• Skittles got burned pretty badly by turning their homepage over to pre-adolescent and adolescent visitors. The inane and obscene tweets flooded their site.  It was so bad Skittles had to install an age filter, which pretty much ruined the value of a site for a product whose target audience is under 18.
  
  
• Dominos is still suffering the consequences of the gross video two now-former employees posted on YouTube. Of course the corporation responded online, but their head honcho's earnest assurance that the store in question had been sanitized from top to bottom got about 20,000 hits. The guy stuffing cheese up his nose and then putting it into customers' sandwiches got more than a million.
  
  
• Chevy posted video, music and basic editing software on a microsite and invited visitors to create their own commercials for the Tahoe SUV. The results included a bevy of spots about greenhouse gases, the psychosexual connotations of enormous vehicles and the near-criminal irresponsibility of the companies that manufacture – and the people who drive – behemoth SUVs. And, of course, those diatribes migrated from the microsite to YouTube, Flickr and other user-generated-content sites.

Those negative exceptions notwithstanding, not having a presence on social media is marketing lunacy. Audiences are migrating to the sites; there is no media cost; and feedback opportunities provide incredibly valuable, real-time insights into consumers' attitudes toward a brand.

But it doesn't make sense to buy paid advertising on social media. Because social media advertising simply does not produce a positive return on investment.

The folks involved don't seem to know what ROI is.

This was demonstrated with stunning clarity by a recent article in Advertising Age quoting a study based on research from ComScore, MySpace and Dunnhumby. (Dunnhumby manages supermarket loyalty programs. Their database includes check-out scanner information on 59 million supermarket customers.)

The study purports to show that one social media campaign generated a 28% ROI. Here's why that assertion is ridiculous:

• A personal-care products company ran a $1 million campaign for one of their brands on MySpace. The campaign generated $1.28 million in retail sales for the brand. And the social media mavens called that a 28% ROI.
  
  
• But the personal care products company didn't get that $1.28 million. The retail outlets did. Since a typical retail gross margin on consumer personal care products is about 25%, the manufacturer only got 75% of the $1.28 million, or $960,000. So far, that's a loss of $40,000.
  
  
• Most personal care products companies are delighted if they can earn a net profit of 10%. Which means 90% of that $960,000 gross revenue – or $864,000 – went for materials, capital equipment, R&D, shipping and the CEO's salary.
  
  
• So the personal care products company spent $1 million on media and $864,000 to actually manufacture or acquire the product and put on the shelf. A total $1,864,000 expenditure. The total income from the retailers was $960,000. That's a loss of $904,000.
  
  
• The ROI on that $1 million advertising investment was a negative 90.4%, not a positive 28%.

When aspiring titans of commerce enter B-school, the second thing they're told (right after where to send the tuition check) is that ROI is the profit generated by an investment. Not the revenue. If the folks at ComScore and MySpace don't understand that, it's going to be long, long time before buying paid advertising on social media makes sense.

But, as we said at the beginning, having a free presence there is a great idea. BrainPosse can help. To find out how, click here or give us a call at 865-330-0033. Before you do, you might want to check out our Facebook page.

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