Companies are becoming increasingly skilled at using online data to guide their mar­keting efforts, but online metrics can prove exceptionally important for private equity funds in the due diligence process as well.

Examining a brand’s digital footprint is a valuable way to evaluate it above and beyond traditional consumer-based research. A dig­ital diligence captures consumers in a more organic environment than consumer surveys, one-on-one interviews or focus groups. Plus, analysis of online data can lend insight into changes in consumer sentiment and intent over an extended period of time, whereas surveys represent a snapshot of a moment in time. Finally, a digital diligence can help uncover potential brand issues and consumer concerns that may not be on a private equity firm’s radar.

But for all its benefits, assessing a brand’s digital footprint can also be challenging. First, there is the sheer number of metrics available—deciding which are important can be daunting. And beyond that, decoding the link between any given metric and overall brand health can be difficult.

To solve that, we recommend evaluating a brand’s reach and strength across social media, search and its website. Each of these three online spaces provides a different per­spective on consumer interest and sentiment. Social media is consumers’ own space for talking peer to peer, while search is a shared space and the website belongs to the brand. Taken together, they can constitute a holistic picture of brand power.

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Social media. Social media can provide a treasure trove of key insights about consumer sentiment in an organic environment. But it is also one of the most difficult digital elements to judge, as there is a massive amount of consumer chatter spread across a wide array of sites, from Twitter and Facebook to Tumblr and Pinterest. However, social media has proven to be an accurate leading indicator of a brand’s sales. For example, consider JC Penney. Many customers complained about the department store’s new pricing structure on Facebook and Twitter before the company’s performance took a serious hit.

To measure reach, start with a basic analysis of the number of fans or followers a compa­ny has. But beyond that, we have found that measuring fan engagement—creating compel­ling, emotionally engaging content that drives likes, comments and retweets—is a better indicator of a strong social media platform. To that end, measure the number of Facebook interactions per fan and Twitter mentions per follower relative to a brand’s competitors.

Measuring strength should start with a look at how the brand is perceived on social media via an analysis of the most often used words and phrases, which provides a picture of consum­ers’ perceptions of brand equity. Next, look at sentiment and whether a particular brand has more positive versus negative social media mentions now as well as sentiment momentum over time. For example, Forever 21 has a very high ratio of positive to negative social media mentions and has been able to sustain this solid performance over time. (See Exhibit 1.) Also examine which themes are driving the negative sentiment to identify potential strategic issues and brand concerns.

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Search. Search is an important online space to analyze because it can provide key insights on how consumers think of a brand relative to its competitors in key product categories. To understand reach, analyze search volume relative to competitors, plus the number of searches for a given brand over time, as illustrated in Exhibit 2. To measure strength, one of the most important metrics is organic search. A brand with a low percentage of its searches from organic search versus paid like­ly means it has low top-of-mind awareness. Key search terms can also reveal how a partic­ular brand fares in certain product categories. For example, the most popular search terms for Forever 21 include “sale,” “bargain” and “fashion,” which is consistent with its reputa­tion as a low-cost, trendy retailer.

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Website. A website is a company’s only truly “owned” space online and is an invaluable tool for bringing the brand to life. To understand reach, measure how a site’s unique traffic compares with its competitors’ in terms of current volume and change over time. (See Exhibit 3.) Assessing strength involves looking at repeat traffic to measure loyalty, consumer engagement (in terms of page views and time on the site) and online cross-shopping overlap.

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Translating the Data into Actionable Insights

To get a complete view of digital brand power, analyze reach and strength metrics across all three spaces—social media, search and a brand’s website. Then, index key reach and strength metrics to a brand’s competitive set.

This provides a full picture of the brand’s pow­er relative to its competitors’, as illustrated in Exhibit 4, and can help reveal brand momen­tum and drivers of negative sentiment. Taken together, these metrics arm private equity sponsors with a holistic digital perspective of a diligence target that complements offline analysis.

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So although determining a brand’s digital power may seem murky, it’s actually quite measurable in a due diligence and is well worth taking a closer look.

These online metrics not only paint an accurate picture of a brand’s health and momentum, they also have omnichannel implications. As retailers are increasingly tasked with providing compelling, hol-istic experiences across channels, just as important as measuring online brand strength itself is determining how that strength links to and supports the com­pany’s omnichannel brand by enabling cross-channel customer experience, pricing, merchandising and marketing.

E-Commerce Best Practices

E-commerce capabilities are an incredibly im­portant aspect of a brand’s growth potential, especially as online sales increase (Forrester Research predicts they will swell 62% by 2016). Evaluate these eight key attributes to deter­mine whether a brand has the opportunity to disproportionately grow its e-commerce sales by leveraging best practices.

1. Website navigation. The best sites have clear website navigation, plus constant search and cart visibility.

2. Product descriptions. Look for sites that include in-depth descriptions of product features plus customer reviews.

3. Usage inspiration. Leading sites feature content about how to use the product, such as how-to videos, expert commentary, or even lists of everything needed for one par­ticular project or look.

4. Transaction optimization. Suggesting related items, matching looks or other products necessary to finish a common project can in­crease the likelihood of purchasing multiple items by 36%.

5. Customer loyalty. Look for sites that rec­ognize customers when they return and let them stay logged into their account for easy access to past orders and quick ordering. The best sites also offer a loyalty rewards program that integrates across channels.

6. Mobile. Leading retailers have both a dedi­cated mobile site and a mobile app. Loca­tion-based functionality allows retailers to push personalized offers to customers near a store and can also generate maps that help customers navigate through stores.

7. Social media. Best-in-class sites include social media apps that allow consumers to share potential—or recent—purchases with their social media networks, generating additional traffic and buzz for the brand.

8. Shipping. When assessing shipping, be sure to analyze charges and speeds—and their restrictions and limitations—relative to the competitive set. And measure the effec­tiveness of a company’s customer support, including online assistance, live chat capabil­ities and customer support center effective­ness (call abandonment rate, average hold time and average email response time).

8 March 2013