A Social Media Advertising Adoption Model for Reallocation of Traditional Advertising Budgets

INTRODUCTION Many firms are struggling with how to measure their return on investment (ROI) related to social media activities. Varying and sometimes conflicting views on social media ROI measurement are posited in the literature. This paper builds on the premise of the 3D Unit of Analysis Framework (Gilfoil & Jobs, 2012) which demonstrates the limited circumstances where social media projects can be evaluated in terms of traditional financial ROI. Social media as a promotional channel is more complex than traditional media, and may be more critical to a firm's success in the long run; however, strategic organizations should not evaluate social media return as an activity independent of traditional media. Instead, companies should gain competitive advantage and improve their financial ROI through a reallocation of advertising investment - a portion of monies spent on traditional media should be shifted to social media. This paper provides an overview of the literature justifying the need for this reallocation approach and proposes and adaptation to Rogers Innovation Adoption Curve to help understand the likely path of current/future ad budget reallocation rates. This idea of incorporating real-time social media elements (i.e. testimonials, videos, etc.) to gain consumers'/potential consumers' trust is especially important in foregoing the "top-down" advertising style; indeed, social media usage as a tool for consumers to be exposed to products (and to share opinions about them) is growing rapidly. "Ninety-two percent of consumers around the world say they trust earned media, such as word-of-mouth and recommendations from friends and family, above all other forms of advertising--an increase of 18 percent since 2007" (Nielsen, 2012). According to David Evans at the University of Chicago, online advertising methods enable merchants to deliver information that is targeted to those consumers who value the information the most and are most likely to act on it (Evans, 2009). The case for firms to invest in more cost effective advertising is hard to ignore. Kantar Media reports spending among the ten largest U.S. advertisers in the opening quarter of 2012 was $3.9 billion, a 5.5 percent decline compared to a year ago (Kantar, 2012). Procter & Gamble reported spending $685 million, for example, and announced plans to tighten the reins on marketing budgets and shift more money out of traditional media while reducing its total spend 4.7% (Kantar, 2012). It appears Procter & Gamble are leveraging a key differential in advertising costs between media delivery channels. The key differential is the high relative cost per mille (thousand) impressions (known as CPM) for traditional media and the low relative CPM for online media. David Evans' statement that "online advertising methods are, arguably, leading to significant reductions in transactions costs between merchants and consumers" (Evans, 2009) seems evident in Procter & Gamble's recent advertising expenditure strategy. In spite of the apparent attractiveness of investing in social media advertising, many companies are still challenged by their inability to determine the financial performance of social media activities in terms of financial return on investment. This poses challenges for many businesses that are accountable for achieving long term strategic objectives as well as short term expenditures. In an effort to support executives managing these types of businesses, we submit an alternative approach to thinking about social media investments. Such an approach emphasizes a "reallocation of investment" instead of an obsession with measuring immediate financial return on investment. We posit that this approach could even yield measurable advertising cost efficiencies in the short term by reallocating some advertising budget away from higher cost traditional media such as television, radio and print media and towards lower cost online/social media platforms. …