When Lowe’s, the venerable home-improvement retailer, was looking to boost its top line and live its tagline of “Never Stop Improving,” it naturally looked to social media. After all, these days social media is supposed to be the Rosetta stone for business success.
And Lowe’s was right—to an extent. It did generate additional revenue—about $1 million worth of net new money—by leveraging the principles of social media. But not in the way you might think.
Most companies see social media as merely a marketing tool (and expense). But Lowe’s took a more enlightened approach by applying it inside the company to foster idea generation, sharing and vetting among employees. Lowe’s was able to take this different approach to social media—one that my firm calls “social profitability”—thanks to having launched an internal social-collaboration system. This social platform enabled a front-line employee with a unique demonstration idea for, of all things, Teflon paint trays to share it throughout the company, which resulted in generating the additional revenue.
In order for you to use the social-profitability approach to achieve the same kind of results, let’s first answer the question: what the heck is social profitability?
The difference between “social media” and “social profitability”
Most CEOs believe “social media” is a tool their marketing departments use to “engage” with customers and prospects through social platforms like Facebook, LinkedIn, Twitter and Pinterest in order to create awareness, loyalty and (hopefully) sales. As a result, most other departments in a company don’t have to worry about it because it’s marketing’s responsibility.
However, at LEVEL5 we believe that the term “social media” focuses too much on marketing and the channels used, and not enough on the goal all departments should have: profitable growth and ROI. Social media’s true business purpose is to drive revenue, EBITDA (earnings before interest taxes, depreciation and amortization), earnings per share and competitive advantage—not to tweet or post Facebook updates.
As a result, we’ve flipped the traditional idea of social media on its head. In its place, we’ve coined the term “social profitability” to describe the set of technologies, processes, capabilities, behaviours and culture that relate to a brand’s social networking but have value only insofar as they positively impact overall brand health and profitability. We use the term “social networking” instead of “social media” because it denotes a process that can be used to develop a company-wide brand-building capability; not just a medium or channel dominated by marketing. Reframing social media to social profitability broadens the scope of social networking beyond marketing to the external market; it focuses on the social processes throughout the company that can be used to drive profitable growth, not only via enhanced revenues but also through reduced costs.
So what does a social-profitability approach look like compared with a more traditional approach to social media? Where social media generally focuses on the external market exclusively, social profitability looks inside the company as well to see where social networking can drive bottom-line results. Examples include:
- Using real-time knowledge of consumer demand in shift planning to ensure the right number and type of workers are on an assembly line;
- Having IT capture social-networking conversations to incorporate feedback into future product development;
- Making the purchasing group aware in real time of the burgeoning interest in a particulate product so they can obtain better pricing for materials used to make it.
As a result, this perspective also places the responsibility for social profitability squarely on the shoulders of the CEO, the ultimate champion of a branded business’s EBITDA. It also transforms what are usually considered the “costs” of applying social networking into “investments” that deliver a tangible, financial payoff. Not only that, but this approach offers the potential to redefine information flows to result in better decision making, enable cultural shift to a more customer-centric perspective and develop new competencies that can drive competitive advantage.
Success at delivering ROI through social profitability
A growing number of companies are embracing this view, even if they don’t call it social profitability. Examples include:
- To boost customer-satisfaction levels, RBC applied the social-networking principles of social profitability by implementing a social customer-care system that was integrated with the bank’s traditional call-centre applications. This yielded an 18% rise in customer satisfaction;
- To improve its purchase cycle, Cars.com leveraged the principles of social networking as it relates to online reviews. By creating the ability for any user to post a review, positive or negative, about a car, the site gained credibility and increased engagement. Web pages that had ratings and reviews added to them had a 16% higher rate of conversion, and a 100% higher rate of traffic through to dealer sites;
- By crowdsourcing new product design, Precyse Technologies, a leader in real-time asset and supply-chain visibility solutions, saved US$250,000;
- TechSmith, which provides screen capture and recording software, has saved about US$100,000 annually in staffing costs via the company’s social CRM solution, which uses social-media services, techniques and technology to enable better engagement with its customers.
These are all examples of companies applying the principles of social profitability by using social networking throughout their organization to drive profitability. But even these examples don’t show everything you can achieve by taking this new approach.
So what else can you do to drive social profitability and get the most bang from your social-networking buck throughout your business? I’ll explore that in Part 2 of this column.
David Kincaid has been a leader of branded businesses for more than 30 years and is now managing partner and CEO of LEVEL5 Strategy Group, a Toronto-based firm dedicated to driving profitable growth for its clients through the power of their brand. LEVEL5 was on the 2010 and 2011 PROFIT 200 rankings of Canada’s Fastest-Growing Companies.
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