How to use social media to increase profits

As was the case with web analytics, we are starting to see a plethora of measures to assess social media success.  The risk is that these measures obscure the most important question: is your business’ usage of social media increasing company profits by either reducing costs or increasing revenue?

Harvard Business School professor Mikotaj Jan Piskorski argues that successful social media strategies have both a social and a strategic impact.  Essentially a social reward is provided to people who help the business achieve its strategic or financial objectives.

The strategic impact involves persuading people – mainly customers but other stakeholders too – to do unpaid work, or in the case of employees, to go above and beyond what they are remunerated for.  This effort has two potential benefits: saving the business money – for example when a social media community answer customers’ questions reducing the need for customer service representatives – and increasing revenue by advocating on the business’s behalf, thereby expanding the audience reached and increasing willingness to pay.    

Piskorski defines social impact in terms of relationships, both establishing and strengthening them.  The former would include helping people find strangers with whom they have something in common; an example of the latter would be helping people to reconnect with old friends or augment ties with acquaintances.

Even if his definition of the social benefits that can be delivered is unnecessarily constrained, Piskorski’s framework provides a useful starting point.  Firstly it emphasises that the impact of social media strategy should be measurable in financial terms.  Execution of the strategy will require investment in software tools, training and the establishment of a dedicated social media team.  Such an investment needs to pay back on one side of the income statement or the other.  Secondly its focus on social rewards reminds us that there is more to what people value than money. 

When creating a value proposition for a stakeholder group a business has a number of different benefits it can offer.  These can be grouped in three categories – financial, functional and emotional. The emotional dimension involves both making stakeholders feel good and increasing their sense of security (i.e. reducing the risk that they will feel bad). 

The feel good element is particularly relevant when it comes to social impact.  And Maslow’s hierarchy of needs, see figure 1 below, is helpful in identifying how that can be delivered.    

Figure 1: Maslow’s Hierarchy of Needs

Level three of the pyramid – belongingness needs – captures the relationship element of social impact that Piskorski focuses on.  But there are also two levels above this – Esteem and Self-actualisation.  Both these levels offer opportunities for businesses to provide stakeholders with emotional benefits in return for working for free.  Communities already tap into level four through mechanisms that reward experts with recognition for their contributions, in the process conferring status and building reputations.  Those seeking to go beyond level four can find social media communities a fertile area for finding challenges needing solutions, the creation of which will fulfil them and provide them with a sense of personal growth. 

But ultimately social rewards may be insufficient to persuade people to part with their time and knowledge.  In such cases emotional benefits need to be supplemented with more tangible ones.  When significant value is being created by members of the social community, a social incentive will probably be insufficient.  Experiments with the Ultimatum Game show any perceived unfairness in proposed exchanges will cause them to be rejected.  Hence if significant cost savings or revenue gains are being generated, social incentives will need to be supplemented by financial ones. 

Perhaps one of the best examples of this hybrid approach is GiffGaff, a UK mobile telecoms company, which rewards community members with Kudos points for providing tips, FAQ answers and responding to service questions pushed out to notice boards by the company.  Roughly 50% of these service questions are answered by the community, dramatically reducing GiffGaff’s need for customer service staff.  Customers also get Kudos points for recommending GiffGaff – emailing friends or sending out SIM cards.  And as well as providing the kudos that the name suggests, these points can be redeemed for pre-pay credit or donated to a charity of the community’s choice. 

The beauty of providing pre-paid credit is that the marginal cost to GiffGaff is negligible (as the vast majority of the costs of providing cellular capacity are fixed) but the marginal benefit that receivers gain is significant.  This asymmetry of cost and benefit has long underpinned many loyalty schemes, such as frequent flyer miles, where reward redemption utilises what would otherwise have been unused capacity.  The risk is that social rewards and loyalty rewards are owned by different functions within the organisation so the synergies gained from integrating them are missed. 

Ultimately the strategic objective of social media strategy should not be to persuade people to work for free by providing social rewards but persuade people to answer service queries or promote the business for significantly less cost than the business would incur to achieve the same result.  That requires a holistic rather than social media-centric approach to working with each stakeholder group.

As highlighted in previous articles, social media strategy should be shaped by existing business and customer strategies, but it should also seek to re-shape them as social media enable richer value propositions to be created for every stakeholder group that a business has.  A social media strategy crafted in unconstrained isolation may be easier to develop and will potentially be more elegant, but it will be less effective than one integrated with other corporate initiatives.    

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About Jack Springman

I am a consultant with experience in business strategy and customer strategy development, customer management and customer service transformation.

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