Social networks are good for more than just SuperPoking, Tweeting, family photos, and Farmville. A recent study showed that sites such as Facebook and Twitter are having a growing influence on Americans' consumption decisions.
The tweet sound of success
A recent survey conducted by ROI Research for Performics quizzed 3,000 consumers "who access at least one social network regularly." Of these, 41% said they use Facebook as a way to gain information about companies and their products. Facebook's "like" feature may seem silly or unimportant, but 32% said they pay attention to their friends' opinions of companies and brands.
Let's not leave Twitter out of the equation. Some 53% of respondents said they have "tweeted" recommendations of products and companies, while 48% put their money where their tweets were and bought the products themselves.
Certain industries showed particular topical strength on social networks. Not surprisingly, 49% of respondents said they turn to social sites for help with electronics purchasing decisions. It's certainly not difficult to imagine that many people might wonder whether the Apple iPad is as cool as it seems, or whether they should choose an iPhone, a Research In Motion Blackberry, or one of Google's Android phones.
Given the financial crisis and the continued beleaguered economy, it makes sense that folks might think harder about a product's worth before spending their hard-earned money, and reach out to their friends for opinions they trust.
Friends ... and enemies
Recent data shows that some companies have early leads in the social-media landscape. A study by London's Famecount cites Starbucks
Shareholders should feel gratified if goodwill for their companies' products and brands seems to proliferate amid social media. But they also shouldn't underestimate the ill will that can spread like wildfire in this user-oriented, consumer-centric environment.
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Strive for that positive attitude in investing
These days, both positive and negative consumer sentiments can go viral faster than ever. Amid this social sea change, investors should seek companies that indulge in common-sense capitalism, where long-term business decisions take all stakeholders into consideration.
This isn't as touchy-feely as it may sound. The concept of "net promoter scores," put forth by Harvard Business Review years ago, separated surveyed customers into "promoters" and "detractors." HBR found that the percentage of respondents who fit into those two categories directly correlated to a company's revenue growth (or lack thereof). Social media is the perfect place for promoters and detractors to gain major -- maybe sometimes even massive -- exposure for their opinions.
Companies whose managers strive for good business principles and ethical behavior (and avoid becoming Public Enemy No. 1 with consumers) have a far better chance of providing consistent, long-term profits and shareholder value. With social media's influence on the rise, investors should consider reducing their risk by seeking out well-run companies that foster goodwill.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.
Coca-Cola and Monsanto are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Apple, Starbucks, and Whole Foods Market are Motley Fool Stock Advisor recommendations. Coca-Cola is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a synthetic long position on Monsanto. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days.
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