How social media changes the playing field

Professor Bin Gu knew that social media would change business and society 20 years ago – 10 years before most businesses caught on. He began studying the technology and its impacts in 1996 when Amazon decided to allow customers to post product reviews and comments online. His work continues to probe the implications.

More than 90 percent of marketers consider social media important to their businesses, and 84 percent of them integrate it into their marketing communications plans, according to Social Media Examiner’s 2015 report on the social media marketing industry. Bin Gu, an information systems expert who recently earned full professor status at the W. P. Carey School of Business, knew some 20 years ago that social media would transform the ways businesses interact with customers.

He began studying the technology and its impacts when it was still in its infancy — Amazon’s 1996 decision to allow any customer to post product reviews and comments online. “That transformed the retail industry,” Gu says. He points to the information gap that used to be so much more prevalent between consumers and the companies from which they get their goods. In the past, the consumer got information mainly from company advertisements, from family or friends or by looking at the product itself.

Once everyone could post reviews to a platform like Amazon’s, the piecemeal, one-to-one conversations that used to inform buying decisions became broadcasts that anyone could tune into. “Firms no longer have all the control,” Gu says. “They control the product, the pricing, the design and packaging, but what consumers say about the product is out of their control.” It is this vociferous and sometimes vigilante consumerism that Gu began examining 20 years ago and still explores today. His scholarship proves that social media is a revolutionary force for retail as well as many other facets of modern life. And, although the revolution is behind us, the voices of the people remain strong, and the power of the people continues to grow.

Making the most of posts

According to Gu, it took a decade — just one year longer than we’ve had Facebook — for companies to realize how powerful social media is. “Companies are beginning to realize that while traditional marketing is still important, social media is becoming a main source of information for consumers,” he says. “It’s important for companies to pay attention to new forms of social media and networks.” In fact, he says social media can level the playing field for small firms, giving them the potential to match the marketing power of larger competitors. “For large companies, it’s just the opposite,” he adds. “Regardless of how big your marketing dollar is, now social media is another force, and you cannot ignore it.” You also can’t delay your response. “A lot of companies have suffered from social media setbacks because you have to react very quickly,” he explains.

This is a problem with extremely large firms that often ignore social media attacks, then run potential responses through a complex chain of approval loops that take considerable time. “If a company doesn’t respond quickly to a social media disaster, they may lose the opportunity to respond at all.” United Airlines Inc. is a classic example of a company that learned this lesson the hard way. Remember musician Dave Carroll, who saw his guitar get tossed around on the tarmac by baggage handlers and then found the instrument broken when he got off the plane? His YouTube music video titled “United Breaks Guitars” has garnered nearly 16 million views, 84,000 thumbs-up and more than 21,000 comments, the last of which occurred in July of 2015 — even though the original video was posted in 2009. That video launched a new revenue generator for Carroll, who now has a “United Breaks Guitars” website and accepts corporate speaking engagements. But, CBS News was quick to point out that when Carroll released a second song and reporter Brett Snyder tweeted about it, Snyder quickly received an email from a United spokesperson explaining their fix-it approaches to Carroll’s problems.

Just as responding to social media jabs is important, so is allowing the consumer to have his or her say. Gu points to the mistaken attempt to control reviews made by a New York hotel called the Union Street Guest House. The hotelier warned customers, “If you have booked the inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH, there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any Internet site by anyone in your party and/or attending your wedding or event.” Within days of hitting social media, this attempt at blocking online beefs wound up being covered by major news outlets, including CNN. Hundreds of people posted negative reviews on sites such as TripAdvisor and Yelp.

Ubiquitous influence

Despite the perils of social media, it also holds tremendous potential for organizations, businesses and more. For instance, Gu thinks social media is opening up a health care market in China, where he is studying a new platform called “Good Doctor.” The venue allows patients to consult with doctors over the phone for a small fee. “There is an element of social media here,” Gu says. “You see other patients’ comments about this doctor and you also know the doctor’s specialty through the comments and doctor’s replies.” Although patients and doctors will eventually meet face to face, such platforms help match patients with the specialist they need.

It may also change health care delivery in China, Gu says. Today, most physicians are tied to hospitals, but through these online platforms, they can charge independent fees and, perhaps, open private clinics. “This allows for a real market in health care,” he maintains, and he’s examining the impacts. In 10 years, perhaps, he thinks such forces could skim the best docs away from the nation’s hospital systems. Gu also recently has been studying the implications of social networks in lending. Some consumers, he says, disclose a lot of information about themselves when applying for credit on peer-to-peer credit sites, including their social media handles for social networks like Twitter and Facebook. According to Gu’s preliminary findings in a study underway, such sharing is “a strong signal that this borrower is less likely to default” on the loan, he says. Gu explains that once people know your Twitter and Facebook IDs, they can find you and comment about a default publicly via your social network. “Borrowers don’t want this to happen. It’s very difficult to recreate a new social network,” he adds.

For those investing on other sites, Gu says other factors about borrowers come into play as well, including where the borrower works. “But, social media is the most important factor predicting default,” he says. “I calculated that borrowers who reveal social media handles are, on average, 42 percent less likely to default than other borrowers.” Among other topics Gu has examined, you’ll find social media’s impact on politicians. One thing he discovered is that when U.S. Congress members are active on Twitter and their views vary from those of constituents, the social media interaction tends to bring politicos more closely in line with the voters they serve. Gu also has looked at the power of online reviews, which some 60 percent or more of shoppers look at before they buy. He found that management response to online complaints often improves the complainer’s views in subsequent reviews.

All of these investigations mirror the reason Gu entered academia in the first place: to delve into the foundational principles that govern good business practices. Gu, who started his career in consulting, recalls that he was always under pressure to quickly answer client questions. When he did, he often recognized some fundamental theory underlying the information he shared. “I wanted to move that knowledge forward,” he says, explaining why he chose a life where he could conduct research and add to the bedrock of an industry’s collective acumen. Although research attracted Gu to academe, teaching ties him to the life of scholarship. “You can teach students the framework or theory behind ideas so that they can apply this theory to many questions,” he says. “That’s especially important in a fast-moving world.”

Bottom line:

• Social media has transformed the balance of power between businesses and their customers.
• The impact of social media now permeates a myriad of aspects of modern life, including health care, finance and politics.
• Organizations ignore social media at their own risk.