The Hidden Costs Of Social Media

I’m really tired of hearing social media gurus preach about how social media will transform marketing. They usually can’t explain why this will be the case. And when asked for examples, they often cite people in the Middle East tweeting during a revolution. Which is great, but has nothing to do with marketing. 

If there’s a transformative potential for social media, it lies in this: The incremental cost of communicating with customers and prospects is, for all intents and purposes, zero. 

This has, until very recently, never been the case. 

Prior to the advent of email, the cost of communicating was high. Marketers either used mass media avenues (TV, radio, print) or direct mail. The cost per message was high. 

As a result, the return on investment per message was important. Each message had to pay its way. And that’s why obsessed over response and conversion rates.

Social media brings the cost of messaging way down. As a result, marketers don’t have to obsess over the ROI of each message, allowing them to shift the nature of communication from persuasion to engagement. In a world where every message doesn’t have to have an ROI, we can actually carry on a conversation with customers and prospects. 

But most marketers are missing something important as the economics of marketing change:

Costs shift from message distribution (dissemination) to message creation.

In the old world, marketers did spend a lot of money in crafting their message (witness the size of the advertising agency business). Despite this cost, more was spent on disseminating the message than creating it. After all, the message was created ONCE. Then tested, revised, and launched. And then the bulk of the marketing cost was in getting the message OUT.

Marketers in the new world have new mechanisms for getting the message out thanks to social media tools and channels. Tools and channels that radically slash the cost of dissemination.

But what too many marketers don’t realize is that there’s a new cost in town: The cost of message creation. 

Too many marketers don’t have a clue how to have a conversation with a customer or prospect through social media. Either they tweet or post their tired old marketing messages, or they deal with customer service requests. But marketing messages designed for mass media channels are inappropriate for social media channels.

I guess I can only speak to the financial services industry here, but there’s not a single financial institution that I’ve talked to — and I talk to a lot — that consciously think about the mix of messages they disseminate through social media (i.e., the mix between marketing messages, educational content, news alerts, and other types of messages), nor do they test and refine the messages they disseminate. 

Thanks to social media, the cost of marketing is shifting from message dissemination to message creation. And that’s not a grammatically correct sentence, since it’s about messages — in the plural — today, not the message. 

Seth Godin wrote that “marketing is the story marketers tell consumers.” That’s simply not accurate. It’s “stories” in the plural (and if you want to be even more correct, it’s not about the stories marketers tell, but the stories that marketers get consumers to tell). 

It’s hard to equate a tweet or Facebook posting to a story, but this is mincing words. It’s about the message. More frequent — and more meaningful — engagement with consumers, means having more frequent and meaningful messages and things to say. 

The cost of creating those messages, and understanding which ones are most effective, is the hidden cost of social media.


Check out Snarketing 2.0: A Humorous Look at the World of Marketing in the Age of Social Media (print or Kindle format):



16 thoughts on “The Hidden Costs Of Social Media

  1. It isn’t clear to me that ROI has been an important consideration in marketing in general. If it was, most of the “traditional” marketing that utilized by Banks would have ceased a long time ago. The ROI simply does not exist for traditional marketing channels such as newspaper ads, direct mail, ‘Free checking accounts’, as well as new gimmicks such as ‘Win an iPad to Like Us on Facebook’. Not only that, very few Banks (and certainly a very small minority of Community Banks and Credit Unions) accurately measures the ‘R’ and the ‘I’ in the ROI. ‘R’ of course is the profit (eg. revenues associated with the initiative less ALL direct and indirect expenses) and the ‘I’ is the required Investment (eg. all of the one-time and continuing costs required to support the program).

    But perhaps more importantly, most marketers understand that social media is about Engagement, yet most (and certainly most Banking marketers) do not seem to grasp the fact that Engagement can only be achieved through insightful and meaningful CONTENT! Many in the banking world appear to think that their customers will Engage with them just because they have a fancy (or not so fancy) Facebook page or a Twitter handle. So far, most social media initiatives in the Banking world are proving that a ‘no content’ or ‘meaningless content’ strategy yields few results regardless of the count of likes, friends and followers.

    Engaging (current & prospective) customers is hard work and it is not inexpensive. Yet, the opportunities are immense and the ROI is there for those who pursue the opportunities leveraging tools and capabilities available to them.

  2. Ron,

    I lack the imagination to conceive of a way that social media efforts can be plugged into a spreadsheet to calculate a return. But from personal experience I find that the people I interact with via SM are personal interactions. Serge up there and I frequently interact, and sometimes disagree, but I know it’s Serge and I’m getting him and not his PR department. Same with you. FIs are developing SM policies that, on their face, are setting them up for failure, regardless of the numbers in the spreadsheet. Corporate message approved through multiple channels to ensure nobody sues. Blah, blah, blah.

    ~ Jeff

  3. Jeff – I think that you do not give yourself enough credit. Measuring ROI for SM is no different than measuring ROI for any other marketing initiative. It all boils down to a) new customers, and b) wallet-share. It is all about revenue and profit associated with new relationships and growing existing relationships. Not unlike traditional marketing, it is all about benchmarking and tracking.

    You do have a point that too many Banks are setting up rigorous SM policies. Rather these should be guidelines. A rule I have (tried) to use throughout my career is based on the advice I was given as a junior consultant many years ago. This rule applied to email communication but it can be easily adopted for SM — ‘Do not publish anything that you would not want to see printed on the front page of the WSJ the next day’.

    In terms of content, SM content is not something to be delegated to PR or even marketing groups. It really must reside with Subject Matter Experts (SMEs) – eg. Bankers! The content must be genuine, and meaningful to the audience. (Current and prospective) customers don’t care that much about the Bank’s philanthropic activities and/or branch operating hours, but they sure do care about learning how to solve/address concerns related to their financial life. Think engagement from the customers’ perspective!

  4. Not sure whether to disagree more with you or the comments. What a dilemma!

    Any new medium can be disruptive – but not immediately (i.e. McLuhan & notion that previous medium becomes content for next.)

    Here’s th thing: social media isn’t about marketing. Sure, companies will use the channel to market, & clever programs will work for a while.

    Social media is disrupting business (but hard to see it among the noise). Social is a business model – enhanced customer intimate model. The change: social media for corporate learning, customer innovation, process improvement (not just responding to customer problems), engaging the domain community etc.

    We, who were once marketers, will find more meaningful channels of listening.

  5. Doug: Thanks for commenting. I wouldn’t disagree with you that social media is about more than just marketing.

    But in this blog post, I’m talking about just marketing, and how it’s changed by social media.

    I’d also agree with you that social media is disrupting business. But I do struggle to see how it’s a “enhanced customer intimate business model.” No doubt in my mind that how businesses interact with customers and prospects will change as a result of social media — not just in marketing, but in service, product development, etc. — but how is that a business “model”? To me, a business model is “how you make money.” Are you saying that companies will stop charging for the products that they charge for today, and instead charge for…. what? Maybe I’m just mincing words here.

  6. The ‘Discipline of Market Leaders’ in pre-Internet days suggested 3 winning business models – innovator, operationally efficient, customer intimate. A company could not be successful over time if trying to be more than 1 of these things. Social media is allowing for companies to be ‘customer innovators’. That’s the first change.

    Second change: yes, companies will still be making money. There’s a new breed of for profit social enterprises who innovate to solve wicked problems. These tend to be small firms using profit as a mechanism for market feedback.

    Third change: ability to disrupt traditional go-to-market strategies. One example is that companies once had to tap into partner ecosystems to distribute products globally. And, there was often difficulty adapting products for the unique needs in countries or regions. Social media helps companies to listen to customer experiences.

    An interesting example. I made a comment on twitter yesterday about how I liked the Salesforce Chatter iPad app, but not Chatter within the Salesforce app. I got a question from a Salesforce product manager. He’s tapping into the insight of another product manager-me.

  7. There is no doubting that as a communication tool social media is very powerful – from both pulling information into an organisation and also pushing it out.
    But rather than getting distracted by the bright shiny new toy that is SM it would make sense for the majority of companies to think clearly about what they want to achieve as their overall business objective and how SM fits in with all other tactical marketing activity. Also, concentrate on getting the basics right first and at least make sure that whatever you do is not done in isolation from other activity.
    In terms of ROI or a more effective term, value – you can pretty much set your own goals at an individual organisational level.
    The rules have nt changed its still all about adding value for the customer and differentiating your proposition from your competitors – the way we do it has just become a little more sophisticated.
    But there is a cost to everything – from staff costs etc and the same rules apply to SM

  8. Pingback: This Week in Social Analytics #20 at TweetReach Blog

  9. Ron,

    Thanks for posting this for discussion.

    To answer your question, “But I do struggle to see how it’s a “enhanced customer intimate business model.”

    Its because social media gives customers a stage for the voice that they always had but was never heard by traditional push advertiser or corporate marketing orgs until now.

  10. Let me shy away from giving an “MBA” response to this post.

    To me, the true metrics of social media are gossamer really. Which makes them not metrics at all.

    What social media does is give us a conduit. A conduit that measures an overall value of our brand. We will have our fan bois, our silent consumers (the bulk) and our detractors.

    What social media does is take the ‘this call may be recorded” messages and plays them in real time, across Twitter and Facebook. It’s a “measure” of our response, and not a measure of our worth. It’s a vial of our corporate chemistry.

    Are we in touch with our current customers? Do we know how to reach our potential customers? Are we able to deal with angered former customers?

    I love this post. And I love the energy behind it. Thanks for taking the time to write it, and having the nuts to hit publish.

  11. Oops. Forgot the tie in. To your point, IMHO, we need to attach the cost f creating that message to the people that need to create it. Marketers can handle some of the necessary conversation, but not all of it. Can we spread the cost you describe across Customer Service… Billing… Shipping? And who in those groups are capable of having that conversation?

    Can the shipping department handle a Twitter conversation? Interesting question.

    I wrote about that a bit here:

    “But what flavor of conversation would we be starting as an organization if we outsourced our own voice?

    It’s certainly possible that they could write 140 character spam about every single product page on my website. I get that. They also might occasionally say something insightful about our product set as a whole. But I’ll bet it’s rarely.

    And what if, Twitter forbid, someone… you know… asked them a question?

    Twitter responses to customer inquiries and/or concerns should be immediate. That’s what Twitter is there for. E-mail is for “I’ll get back to you”. If you have to call us to get the answer… what’s the point?”
    /End Quote

    Anyways, we WILL need to attach those costs if we choose to engage consumers that way. In the future (which might be now), we will need to discuss that internally.

  12. It all boils down to striking the right balance IMHO. Today anybody who can tweet like they have verbal diarrhea or update FB status calls themselves social media marketeers.

    The irony is that they talk about buzzwords like brand evangelism, brand affinity, etc but most of them don’t even know how to track brand engagement via custom alerts on brand keywords in in analytics or advanced segments.

    Their classic excuse is “oh you can’t measure Social Media really, it’s a branding vehicle not sales funnel.

    ( First time visitor here, but LOVED your post. Spot On! )

  13. Another excellent post, Ron.

    In addition to your insightful points above, since the cost of dissemination has decreased, the proliferation of messages has skyrocketed. There’s more clutter and noise out there than ever. That increases the burden on the messengers to be even more creative and relevant just to even get noticed. And that further increases their costs. For example, if a company thinks it can get millions of YouTube views merely by having one of its executives talk into a camcorder in an “authentic way,” it’s kidding itself and should go back to buying Super Bowl ads.

    On another note, social media is supposedly conducive to creating “relationships” between marketers and customers. Well, something must be amiss, since consumers aren’t exactly loving corporations right now. There may be relationships, but they’re in need of serious counseling.

    – Freddy J. Nager, Founder, Atomic Tango LLC

  14. Freddy: Spot on. The problem is worse that just a company thinking “it can get millions of YouTube views merely by having one of its executives talk into a camcorder in an authentic way.” The problem is that they think there’s some inherent value in those millions of views. I bet that when some company gets those millions of views that hundreds of thousands of those viewers don’t even know which company or brand posted the video. And that twice as many don’t remember the next day who posted it.

  15. Great article. This is so true. What businesses fail to see is that social media is just another marketing tool, into which they pour either time and/or money and they get a result. It’s no different to any another marketing tool.

    The problem starts with the technology, the fear of the unknown, and then the mis-education that springs up everywhere, and suddenly the world is over-run with social media “experts” that have no clue about marketing.

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