Does business use of social media do more harm than good?

Social media blocks

You cannot move for advice on using social media. Almost everywhere you look these days someone (probably me) is sharing information about the power of social media, particularly for businesses – such as the Top 10 Social Media Tools.

You can find case histories of companies that have achieved huge sales following a social media campaign. You can download guides on how to use one network or another to generate sales leads. Plus you can join any number of webinars all geared to demonstrating how to use each social network to improve your business.

But it turns out that we are all wrong.

New research from Temple University, Philadelphia, shows that while social media can improve business in the short-term, in the long-term it actually harms sales.

The study is not yet published and is currently being peer reviewed. But if it stands up to scrutiny it could set alarm bells ringing in businesses across the world.

Here’s what the researchers discovered. They found that when a company posts something on social media that leads to a sale, there is an immediate 5% increase in sales through followers on a social network. However, after a while, it appears those followers get fed-up with the social activity of the business and stop following them. This can take many months to occur. What the research revealed was that five months after a social media post that leads to sales, there is a 20% reduction in followers. The situation was also worse in cities – it appears that geography has some kind of impact too.

Go back to basics

One of the oldest adages in business is “you make more money from existing customers than from new ones”. It costs you more money to generate a new customer than to encourage an existing customer to buy something else. The 80-20 rule shows that businesses make 80% of their profits from 20% of their clients. Centuries of business experience shows that concentrating on existing customers and selling more to them is the most profitable thing a company can do.

The world of online social media, though, is changing the way businesses think. It is driving them to find new customers all the time. There is a constant demand for “more followers”, or “higher numbers of likes”, or “more traffic”. The only way a company can achieve this is to ignore the existing customers and seek new ones.

It appears that this does work – in the short term. Those new followers on social networks see an offer from the company and then are attracted to buy the item or service, leading to a 5% uplift in sales. However, after a number of months, these new customers become disillusioned with a never-ending stream of information from a company that they have little real connection with. Hence, they unsubscribe.

Companies, of course, are unaware of what is going on. That’s because five months down the line when 20% of people have unsubscribed, the firm has spent considerable efforts in attracting new followers and seen regular 5% increases in sales for each new batch of fans.

Dealing with the illusion of sales

What is happening is an illusion, it seems. Social media is definitely leading to sales – but these are short-term boosts from customers who do not stick around. That means a company’s costs increase as it has to find more and more people to follow them and buy from them. That constant generation of new sales leads costs money and impacts upon profitability.

So what can you do about it? The answer is staring us in the face. Forget the wording “social media” and concentrate on just the first word “social”. Far too many firms appear to be concentrating on the use of “media” or content to drive interest and attract new people. They can see that works as they do get new followers and they do get a short term increase in sales. So it appears to work.

But if you focus on the word “social”, it means you can use social networks to deepen and strengthen relationships with existing clients. That means they become more likely to buy more things from you. And as the saying goes, it is more profitable to get an existing customer to buy more things from you than to find a new client.

Social media appears to be removing the focus of businesses from being “social” with their top customers and making them more interested in the use of “media” to get new clients. The whole arena of “I’ve got more followers than the competition” is pushing businesses in the least profitable direction.

This new research might not be accepted for publication. Yet the findings signal the need for clearer thought by businesses. Is chasing numbers of followers and gaining in the short term better than pursuing deeper relationships and winning in the long term? You decide.

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