROI article and your response is perfectly accurate. Having measurable outcomes is critical for any marketing plan, social media or otherwise, and you’ve proven that without a shadow of doubt.
Well… **duh**! 😉
Funny, I think of this very argument every time that I read a post that social media has no ROI. Actually, models exist for measuring BOTH on- and off-line ROI of social media (which I agree extends beyond the Internet and is nothing “new” in that sense). For some bizarre reason (and much to the delight of consultants worldwide!), businesses seem to want to continually reinvent the wheel on that.
Generally speaking, the more quality face time involved with any direct-to-consumer campaign, the better the likelihood of establishing relationships, and therefore the chance of selling your wine is higher. Wine is a social commodity. However, you can’t throw blanket enthusiasm for facebook, twitter, etc. Do I really want to hear about how a winemaker tweeting about the foam on his latte this morning? Not really. After a while, it becomes intrusive and annoying and irrelevant. LIke every other form of communication, which social media obviously is, it’s quality NOT quantity. Seen too many me-too fan pages on facebook. People are laisser-faire about that stuff now. It’s overdone. There is no substitute for know how and know who. Due diligence in knowing who the audience is first, is always key. You are still investing your time even if tweeting and posting is free. And that, after all, is the most valuable commodity.
Great post!
In general I agree that relationships sell a lot of products, including wine. Digital social networking is another form of word-of-mouth that many in the wine industry site as the most productive of it’s marketing efforts.
Second or third or fourth sales depend not only on the relationship and maintaining it, but also the quality of the product. I’ll buy marginal or substandard wine [not that there is any of that here :)] based on a good relationship/social experience, but will stop buying if I find myself dreading or avoiding drinking the wine.
Likewise, I will stop buying even a fantastic wine if I feel like the seller doesn’t care or appreciate my business. There are too many choices out there to waste my money on folks with consistently crappy attitudes.
Josh,
Cool post man. I love to see real “hard” numbers tied to social media involvement. It’s such a hard thing for so many old school media/marketing types to wrap their heads around. I think one thing to emphasize is that social media isn’t an end unto itself rather it is a new channel with which to reach your target market and engage.
It’s the engagement and “relationship” that does the selling and social media is just the method to accomplish that!
Good stuff,
Brian
norcalwingman
Here in Australia there are more and more winemakers jumping on the twitter/facebook networking bandwagon. It’s good to see. But the majority are still non-believers who don’t understand the marketing opportunity social media provides. And even the ones who spend valuable hours tweeting seem to be chatting to each other rather than to potential customers…
There needs to be a little strategy employed, not just time spent. Spreading the word is about generating brand-awareness and establishing a relationship with people who DON’T already know about you. And crucially for the smaller winemakers who don’t have the marketing budgets available to the big boys, it’s about levelling the playing field.
Matt, that is good to hear. With any marketing effort, a strategy will definitely help with success. I might add that beyond brand awarness and establishing relationships with people who DONT know you, there is significant value in staying “top of mind” with the people who do already know you – competition for their wallet is fierce.
Thanks for contributing to the conversation!
Good schtuff!
It’s all in the “Marketing Mix.”
Veni Vidi Bibi,
Bruce Bieber
CMO
WINES OF WASHINGTON PROMOTION, The Marketing Agency
So far zero dollars spent on print advertisement…with your help and the help of other bloggers, Twitter followers, and Facebook fans I’ve been able to spend my limited budget on wine making, and tasting room improvements. My customers are the benefactors of better wine at lower prices. I’m very thankful social media exists!
Bart – that is awesome to hear! Thanks for sharing your real world example!
Well done Josh!
Have to agree 100%. “Social media” is merely an extension of “social networking” and “relationship building”; marketers need to be where their potential customers are, and engage with them — be it at a wine tasting, community event, over the phone, text message, email, Twitter, Facebook, etc. The platform of communication may vary but the principles that lead to success remain the same.
Josh-
Having read your post as well as Tom’s, I have to say you are both right, and you are both wrong.
In the food and wine industry, direct relationships are very important. Direct relationship with the vendors (make sure you get materials needed on time) distributors (get your bottles on the shelves) and customers (the people who actually buy from you).
However take something as common and simple as toothpaste. Do you have a relationship with the mfg of your toothpaste? Does (or did) the mfg have a direct relationship with you? – I seriously doubt it. So how did you decide to become loyal to your brand? – Dentist referral? Media ads? Social Media networks?
My point – products get sold and loyalty gets built all the time without a direct relationship, and will continue to do so.
As far as Tom stating that there are other ways to spend one’s time to make a greater return – that is true – but depends on what is the primary motivator for business. For example: if all you want to do is to sell bulk wine – you need a deal with a major outlet – like Walmart. Build one relationship with Walmart, and you can get your product in most of the stores. If Walmart wants your wine, they will tell you how to get it to the state distributors. Then all you have to do is make the wine. That would probably get you the most amount of money for the least amount of effort. (Of course you would need to be able to meet quota, but that’s different topic).
Where I see both you and Tom are wrong, is you are not talking about THE most important ROI measurement. Without this measurement, all marketing metrics don’t really mean a thing.
What I am talking about is Customer Lifetime Value. Simply put – CLV tells a business how much each new customer is worth to a business – and how much a business can comfortably spend to generate new customers. If a business knows the CLV, then it is easy to determine what to spend on various onine and offline tactics, and by measuring each tactic a business can determine what is the best best tactic for the greatest ROI.
You don’t have to be too specific, but you do need fairy accurate figures. If a winery has an estore/wine club, then the numbers are already there. If not, there are other ways to get the numbers. Ideally you would take the top 20% of your active customers (or wine club). Determine what the average purchase is and for how long they have been buying from you (usually in the 3-7 year area). Average what those customers spent over that period. Then determine the Net revenue that was generated with the average customer over the average lifetime. You can use a ballpark of 15-25% of that last figure as your base amount that you Should be spending to acquire new customers.
So lets take a wineclub, shipped quarterly, product value is $50 per order (not including taxes and shipping). 100 club members bought $1000 each over 5 years, total net revenue averages $250 per customer. This is your CLV. 20% of that is $50. That is the minimum amount a business should spend to gain each new customer.
Essentially you can spend $50 per new customer acquisition, Whether you invest that into more advertising, social media or if you offered a fifth shipment free (or $50 of free stuff) to every new customer. You could spend up to $250 to acquire new customers. This is your breakeven point. This now puts you in measurable control of what you ‘should’ be spending for customer acquisition.
Now that you have these figures, what do you do with them? Make marketing goals. Say your goal is to use FB or Twitter to gain 100 customers. You can budget up to $5k into the effort and actually measure if it works or not. Doesn’t matter if you buy media or pay labor wages, you still spend the 5k.
Your CLV also gives you a base to deal with consultants, ad agencies and social media experts. If their campaigns can produce the customers based on your CLV, great. If not – time to find a new service or consultant.
For 5k – you could easily create videos, print ads, emails, postcards, websites, landing pages, fan pages, tele-seminars, webinars, buy quality products to give away, run contests, interact with potential customers, like people, update statuses, tweet, twitter, flickr, squido vimeo and youtube to build a loyal customer base. Why would you spend that kind of money? Because every 100 customers will bring in $100k to your business. I would be happy to offer such services, and even give a 1 year moneyback guarantee.
ROI is based on authentic relationship building, I totally agree. I’m still working to figure out how to use Social Media platforms effectively so that I can measure results. I do however believe that the winning promotional plan that will ultimately lead to increased business is a well rounded mix of media tools. Social media is one slice of that pie. A complete campaign involves brand building through effectively placed value added advertising, smart public relations strategy, social media engagement, educational based marketing, face-to-face opportunities and sampling, interactive promotions and strong partnerships. By default and no action it is still true that some brands still win as is stated in the above comment, however, I think this is an exception to the rule.
Amen, Brother! A wise man once said “you can’t see where you are going if you don’t where you’ve been” meaning a baseline of business performance should also be established before implementing a new strategy such that you can compare the metrics you speak of to that baseline to determine if there is positive impact and why. If there isn’t, then you make a change, rinse and repeat.
I like David’s CLV idea above, though many assumptions still have to be made especially because you do not have a crystal ball and therefore cannot guess at a customer’s future behavior thus impacting the calculation. We experienced the same conundrum when trying to develop the same concept for Banks who want to do the same thing. A CLV for a mortgage-holder changes when market rates change or something unexpected happens to them (i.e. lose their job), etc. Obviously, a wine consumer is a different animal, but the unknown nature of human behavior remains the same. Regardless, it’s a good rule of thumb as David states to determine spending for new customer acquisition.
But rather than breaking social media down to just a customer acquisition activity, consider it simply to be “on top of mind” with consumers. Consumers are talking about you and your product on these channels whether you are there or not. It just makes sense that you would want an opportunity to be in that conversation, understand what is being said and using the feedback regardless of the minimum acquisition budget (within reason of course).
Great post Josh! Like Bart, I haven’t spent any $$ on print or other media (my radio business relatives will kill me). My new winery is using Twitter, Facebook, Flickr, Foursquare and Loopt to help promote our very existence and interact with our current and future customers.
Another aspect of social media is the immediacy of the message. When I respond immediately to a post (usually via my iPhone), the poster is amazed at how responsive I was. That’s just great customer service and consumers appreciate it.
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