Here is an interesting article from the Washington Post describing the strategic use of cheap social media advertising by distressed businesses recovering from Hurricane Sandy. Faced with significant damages, lost revenue, and a local economy recovering from the devastation caused by Sandy, the owners of a small dessert business have embraced social media as a lifeline, allowing them to aggressively market their goods, increase their businesses reputation, and establish personal connections with consumers thereby increasing customer loyalty. Advertising through social media can be cheap, effective, and informative not only for the consumer but for the advertiser as well. Direct and measurable responses by the consumers can help advertisers understand consumer preferences and how to appeal to them.
As the most recent industrial revolution, the information age, continues to progress, consumers are beginning to spend more and more time on social media websites: Twitter, Facebook, Myspace; businesses have taken note. To advertise effectively it is imperative to place ads where the consumer goes. Consequently we have seen a rapid and growing increase in social media marketing and advertising. Economically, how will this benefit consumers? Will it lower the cost of goods or increase the cost of goods? How will this affect the business models of firms and the costs they dedicate towards advertising? Will social media advertising be more persuasive or informative?
It is important not only to consider things from the business side. With these websites being social in nature, discourse between consumers and producers is inevitable. Customers will have a direct response to a producers advertisements and goods. Moreover, these responses are public and available for other consumers to see. This increased communication between consumers could result in increased elasticity of the demand curve for firms. Alternatively, social pressures could increase perceived quality differentiation between products thereby decrease the elasticity of the demand curve for firms resulting in higher prices for consumers.
5 Comments
I agree in regard to discourse between consumers and producers. In looking at the facebook pages of various companies, it is evident that their comments section becomes a platform for often very heated debates. Comments also allow users to review certain products and services, so it seems social media is generally informative. This should hopefully make consumers more cognizant of producers’ business models and pricing structures, and lower prices. Obviously companies are going to try to use social media for persuasion and are often successful (ie Old Spice commercials on YouTube with millions of views and positive ratings), but free information is free information, and in almost all instances it seems that consumers benefit from having social media to interact with people across the globe who’ve had various experiences with a certain product or service.
Not only are consumers becoming more knowledgeable of goods and services through interactions with other people on social media (e.g. product reviews and discussion boards), but they are becoming more informed through the ads themselves. Some researchers even predict that ad revenues will double by 2016 (seen here: http://mashable.com/2012/11/26/social-media-ad-revenues-double/), which is a good sign for producers and social media websites. Do you think posting these ads on social media provides enough reliability for consumers to listen, or are there some other factors that are influencing this spike in ad revenue?
I wonder if their is a limit to the amount of advertising possible on a social media site. While facebook and twitter hold tremendous amounts of market share, one bad move and a rival will be there to take their business. Facebook was born from a similar situation when everyone got fed up with their site. MySpace had many flaws but Facebook’s main appeal was its simple layout and easy readability. If the advertising begins to annoy the users too much, sites such as google plus are ready to offer a similar product with less advertising. It seems that a main reason for the dominance of google as a search engine is their minimal advertising.
An interesting discussion on NPR of optimization (maybe Nightly Business Report? — I’ll try to find the source), as seen in the Obama fundraising campaign: lots of empirical research on what sorts of ads catch attention, and when too many are being shown. The internet allows multiple experiments at any given time — apparently Facebook (a BusinessWeek cover story) is running over 1,000 such “A vs B” tests at any given time.
One implication is that Facebook is therefore more flexible, they are unlikely to implement something suddenly across their entire site that changes the number of ads for everyone. But it does also suggest some limit on revenue, as they move towards fewer, more targeted ads.
Social media can be effective as an advertising venue, but I wonder how much of this effect is due to targeted internet advertisements that use browsing history direct advertising.
Comments are closed.