Whitepaper by Level 5 on social media and profitability.

1. LEVEL5 Brand Perspectives Series
Forget Social Media:
think Social
ProFitability
Discussion Paper May, 2010
Leadership
Brand
Contributing Authors:
David Kincaid
Ken Wong
Andris Pone
Kerry Munro
Ben Wise

2. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“Social Media
haS Fallen
into one oF thoSe
iMPonderableS
So oFten Side-StePPed
by the c-Suite
at itS Peril.”
Forget Social Media
We should not be surprised that the marketing department has assumed
“Referring to social media as control over social media. After all, for more than a decade, the corporate
a “media” perpetuates our world has considered and used the Internet as an important marketing
bias towards it as a marketing medium. All the while, the web was evolving from one-way brochure ware
tool.” to communities of conversations – to the point that it has now fully
outgrown its characterization as merely media in the marketing sense.
And yet, our collective understanding of the business potential created by
this evolution has not kept pace, as witnessed by the very coining of the
term “social media” to describe the coalescing of technologies, processes,
capabilities, behaviours and culture that comprise the phenomenon. It is
our tendency to use any new technology in the same way we used its
previous iteration: only later do we see ways to use the new technology
differently than before (consider how cell phones were at first a mobile
landline – and think of what mobiles have become). Referring to social
media as a “media” perpetuates our bias towards it is as a marketing tool,
as opposed to an enterprise-wide brand building capability, and that it does
belong squarely in the marketing department’s domain.
The unfortunate result of the “media” moniker, and resultant marketing
department dominance, is the marginalization of social media from the
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3. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“Social Media iS FundaMentally about ProFit,
not Marketing. We have deFined thiS oPPortunity
aS Social ProFitability.”
C-suite in general, and in particular, the CEO. Overwhelmingly, our
research concludes that CEOs believe that social media is simply a
marketing tool and marketing expense; that any relationship it may have
with profitability and competitive advantage is at best vague and perhaps
non-existent; that its connection to earnings per share and EBITDA – metrics
at the very top of the CEO’s agenda – is even further removed. They believe
that social media is ultimately not worthy as a priority for their attention,
or a matter of strategic importance to the entire organization.
Unfortunately, those CEOs are wrong.
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Think Social Profitability
Theme # “Social media is In fact, social media is all about driving revenue, EBITDA, earnings per
fundamentally about profit, share and competitive advantage – and that is why CEOs, and the
not marketing. We have C-suite as a whole, should be deeply interested in it as a strategic matter
defined this opportunity as and why they should seize control of it from the marketing department -
social profitability.” immediately.
Social media is fundamentally about profit, not marketing. We have
defined this opportunity as social profitability: the set of technologies,
processes, capabilities, behaviours and culture that relate to social
networking but have value only insofar as their positive impact on overall
brand health and corporate profitability. As you may have inferred, we
propose dispensing entirely with the term “social media” and instead
propose using the less marketing-centric “social networking” to describe
that which is the means to one end: profit.
At LEVEL5, we see the brand as a crucial business asset and ultimately, as a
business system. While great brands have always known how to scrutinize
every element of their business system through the lens of the brand, we
believe that many companies today have lost their way when it comes to
capitalizing on their brand to drive growth and create value. They have
followed the siren call of growth through acquisition, and profitability
through cost-cutting, neither of which is sustainable.
Think of your own brand as a business system and all of the functions that
includes. Of course marketing and advertising are on the list, but so are
finance, HR, procurement, production – the list goes on. If your company
has deemed a function important enough to have its own Vice-President,
then it is a significant enough part of your value chain to benefit from
social profitability. Not only does a strategy of social profitability change
the information flows within each of these departments, but in a truly
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4. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“Many SucceSSFul brandS are Making good uSe
oF Social netWorking, yet even the leaderS are
uSing it in only a FeW areaS oF the value chain.”
cross-enterprise fashion, it re-defines the flows of information and deci-
sion making between departments as well.
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Best Practices? No One Is Doing Everything Well
Theme # “Leverage existing assets Instead of taking a long-term, cross-enterprise approach driven by the
and build the value of your CEO, marketing departments are using social networking on largely a
brand by extending social tactical basis. Many successful brands are making good use of social net-
networking beyond the working, yet even the leaders are using it in only a few areas of the value
marketing plan.” chain – concentrated, of course, around marketing and sales. But what of
the missed opportunities to leverage existing assets and build the value
of your brand by extending social networking beyond the marketing plan?
To understand these missed opportunities, CEOs should be asking ques-
tions such as:
• How can social networking affect our competitive advantage?
• What is the role of social networking within our branded business
system, both internally and externally?
• What are the associated resource and capability implications?
• How are we applying social networking outside of marketing?
A Case Study
Consider the “Fiesta Movement,” a recent Ford initiative in support of
an overall drive to improve its business position by targeting Americans’
growing interest in more fuel-efficient and eco-friendly cars. To build
buzz for the spring 2010 launch of the new Ford Fiesta, the company
selected 100 individuals (from over 4,000 online entries) to receive the
new car, on the condition that they would blog about their experiences
and share their thoughts with others via social networking sites including
Twitter and YouTube. Based upon the social networking activity of these
100 people, almost 100,000 individuals expressed interest in learning
more about the Fiesta. Just as remarkable, a full 97% of them did not
own a Ford vehicle.
By most measures, this campaign was a huge success; but Ford’s use
of social networking in this case lies largely in the marketing department,
ignoring the opportunities to leverage social networking in other value
chain activities. Surely Ford did not expect to give a free car to 100 people
and end up with possibly 97,000 new customers? Had they prepared
themselves to produce those vehicles by seamlessly integrating social
networking into primary and support activities, they may have coordinated:
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5. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
• Inbound logistics – imagine the senior manager in the warehouse being
bonused on maintaining less than seven days production materials.
How would “real-time” access to customer demand help him get that
bonus?
• Operations – having the facilities’ manufacturing capacity organized to
meet the higher than expected demand for some cars, while reducing
vehicle assembly on less popular models
• Outbound logistics – delivering the Fiestas to dealers in a timely fash-
ion to maximize show room marketing and advertising investments
• Service – including real-time parts supply and staff training for repairs
on the new vehicle based on consumer needs and questions
• Procurement – connecting the purchasing group in real-time to the
burgeoning interest in the car; allowing that intelligence to affect ability
to secure superior materials pricing
• Firm infrastructure – ensuring the finance group is connected to the
real-time demand for leasing
• Human resources – using real-time knowledge of consumer demand
to affect manpower and shift planning to ensure the right number and
type of autoworkers on the assembly line
• Technology development – having IT capture social networking conver-
sations to incorporate feedback into future product development
“... by making offers and promotions In a different industry, consider the rapidly changing buying cycles in mobile
to those who follow your brand on telecommunications. Before the advent of social networking, a buying
social networks, and monitoring their cycle at Bell or Rogers might be tested only once every several years. Yet
purchase behaviour, listening to their today’s teenagers and twenty-somethings have rapidly shrunk the buying
feedback ... you now have a greater cycle by switching cell phones and smart phones more than once a year in
ability to do test and control, and get many cases.
immediate results.”
Coincident with this phenomenon, social networking allows for the
measurement of the purchase cycle in real time – by making offers and
promotions to those who follow your brand on social networks, and then
by monitoring their purchase behaviour and listening to their feedback.
Well beyond the limitations of traditional focus groups and marketing
campaigns, you now have a greater ability to do test and control, and get
immediate results. With your finger on the pulse of changes in the buying
cycle, imagine the recalibrations that can be made throughout your value
chain – production forecasting, raw materials, inventory management,
production and distribution, to name a few.
Dell is among the few brands using social networking to integrate custom-
ers within the value chain in a fashion more varied than Ford or others – yet
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6. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
they still fall short. Dell engages its customers by running more than
30 Twitter sites on a global basis – to discuss new product information,
provide customer service and sell new and used products and peripherals.
Under the auspices of its IdeaStorm initiative, Dell engages consumers in
new product development by encouraging them to submit product and
service ideas. On the Dell website, one can see that almost 14,000 ideas
have been submitted – and over 400 have been implemented.
While this is an effective use of social networking, consider just a few of
the opportunities Dell could leverage more ambitiously across, and within
the links of, the value chain:
• Inbound logistics: how do you plan the volume of inputs you require?
• Outbound logistics: how do you plan how much product to ship to dif-
ferent regions based on online sentiment for your products?
• Market research: unlike traditional methods, a greater number of the
people communicating with you through social networks are actual
customers. What are these customers telling you?
• Segmentation: how do you segment customers that are using social
networks to provide more granular information?
• Price elasticity: how do you test for price elasticity? For example, your
most loyal segment’s willingness to absorb a 20% price increase?
• Customer service: how do you assist your consumers on the social
networks that they use?
• Forecasting: how do you integrate data from social networking into
your production, inventory and sales forecasts?
• Production planning: how do you use data from social networks to
plan your production and optimize capacity utilization?
• Buying behaviour: how do you map the buying experience of your
valuable brand loyalists that use social networks? Are you treating
them differently than non-social network transactional customers?
• Finance: have you restructured profitability deciles based on the
changes made by your marketing team?
• Legal: what legal issues might arise from the way that consumers or
employees talk about your product on social networks? How are you
monitoring online conversations to spot potential legal risks?
• Labour relations: what are employees saying about your brand on so-
cial networks? How can this information be used in negotiations with
individual employees or unions?
• Human resources: Do you track employee morale and stay ahead of
labour management issues? Why did 25% of your management group
update their LinkedIn profiles in the same week?
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7. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“you May be leaving Money on the table, and
loSing to FirMS that are Starting to run Social
netWorking FroM the c-Suite.“
One Size Does Not Fit All!
If these kinds of questions are of interest or concern to you (and they
should be), there are a number of interesting solutions out there, many
of which are able to automatically pull information from both existing HR
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systems and external social networks to increase the efficiency of internal
Theme # You cannot apply a information sharing. IBM Lotus Connections, an enterprise 2.0 network,
single social networking works much in the same way as Facebook, but runs smoothly inside your
approach to achieve corporate firewall providing piece of mind to company execs. Danone, the
different corporate ends. French-based global food group has recently implemented their own vari-
ant after receiving requests from its workforce for a means of quickly and
collaboratively sharing information internally.
Bottom line, you cannot apply a single social networking approach to
achieve different corporate ends (all with the objective of driving profit, of
course). For example, social networking can develop customer intimacy,
and it can also achieve operational efficiencies – but not by the same
means. As a simple example, taking part in conversations with customers
on Twitter can provide customer intimacy, while tracking the volume of
Twitter conversations about a new product can gauge demand for produc-
tion planning and generate operational efficiencies – the same tool used in
two different means for two different results.
C-Suite Implications
CEOs: would you let your marketing intern address your AGM? From the
way most of you are allowing social networking to be used at your firm, it’s
our assumption that you would. With full respect to the marketing depart-
ment, you’re allowing them to run social networking solely as a marketing
tool. That’s akin to launching a new product and saying the most impor-
tant thing about it is the advertising campaign. Marketing’s dominance of
social networking marginalizes its importance and eliminates the pos-
sibility of weaving social profitability throughout all levels of the business
system and using it as an enabling platform for the entire company. You
are leaving money on the table, and losing to firms in your competitive set
that are starting to run social networking from the C-suite.
No one is asking you to master the technology of social networking.
Instead, we are highlighting your obligation to better understand the stra-
tegic elements of social networking and the wider digital realm, so that you
are aware of its potential in driving enterprise growth and value. It is vital
that you begin asking questions that signal your commitment to equipping
your organization to meaningfully participate in this new digital era – as
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8. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“revenue. coMPetitive advantage. ProFit. thiS iS
What’S to be gained by enacting a Strategy oF
Social ProFitability. “
well as force an enhanced level of thinking among your senior leadership
team around their digital strategies. Broadly put, first questions should
include:
As CEO, your greatest challenge may • How have departmental core competencies been affected by the
be to prioritize social profitability as advent of social networking?
a key performance indicator for the • Has competitive advantage been enhanced or eroded based on our
business – one which is discussed capabilities, or lack thereof?
as openly as governance, asset • What are the areas of opportunity to exploit social networking beyond
utilization, and business or financial the walls of marketing?
strategy. • What new measurements must be incorporated into the financial indi-
cators that drive shareholder value and create competitive advantage?
• What new behaviours are consumers exhibiting and how can this
change be leveraged by different parts of your organization, i.e. sales,
customer service, call centres, operations?
• How well is our corporate culture positioned to achieve social profit-
ability?
• What will be the next big thing? As social networking continues to
evolve, are we set up to adapt to and capitalize on changes – technol-
ogy, software, data and otherwise – to provide sustained competitive
advantage?
As CEO, your greatest challenge may be to prioritize social profitability as
a key performance indicator for the business – one which is discussed as
openly as governance, asset utilization, and business or financial strat-
egy. This requires your dedication to stay the course – or risk having the
discipline be relegated back to a single department.
Having read this far, are you ready to look at the cross-enterprise implica-
tions and opportunities of social networking, or do you still want to leave
it to the marketing department? If you are in the latter group, then you
can probably stop reading. If, on the other hand, you are ready to take the
leap toward social profitability and lead the effort from the C-Suite, there
are significant opportunities to be realized.
©LEVEL5 Incorporated 8

9. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“the PhenoMenon oF Social netWorking doeS
have a very SPeciFic Set oF conSiderationS you
MuSt be cognizant oF FroM the very beginning.“
What’s to be Gained?
Revenue. Competitive advantage. Profit. This is what’s to be gained by
enacting a strategy of social profitability.
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Theme # A small number of brand How to get started? Keep in mind that based on our research no one has
titans have done it well yet to weave social profitability into every aspect of their business system.
across a number of com- As we have seen, a small number of brand titans have done it well across
petencies. But no one has a number of competencies. But no one has taken a completely top-down
taken a completely top- view toward integrating social profitability at every touchpoint. Therein
down view toward inte- lies the big opportunity. Seize upon it by including social profitability in
grating social profitability your planning cycle.
at every touchpoint.
The phenomenon of social networking does, however, have a very specific
and unique set of considerations which you must also be cognizant of
from the very beginning:
• Understand the true implications on resources, cost and time: Many
think that creating a branded Facebook page will solve your social
networking needs without a significant time or financial investment;
if you are one of these people, think again. An investment in capturing
the data from social networking can be substantial, both in time and
resources, but is essential to truly understanding your consumers.
• Frequency and relevance: Defining the process for, and properly staff-
ing for the continual updating of external content to ensure timeliness
and relevance of information.
• Redefine the information flows: The flows of information into and
within your company will change drastically. Competitive advantage
will come from understanding this change and how to share the data
captured through social networking in a way that all departments can
utilize for better decision making.
• Cultural shift: Being socially mindful and developing a culture of look-
ing at your business from the outside in requires, in many cases, both
a change in management and organizational mindset.
• Developing new competencies: Companies must learn to listen and
engage rather than just speak. Social networking is about becoming
part of the conversation, providing thought starters and stepping back
to let your consumers express themselves.
• Adapting: Creating and growing from a digital core is an evolutionary
process. There are currently no best practises to follow, it’s up to you
and your organization to define and redefine processes that are right
and forward looking as technology and consumer behaviour continues
to evolve.
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10. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
“PleaSe don’t be Sitting here tWo yearS FroM
noW, looking at “Social Media” aS a line iteM
on your P&l. “
Moving forward, the role of the marketing department is a critical con-
sideration. Once they recover from the initial shock of hearing that the
CEO is taking over social networking, they will thank you. Because in all
probability they see the cross-enterprise potential of social networking,
but do not have the authority to make it happen on their own. Only you
do. Functionally speaking, marketing could very well continue to press
the buttons on social profitability - with the vital difference being that
it will now be with the full authority of the CEO. Adoption of your social
profitability strategy will thereby be embedded throughout the organiza-
tion, no longer being seen purely as a marketing tool but as a means of
driving profitability throughout the entire value chain.
Please don’t be sitting here two years from now, looking at “social media”
as a line item on your P&L. You’ll have made a strategic mistake. The
speed of technological change and adoption may have you concerned,
feeling you can’t “catch up” – so how possibly to get started? But if you’re
having trouble with this decision today, hold on – because with the explo-
sion of mobile applications, it’s only going to get faster.
So press the stop button – now! Forget about social media: think social
profitability.
©LEVEL5 Incorporated 10

11. May, 2010 LEVEL5 Brand Perspectives Series Forget Social Media: Think Social Profitability
We’re eager to hear your thoughts on the following:
Marketing: Does embracing social media across your enterprise diminish
marketing or are you looking at marketing as a deeper, wider player in
your enterprise?
C-Suite: So, apart form everything else, your customers now want to
socialize directly with you. Is this something new for executives or simply
reinforcing your mandate as brand role model?
HR: Where are the social mediators in your organization? In this new 24/7
relationship, how are you going to find and reward the kind of people
needed to maximize this opportunity?
Finance: More money going to the web? How will you measure perfor-
mance in this new world?
Board: Do we get in on the conversations as well? How do we set per-
formance metrics for the company’s executive based on this whole new
skill set? If we are a bit slow coming to the ‘social media’ table, what else
might we have missed that looms in the near future?
We welcome your thoughts, critical appraisal and enlightened perspective
on brand matters. Feel free to comment directly to us anytime at
LEVEL5.Leadership.Forum@LEVEL5.ca
Thank you.
18 King Street East
Mezzanine Floor
Toronto, Ontario
M5C 1C4
416-361-3468
www.LEVEL5.ca
©LEVEL5 Incorporated 11

12. noteS: