Why You Should Forget Social Media ROI...
While I am a fan of “measuring to manage well”, some things just can’t be measured accurately. That’s why I believe we should forget what the ROI of social media is, in the conventional sense.
Here’s the metric that matters most when it comes to using social media for marketing:
Is your target market talking about you?
That is a yes/no question. There isn’t a correct number to answer it.
Einstein may well have been talking about social media when he came up with this thought: not everything that matters can be counted.
I don’t recall who said it, but one of the greatest lines I have seen on this topic was:
The ROI of social media is that you will still be in business in 5 years time.
I believe that statement to be essentially true: traditional “push” marketing tactics will increasingly struggle to generate decent ROI, especially as consumers “filters” (both psychological and actual technology filters) become more refined.
The marketing that will make all the difference in the near future will be the tactics that are centred upon having ideal prospects talking positively about you and what you do.
I can look at some measurements in my own business and say that social appears to be responsible for between 20% and 25% of new business revenue in each of the last 4 years. That is not an absolute measurement though. I account for new revenue opportunities by source as best I can, and often will have a new engagement where it is attributed to “I have been following your stuff for a while and you seem to know about…..” followed by “can you help me?”
The problem with social media in respect to measuring ROI is which channel do I attribute such enquiries to?
You see, the audience is seeing some stuff on Youtube, and some on Twitter, and some on LinkedIn…maybe following the blog and picking up a few ideas from Pinterest….and on it goes. Or was it the e-zine I mail out directly?
It doesn’t really matter does it?
What matters is the total marketing spend versus the total new revenue. The only ROI measurement which does matter is the overall return on money invested by the business – including all traditional and conventional marketing tactics.
The magic of social media as a marketing tactic is the engagement level of a rapidly growing audience of willing participants. You can create a significant audience of genuine prospects for your business who want to engage with you and your brand.
The question that professionals who are investing marketing dollars into social media should continually focus upon is: Will this get the people we want talking about us?
Sizing up Strategic Beta
Interest in strategic beta ETFs is rising. A few simple guidelines can help investors pick from among the often-bewildering number of options.
The number of strategic beta ETFs has grown at 20% a year, consistently in good markets and bad, since the year 2000. With good reason: Strategic beta ETFs offer a more thoughtful passive option than cap-weighted indexes—and they can do so with a more transparent process and lower fees than actively managed funds.
Bright future, dim past
All well and good, but how should investors assess any particular strategic beta ETF? Close to 40% of these funds have been in operation for less than three years. This lack of an established track record can make it hard to validate their claims. ETF sponsors may try to make up for that shortcoming with back testing, running simulations of holdings they might have had against actual past market performance, but that has its limitations:
Back testing doesn’t always account for fees, liquidity or transaction costs.
Back tests are “selection biased”—that is, back testers have a tendency (conscious or not) to engineer positive outcomes. Live outcomes are therefore likely to be inferior.
Too great a focus on recent history can lead to “driving in the rearview mirror.” While an index or ETF may solve the problems of yesterday well, an investor’s focus should instead be on solving the potential problems of tomorrow.
Three steps to an informed judgment
Because the indexes tracked by strategic beta ETFs are by design somewhat exotic, effective assessment of them calls for some digging:
- Investors first have to understand who the index designer and asset manager are (they may not be the same people). They should have a clearly expressed investment philosophy and the expertise to enact it in practice.
- The properties of the portfolio should reflect the investment philosophy. Not only does the transparency of ETFs allows examination of the holdings to ensure that this is the case, it also measures such as active share relative to a cap-weighted benchmark or turnover can indicate whether an ETF is performing as designed.
- Performance can also be used to confirm that an index is doing its job. While short-term results shouldn’t be given too much sway, the index designer should be able to explain when and why an index will perform and when it might not.
One key aspect of performance shared with traditional passive management is tracking error. Like earlier cap-weighted index tracking funds, strategic beta ETFs should have minimal tracking error to their own indexes. Beware, though, the tracking error to the benchmark can be large and dynamic, it is by this differentiation that strategic beta adds value.
Made to measure
Strategic beta does not defy analysis, despite its novelty. Indeed, it has a lasting advantage over standard active manager due diligence. Strategic beta, after all, is rules-based. What an investor sees in straightforward, well thought-out index composition rules is what the investor will get. In that sense, strategic beta is relatively immune to the personnel changes, style drift and index hugging that can challenge actively managed mutual funds.
Learn more about ETF due diligence here.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purpose. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.
Opinions and statements of market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These views described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.
J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan Exchange-Traded Funds are distributed by SEI Investments Distribution Co, One Freedom Valley Dr., Oaks, PA 19456, which is not affiliated with JPMorgan Chase & Co. or any of its affiliates.
For additional disclosure
For a longer discussion, please see our recent publication Strategic Beta’s due diligence dilemma (J.P. Morgan, April 2017).
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