This blog post provides a review of how the fast rise of social media changes various elements of business: Marketing, Strategy, R&D/Innovation, Sales, and New Business Expansion.
The Fast Rise of Social Media
In the UK, the COVID-19 pandemic has accelerated the great shift to online shopping. COVID 19 has forced consumers to change the way they prefer to shop (Sharma and Jhamb, 2020). As a result, there is an increased shift in consumer buying behavior from traditional shopping to online shopping (Reddy, 2020). Many UK B2C companies are now interested in engaging customers online via social media and investing in the social media strategy. Google Trend data showed a roughly 700% increase of interest in the topic of “Social Media Strategy” (Google, 2021). A recent research of mine in 2019 suggested that 87% of UK adults regularly use social media.
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But how does the fast rise of social media affect business? Several academic researches have explored this topic. I summarized the result below.
Implications of Social Media on Marketing
Marketing was used to view customers as passive receivers, and companies are the sole creator of marketing content (Quach et al., 2020). Yet as the Internet and social media spread, customers have redefined their interactions with companies by actively seeking information and engaging only with content that suits them (Šeric, Gil-Saura and Ozretić-Došen, 2015; Valos et al., 2016).
In addition, on social media, customers are sense-making messages from both company-generated and user-generated content (Finne and Grönroos, 2017). When social media is poorly managed, it can evoke strong adverse reactions, such as negative word of mouth or boycotts (Gebauer, Füller and Pezzei, 2013; Tóth et al., 2018).
As a result, in this social media era, it becomes more critical for companies to understand their customers – so that they can improve their marketing communications and better engage their customers (Day, 2011; Luxton, Reid and Mavondo, 2015; Bruhn and Schnebelen, 2017).
This is why companies need to shift their marketing approach from “telling and selling” to “listening and learning” (Bruhn and Schnebelen, 2017). Recent research also revealed that customer-oriented marketing could be central to determining company performance (Luxton, Reid and Mavondo, 2015; van Dieijen et al., 2020). Companies that cannot build customer-oriented marketing capabilities risk going out of business (Vaturi and Varianini, 2000).
Implications of Social Media on Strategy
Traditional Strategy literature emphasizes the importance of understanding the company’s competitive position in the market and its ability to use its resources to create competitive advantages (Hovell, 1979; Wernerfelt, 1984; Grösnhaug and Falkenberg, 1989; Barney, 1991). While some research recognized that objective assessments of customers’ needs, demands, and perceptions are the first step in strategy (Day, 1994; Jüttner and Wehrli, 1994), customer understanding was not the main emphasis of the traditional strategy (Quach et al., 2020).
The rise of social media has changed this view. Social media enables companies to engage customers better and opens up the opportunity to serve them better.
At the same time, customers’ social media usage has made obtaining and processing market information much easier, so companies started to gather insights into the customers (Blesa and Ripolles, 2008; Kleindorfer, Wind and Gunther, 2009), and strategy scholars began to provide critical theoretical and managerial insights into the importance of customer-understanding (Day and Moorman, 2010; Gulati, 2010; Day, 2011; Grönroos, 2011).
Recent strategy literature has started to place a stronger emphasis on customer understanding. It is now widely acknowledged that companies that understand their customers exhibit a more substantial competitive advantage (Celuch, Kasouf and Peruvemba, 2002).
A deeper understanding of the customers enables companies to update their capabilities and flex their resource allocations and management, which promotes competitive advantages (Mu et al., 2018). Researchers found that effective strategy requires customer-oriented value propositions, understanding customer requirements, and developing long-term customer relationships (Fahy and Hooley, 2002); and winning companies deliver superior value by understanding customer needs and coordinating internal activities to meet these needs (Hooley et al., 1999; Celuch, Kasouf and Peruvemba, 2002).
In addition, companies that can develop strong relationships with customers have significantly better performance (Reijonen and Komppula, 2010; Lee et al., 2015; Yang, Jiang and Xie, 2019). The value of social media is more pronounced in dynamic market conditions. It helps companies proactively respond and seize market opportunities (Srinivasan, Rangaswamy and Lilien, 2005).
Furthermore, a customer-oriented strategy is crucial for the success of new business ventures (La Rocca, Ford and Snehota, 2013), even though new ventures often lack the skills and resources to understand the customers.
Implication of Social Media on R&D/Innovation
Social media offers an effective platform for gathering insights from customers and partners, e.g., market trends, feedback on offerings, competitive performance, and ideas for new features and new products (Kiron, 2012). Recent innovation research indicated that customer understanding strongly determines company innovativeness and new product development performance (Saeed et al., 2015).
Understanding the customers allows companies to respond quickly to market changes, innovate to meet the needs of their target audiences, and enjoy long-term growth (Di Benedetto and Song, 2003; Day, 2011). It is especially vital in turbulent markets with rapid changes in customer preferences, buyer entries/exits, and emerging needs and wants (Hult, Hurley and Knight, 2004; De Luca and Atuahene-Gima, 2007).
Social media is also becoming more crucial as successful new product development begins with recognizing an opportunity outside the organization, in which customers represent critical sources of information (Mohr and Sarin, 2009; Berghman, Matthyssens and Vandenbempt, 2012). With social media, companies can obtain market intelligence, accurately predict market movements, exploit their resources better, explore more innovation opportunities, and ultimately improve their performance (Li and Cavusgil, 1999; Ferreras-Méndez et al., 2015; Martín-de Castro, 2015; Mu, 2015).
Social media also allows successful innovators to engage customers throughout the design and development processes (Perks, 2000; Kyriakopoulos and Moorman, 2004; Mohr and Sarin, 2009). These customers can be sources of latent needs, request particular innovations, co-develop concepts, and provide ongoing feedback (Coviello and Joseph, 2012; Djelassi and Decoopman, 2013).
Implications of Social Media on Sales
It has long been recognized that sales performance tends to be more prominent when the offerings are clearly stipulated, and when the target customers and their needs are thoroughly understood (Quach et al., 2020). By understanding the customer, companies can communicate an offer to customers and help them choose the most suitable option (Gilliam and Flaherty, 2015).
Furthermore, in the early stages of a product’s life cycle, sales also encourage new solutions to buyers’ problems, which may require adaptations to the offering, according to customer needs (Terho et al., 2015).
Social media is helpful for sales because practical sales activities require interacting with customers, stepping into customers’ shoes, identifying their issues, and modifying the offering (La Rocca et al., 2016). Such a sales approach can enhance the effectiveness of solutions for users (Haas, Snehota and Corsaro, 2012).
Similarly, understanding the customer is an essential sales capability (Davis and Mentzer, 2007; Cron et al., 2014; Mariadoss et al., 2014; Bachrach, Mullins and Rapp, 2017) because understanding the customer also increases companies’ sales forecasting capabilities and improves sales performance (Hughes, Le Bon and Malshe, 2012; Quach et al., 2020).
Implications of Social Media on New Business Expansion
New business expansion (either via a new product, new sector, new geography, or new industry) represents complex activities that require transformations of existing capabilities into new capabilities. Thus, understanding the customers is essential before a company decides on a new area for expansion.
Social media makes it easier for companies to understand the new areas for expansion by providing vehicles for interacting with customers and identifying insights. As a result, companies can develop better ideas and faster solutions and thereby gain competitive advantages (Cavusgil and Cavusgil, 2012).
By understanding the new potential customers, companies can acquire information about the new markets and determine suitable strategies (Morgan, Katsikeas and Vorhies, 2012). A company that systematically senses unique needs and explores new possibilities is more likely to succeed (Moini, 1995).
In addition, a company with a more robust understanding of customers is better positioned to choose appropriate entry modes, which affects the performance of its new business (Ripollés and Blesa, 2012).
Finally, customer understanding facilitates product development and adaptation and supports the creation of targeted solutions in new business areas (Blesa and Ripolles, 2008; Kayabasi and Mtetwa, 2016).
Summary
As a sum, we can conclude that: (1) understanding the customers is very important for business; (2) social media has provided companies with more opportunities to understand the customers; and therefore, (3) companies can benefit a lot from adopting the social media.
However, on the same time, the basics of business remain the same: 1. Commit to your strategy; 2. Make your target customers happy; and 3. Ensure a healthy cash flow (see The Holy Trinity of Business).
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