U.S. automakers and other advertisers are spending more to develop free Facebook content than they are paying Facebook for online ads, underscoring the challenges facing the social network, whose stock price plunged about 11 percent to $34.03 Monday on just the second day of trading.
Consumers' reluctance to click on Facebook ads was not a secret -- but General Motors instigated a conversation about the effectiveness of digital marketing when it announced last week that it would cut its $10-million Facebook advertising budget.
GM -- which says it devotes 25 percent to 30 percent of its $1.8-billion advertising budget on digital, social media and Web marketing -- emphasized that it would maintain its brand pages on Facebook, which are free.
"GM can walk away from Facebook advertising and still dump money into Facebook content," said Charlie Wollborg, founding partner of marketing firm Curve Detroit.
Some companies are hesitant to advertise on Facebook because some users don't like encountering ads on their personal turf.
"If we are acting too much like a marketer, nobody is going to want to listen to us," said Mary Henige, GM's social media director. "What we're trying to do on the GM page is build a community."
Facebook had 845 million users as of Dec. 31, 2011. About 16.6 percent of those users have either clicked on a Facebook ad or showed an interest in purchasing a product, according to research firm Kantar Media Compete. That was less than the percentage for search engines like Google and Yahoo.
"Yes, they are delivering a lot of traffic to the advertiser's site ... but often not at a rate that exceeds that of a portal or a search engine," said Jin Han, an analyst for Kantar Media Compete.
Ford is continuing to buy Facebook advertising, saying that it has settled on an effective strategy of pairing paid advertising with content it posts for free.
Chrysler marketing executives regard Facebook as an effective way to generate buzz and interest among "brand loyalists."
"Our digital media mix keeps increasing year after year," said Susan Thomson, Chrysler's director of social media. "You can't pay for word-of-mouth advertising -- you can't put a price tag on that."
In other sectors, Facebook advertising is a key marketing asset. Ann Arbor Township-based Domino's Pizza, for example, recently got 542,000 consumers to participate in a promotion called Global Domino's Day.
"You can definitely argue that Facebook advertising played a role in driving the success of that program," said Dennis Maloney, vice president of multimedia marketing for Domino's.
But convincing someone to buy a pizza is a lot easier than convincing someone to buy a car. Ford social media leader Scott Monty said the automaker has identified 18 online pressure points that influence a prospective car buyer. Facebook is just one of them.
Still, Chrysler is using its Facebook brand pages to generate interest and to drive sales. With the Fiat 500, Chrysler offered the first 500,000 fans who liked the page $500 toward the purchase of a new car and is giving away 10 Fiat 500s to all of the fans who sign up before May 31.
Developing, maintaining and monitoring Facebook costs money even for companies not paying Facebook a dime. GM has about 17 workers at a Saginaw customer service center responding to online questions, including problems communicated through Facebook.
"You can say there are free pages, but I like to say nothing is free if you do it right," Henige said.
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