A long long time ago, ie before the birth of Twitter, Facebook and the species known as social media, running a business was, in essence, quite a simple affair. You made stuff, you sold stuff and, hopefully, in the bargain you made some money. But that isn't really how it works anymore. In this brave new age of poking and tweeting, companies don't quite have to sing for their supper but, like every spotty teenager with a mobile phone, they do have to make new digital 'friends' all the time. It would help, of course, if sooner or later these friends also became customers. But, as many companies are discovering, online flirting with customers doesn't always have a happy ending.
One of the big corporations that has been quick to wake up and smell the coffee is - you guessed it – Starbucks. It recently launched something called My Starbucks Idea as a means of 'crowdsourcing' ideas for new products. Here's how it works: customers post ideas that Starbucks can – if it chooses - turn into new products; these ideas are then voted on by other customers, and so on. Starbucks then evaluates- and possibly adopts- the most popular ideas. But the world's biggest café chain is not alone in recognising the power of social media as a marketing and innovation tool. In fact, according to a recent study, 84% of the 100 largest companies in the Fortune Global 500 Index are plugging into social media networks to get to know their customers better.
In an interactive universe, consumers have made it clear that they will not be passive recipients of slick marketing material. They have a soapbox now and they will most certainly use it to be heard. And so a number of companies such as PepsiCo and IBM have made inroads into social media with yet another objective in mind: to start a dialogue with their customers on more thorny issues such as sustainability. Of course, if they get it right, it does their credentials as responsible corporate citizens no harm either.
Then there is the bandwagon of start ups whose entire business model is rooted in social media. Airbnb is an online service which matches people seeking vacation rentals with those with rooms to rent. It aims to profit from a trend that Rachel Botsman and Roo Rogers, authors of What’s mine is yours, call “collaborative consumption,” which feeds off the notion that people are increasingly interested in paying for temporary or limited access to goods and services, rather than purchasing them outright. According to a survey conducted by the Economist Intelligence Unit on behalf of Sony in October 2011, more than half of 18-25 year olds think technology will be the single most important driver of change in the way people consume goods and services,.
The illusion of control
But companies should beware of the pitfalls of social media. It has changed the way they deal with customer service and given customers more power than they’ve ever had. “The rise of social media has shattered the illusion of control and, for many, lessened its desirability”, says Thor Muller, cofounder of Get Satisfaction, a network of online customer platforms, in an interview with Forbes magazine. One bad customer experience, and a company’s reputation can become mud, thanks to Facebook and Twitter. “United Breaks Guitars” became a YouTube sensation a couple of years ago, when a frustrated customer chronicled his doomed year-long attempt to win compensation from United Airlines, who had damaged his guitar. According to another survey conducted by the Economist Intelligence Unit in June last year, only one in four business executives think social media has improved customer relations.
Whether a company wins friends and influences people on social media will depend a lot on what it actually does in the real world. Around the world, elders can always be found counselling the young that they cannot choose their family but they must choose their friends well. When it comes to social media, perhaps companies should live by those words of wisdom, too.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
