Facebook, Twitter, YouTube: To some executives, these and other user-generated-content sites resemble little more than social networking soufflés—fluffy, youth-focused concoctions with more empty calories than real content. Known collectively as social media, you may not associate it with sweeping business change.
Think again.

Social media is a genuine game changer for business. Companies that invested early to harness the power of social media claim returns as high as 20 to 1, with even greater gains predicted to be on the way. Meanwhile, those on the wrong side of this customer-driven uprising have already learned the hard way how quickly brands and reputations can be built—or destroyed—by this phenomenon.
Many companies have recognized the potential of social media as a new communications channel. But the reality is that its impact will be felt along the entire length of the value chain. Companies will be forced to reexamine outdated business practices and create opportunities to leverage these new capabilities in powerful ways.

The repercussions will be felt throughout the organization.

Marketing

The business function most commonly charged with engaging customers through social media has been the marketing department. However, the growing prevalence of online communities that allow consumers to exchange information about products or services, and to compare prices among competitors, has also meant that marketers have lost control over how and where their products are presented to potential customers.
Some of the more sophisticated online retailers have used this trend to their advantage, employing recommendation algorithms, user reviews and unique customer-generated content to build trust and increase a consumer’s propensity to purchase. A variety of online players, including Amazon.com, Netflix and Internet radio site Pandora, are recognized for having state-of-the-art recommendation systems that effectively match customers with the products, movies and music they love.
Social networking also provides an effective channel for introducing new products and services to customers while gathering real-time feedback. Ford Motor Co. broke with tradition by launching its 2011 Explorer crossover vehicle on Facebook, achieving higher levels of customer interest than an ultra-expensive Super Bowl commercial (which ran to nearly $3 million for a 30-second spot in 2010) for significantly less money.

Even minor brands can benefit from viral marketing campaigns that capitalize on user willingness to pass on relevant or entertaining content. One example from Europe: Tipp-Ex, a brand of correction fluid. In “A hunter shoots a bear,” the company’s interactive “tippexperience” video, the hunter in the clip applies Tipp-Ex to the word shoots in the title and then asks viewers to type in a happier alternative, such as hugs or dances with. Each change generates a different ending to the video, giving it an appeal that resulted in more than 10 million hits in the first six weeks after being posted on YouTube.

Other campaigns take advantage of the immediacy of social media to create a sense of urgency regarding limited-time offers. Airlines including JetBlue and United have begun using Twitter to promote fixed availability or last-minute flight deals—tasks ideally suited to the dynamic environment of social media. Online store and community Woot, which focuses on selling “cool stuff cheap,” has built a strong following on the basis of selling one and only one item per day at a discount.

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