A Social Revolution

George Siemens 2010

THE EFFECTS OF SOCIAL MEDIA ON BUSINESSES

Prepared for Gabriel Fitzhugh Executive Director Starbucks, Inc.

November 16, 2010

Prepared by Clare J. Cawley Research Assistant Starbucks, Inc.

INTEROFFICE MEMORANDUM
TO: FROM: DATE: SUBJECT: Gabriel Fitzhugh Clare J. Cawley November 16, 2010 Requested Report on the Effects of Social Media on Businesses

The goal of this report is to demonstrate how social media influences business practices. A marketing plan must describe social networks, distinguish its advantages and disadvantages, and expectations for the future. However, the overall purpose of this report will be to recommend the implementation of social media in Starbucks strategic marketing tactics. The important information to highlight throughout this report includes the fact that social media are used to promote products and services and develop brand loyalty and that companies can use them to gather information on the satisfaction, or dissatisfaction, of consumers, use of social networks, therefore they can take the proper actions. The use of social networks in companies marketing plans can determine whether those companies will stay afloat. I would like to express my personal appreciation to the University of North Texas for making the information needed to write this report readily available to others and myself. I would also like to express my appreciation to Professor Evelyn Pitre for editing this report several times to ensure that the report can be read with ease, that the report is grammatically correct, and, overall, that the report is properly presented.

TABLE OF CONTENTS
EXECUTIVE SUMMARY ...................................................................................... v CHAPTER I. INTRODUCTION ............................................................................. 1 Background................................................................................................ 1 Problem ..................................................................................................... 1 Purpose ..................................................................................................... 2 Scope......................................................................................................... 2 Limitations.................................................................................................. 2 Research ................................................................................................... 2 Organization .............................................................................................. 3 CHAPTER II. DESCRIPTION OF SOCIAL MEDIA............................................... 4 Changing Communication Practices .......................................................... 4 Sharing Information ................................................................................... 5 Promoting Products and Services .............................................................. 5 CHAPTER III. ADVANTAGES TO BUSINESSES ................................................ 7 Return on Investment................................................................................. 7 Consumer Relationships ............................................................................ 7 Recruiting Techniques ............................................................................... 8 CHAPTER IV. DISADVANTAGES TO BUSINESSES .......................................... 9 Lack of Control ........................................................................................... 9 Misunderstanding Social Media ................................................................. 9 Decline of Oral Communication ............................................................... 10 CHAPTER V. FUTURE OF SOCIAL MEDIA ...................................................... 11 Power to the People ................................................................................ 11 Referral-based Marketing ........................................................................ 11 Social Media and Success ....................................................................... 12 CHAPTER VI. REPORT SUMMARY .................................................................. 13 REFERENCES ................................................................................................... 15

EXECUTIVE SUMMARY
Considering people in todays society are trying to avoid advertisements at all costs, social networks are the best way to market a product or service. The problem is that some companies do not know how to go about implementing social media into their marketing strategy. This report will explain the different ways companies can use social media as a successful business practice. It will describe social networks, its advantages and disadvantages, and their future. The summary will not include personal use of social networks. This information only contains the use of secondary information gathered through individual research findings, found through the University of North Texass Willis Library. The following information is in the proper order of importance.

Social media offers Starbucks several benefits. Social media offers a better return on investment, better consumer relationships, and better job recruiting techniques. Indeed, social media have a low implementation costs, gathers consumer feedback, and makes the task of job recruiting cost effective and timely. Social networks are changing how businesses and people communicate, how businesses and people share information, and how businesses can promote their products and services to people. However, these details are just a few aspects that require attention. Businesses will need to remain alert because the future has more in store. In years to come, social media will cut out the intermediaries and will distribute more power to consumers; it will make the market more and more referral-based. Since this likely will be the case, businesses will need to address the following problems with social networks.

Businesses will need to develop a training program to ensure that their employees understand how to use social media appropriately. It will be important for employees to understand that social media can make or break a company. Lastly, younger generations who are using social media more are losing their ability to hold face-to-face conversations. Therefore, their communication skills will need more guidance in distinguishing between professional and unprofessional behaviors.

Therefore, the implementation of social networks by Starbucks is vital. Technology is changing every day and will continue to become a larger part of every individuals daily life. Thus, businesses need to take advantage of this trend. Every business uses advertising and other traditional marketing plans to accumulate customers. However, customers are taking more and more time out of their days to avoid traditional marketing tactics. The only way to continue reaching target audiences is to gather where the consumers gather. Today, consumers are spending their time on the Internet. Thus, businesses need to focus their efforts on reaching consumers via the Internet. If Starbucks decides to recognize this trend, it can take the proper actions to continue to be an international success.

vi

CHAPTER I
INTRODUCTION
Updated marketing strategies and communication practices are essential when it comes to running a business in the 21st century. Social media is becoming an increasingly popular method of communication and advertising, shutting out the competition that is using traditional marketing tactics. This report will show the advantages and disadvantages of using social networks for communicating, marketing, and opening up new channels to connect with different audiences.

Background
The people of today are doing whatever they can to avoid advertisements. They avoid TV ads with TiVo and DVR, and they avoid radio ads with Satellite/XM radio. Businesses constantly have to find new ways to advertise to people. Using the media that people use most to force advertisements on them (until they find a way to eliminate the ads) might be a good thing. The emerging communication media of today is the social network.

Problem
When a company is slow to conform to the latest marketing trends, it affects their profits. If the traditional marketing ways fail to reach the target audience for a companys product, the product fails to sell. Unfortunately, many businesses willing to advertise on social networks have no knowledge of these tools. 1

Purpose
The purpose of this report is to explain how Starbucks could use social media to reach target audiences. Social networks are client builders; they allow businesses to easily maintain current relationships and develop new ones. This report will demonstrate how using social media is affordable, easy, and effective.

Scope
This report will show how social media could benefit Starbucks. The report will describe social media and their benefits and drawbacks. The report will also address the future of social media. The report will exclude personal use of social networks and the effects social media has on todays society.

Limitations
Primary sources of information (interviews, field tests, and surveys) are unavailable at this time. Lack of resources prevented the gathering of primary information. This report is therefore limited to secondary information gathered through individual research findings.

Research
The information provided in this report originated from the University of North Texass Willis Library.

It consists of excerpts from books on the subject of social media and from articles and journals published on the librarys electronic resources. The research process began with a detailed search for material related to social media and businesses.

Organization
This report will begin by describing social networks and how social networks affect the way businesses are operating. Secondly, it will explain how the implementation of social media in Starbuckss marketing plan will benefit the company. Then, the report will explain the drawbacks, or difficulties, that come with social media in the workplace. Finally, it will describe the future of social media, and end with a full report summary.

CHAPTER II
DESCRIPTION OF SOCIAL MEDIA
With todays scientific advancements, all forms of businesses need to adapt to the latest of the technological world. Currently, social media is the newest technology transforming the corporate world. Therefore, all companies need to understand how social media affect the way businesses are communicating, sharing information, and promoting their products and services.

Changing Communication Practices

Over the past two-hundred years, people have depended on messengers, the postal services, telegrams, and telephones to communicate with one another. However, within the past twenty years, significant advancements in technology have transformed communication practices (Clark & Roberts, 2010). Social media refers to activities, practices, and behaviors among communities of people who gather online to share information, knowledge, and opinions using conversational media (Brake & Safko, p.6). Considering that social networks are causing millions of people to come together in one (albeit virtual) location, businesses could use that location to their advantage (Brake & Safko, 2009). Social media is a quick and efficient way for people to communicate or to share information by sending instant messages, documenting their lives in tiny tech bytes, and sharing their opinions by posting comments, via the Internet (Clark & Roberts, 2010).

Sharing Information
People went from living in a world where the information and news was held by a few and distributed to million, to a world where the information is held by millions and distributed to a few (Qualman, 2009, p.16). More importantly, consumers can now access this information free and even link to information that is more specific. Instead of subscribing to costly newspapers and magazines, consumers can obtain free content from their peers (Qualman, 2009). People are now taking time to provide information to others. Considering this fact, companies might want to react by creating their own blog or even their own social network personality. By sharing the information they want to share (rather than depend on the information others choose to share), companies ensure their survival. They may even increase their revenues and obtain higher profit margins (Brake & Safko, 2009).

Promoting Products and Services

Advertising is moving to digital channels for three main reasons: (1) the audience has moved there, (2) it is more cost effective, (3) its easier to track (Qualman, 2009, p.19). Marketers call this plan of action, the social media strategy (Brake & Safko, 2009). Right now, most companies fail to use social media to their fullest potential. The key to embracing social media is to share only the most interesting of information, keeping content short and concise and promoting only the offers that are actionable and helpful. Letting consumers contribute information is never a bad idea (Rotolo, 2010).

Using social networks also allows for almost instant feedback, which gives companies the opportunity to implement damage control and increase customer satisfaction (Hernandez, 2010, p.44). Evidently, social media can help companies promote their products and services, which should help develop brand loyalty among consumers (Comm, 2009).

Technology has transformed the way companies do business. Social media have opened the door to a completely new way of communicating. Consumers now have the ability to access a vast variety of data online. Instead of trusting television and radio advertisements, they are going straight to their peers. Companies can use this to their advantage by getting involved in the world of social media. However, before companies get started using the social media strategy, they should analyze the advantages and disadvantages of social media.

CHAPTER III
ADVANTAGES TO BUSINESSES
Businesses use of technology is rapidly changing. However, companies do need to keep up with this constant evolution. Keeping up will provide several benefits. Social media offer a better return on investment, better consumer relationships, and better recruiting techniques.

Return on Investment
One of the greatest advantages of social media is their low implementation cost (Russell, 2010). While other companies are using traditional channels, such as television, radio, and print, to advertise, Theres nothing like word-of-mouth to take a business to the next level (Brake & Safko, 2009, p.10). People like to write about products that have truly benefited them because they like acting as experts, and their peers benefit from the information (Qualman, 2009). Socialommerce is a referral program on steroids (Qualman, 2009, p.19). This not only enhances companies ability to promote their products, but it also helps them create long-term consumer relationships.

Consumer Relationships
By developing and cultivating social networks, businesses can create the perfect opportunity to earn the trust of consumers, which may lead to more sales (Brake & Safko, 2009, p.16). Businesspeople realize that good relationships lead to more transactions (Brake & Safko, 2009).

Not only do social media create more relationships, but they also create a place for consumers to offer critical feedback to companies (Qualman, 2009). This gives companies the chance to implement damage control and increase customer satisfaction (Hernandez, 2010, p.44). For example, if comments are negative, companies who use social networks could rapidly address the issue (Qualman, 2009). Social networks also offer internal benefits, like better recruiting techniques.

Recruiting Techniques
Traditionally, companies would use costly job boards or recruiting firms to assist in finding potential employees (Qualman, 2009). Employers can use social media tools to interact with prospective employees using a medium with which the employees are familiar and comfortable (Brennan, 2010, p.4). Indeed, the potential employees are going to the company directly. The process recruiters go through using social networks has gone from half an hour per rsum to minutes (Qualman, 2009). Social media make the burdensome task of recruitment cost effective and time effective.

Social media offer obvious advantages to companies. Social media spread companies advertising dollar further, saves them time recruiting, and makes them more efficient. However, various drawbacks exist.

CHAPTER IV
DISADVANTAGES TO BUSINESSES
Companies may experience a few disadvantages when implementing social media. This chapter will cover some of these drawbacks: companies lack of control of those media, companies difficulties understanding the social media process, and the impact of the decline of oral communication for society.

Lack of Control
Social media can help companies get to the top quickly, but it can also destroy them just as quickly (Hernandez, 2010). Companies have to get used to the idea that its nearly impossible to hide from friends, employees, customers, and others because they have the ability to examine every move companies make (Brake & Safko, 2009, p.14). However, if companies cannot control conversations, they can influence them (Brake & Safko, 2009). Therefore, companies should try to control the content of social media. In addition, companies employees should have a good understanding of appropriate social media practices.

Misunderstanding Social Media

The best way to help the staff understand how to use social media properly is by establishing a corporate policy (Hernandez, 2010). Most people try to avoid things that are foreign to them. However, companies can easily comprehend social media without a technical wiz to take advantage of the business opportunities that social media creates; all that is necessary is the will to create a good image (Brake & Safko, 2009, p.15). 9

The most important distinction employees should make before using social media is the difference between appropriate and inappropriate content. Since information spreads rapidly online, employees need to post appropriately (Lontos & Ramirez, 2009). Social media also have a negative effect on society.

Decline of Oral Communication

Currently, people can live without stepping outside of their homes. Indeed, people can shop, work, socialize, access their money, and pay their bills through the Internet. For younger generations, the ability to have face-to-face interactions is disappearing. This ability has rapidly eroded so much that humans fear public speaking more than death (Qualman, 2009, p.56). Even the younger generations writing skills have regressed over time. These younger people will end up having a more difficult time understanding the difference between professional and unprofessional behaviors in the workplace. They will need more guidance, but they will continue to have a better understanding of their place in the global community and to be more creative and collaborative (Qualman, 2009, p.56). However, the drawbacks of social media are easily avoidable or fixable.

Technology will always have its advantages and its disadvantages. Companies have to be willing to change as rapidly as the technology. Even though social media have drawbacks, their advantages still outweigh these disadvantages. Social media will continue to evolve. The next chapter envisions their future.

10

CHAPTER V
FUTURE OF SOCIAL MEDIA
Technology is changing at an increasingly rapid pace. Social media has altered the standard of living in America, and it continues to evolve. Businesses need to be aware of the transformations caused by social media such as the people receiving more and more power, marketing tactics becoming more referral-based, and the success of people and companies becoming largely dependent on their use of social media.

Power to the People

One shift we will see is that the money previously dispersed to middlemen is now being redistributed to the companies themselves and the consumers (Qualman, 2009 p.52). For example, a company called All-Advantage was paying consumers to place ads beneath their browser (Qualman, 2009). Ultimately, the company failed miserably, but the idea was sound and would have been more of a success if the world were ready for such a technological advancement (Qualman, 2009). However, some consumers were making thousands of dollars per month to just surf the web, and, in the next few years, the world will be ready to give an idea like this another try (Qualman, 2009).

Referral-based Marketing
Consumers are taking ownership of brands, and their referral power is priceless (Qualman, 2009, p.52). Therefore, companies are going to have to pay more attention to

11

customer feedback (Qualman, 2009). People are looking to their social networks for recommendations and answers, and quality matters (Qualman, 2009). To obtain the best results and to stay on top of the marketing game, Starbucks will need to encourage its customers to complete service and product reviews (Qualman, 2009).

Social Media and Success

Society has become accustomed to the information finding them at this point, which means that businesses cannot afford to refrain from pushing their messages (Qualman, 2009). Trends indicate that in the near future, suppliers, customers, and partners will demand the ability to use social media (Hernandez, 2010 p.44). Businesses are going to face new hurdles to sustain being relevant and viable in the new world of social media (Qualman, 2009).

Starbucks has always been good about adjusting to the changing trends of society. By staying updated on new ways to use social media to understand the wants and needs of customers, to push its marketing message, and to utilize these opportunities, Starbucks will undoubtedly reap the benefits. The key message to keep in mind is that, overall, achievement will depend greatly on businesses use of social media. To close this report, the following chapter will be a summary of this report.

12

CHAPTER VI
REPORT SUMMARY
The use of social media in business is crucial because businesses have to keep up with the technological advances. This means that, if 85 percent of the population spends hours online, the best place to push a marketing message is on the Internet. The benefits that come with the use of social media are cost effectiveness, timeliness, and successfulness. Social media can create the opportunities that influence whether a company will swim or sink. Social media has become the most sensible way to market businesses products and services because social media is free. While other businesses are paying traditional media outlets to advertise, Starbucks can be taking advantage of the benefits of social media to build its consumer relations, respond to customer feedback, and overall boost revenue for the company. When customers know their voice matters and their comments are affecting the way Starbucks runs its business, they will want to continue bringing their business to a company who cares. Then, they will refer their friends to such a caring company. However, social media is tricky. Businesses need to recognize how to implement social media policies because social media can be an opportunity to shine, but it can also be a fast way to fail.

Technology has transformed the way companies do business. Businesses will have to have the knowledge to utilize these tools. Social media has opened the door to a

13

completely new way of communicating. In todays economy, it spreads the companys marketing dollar that much further, saves a great deal of time when it comes to promoting and recruiting, all the while making the companys efforts more efficient. Technology will always have its advantages and disadvantages. Therefore, companies have to be willing to change as rapidly as technology does. The most important aspect to keep in mind is that the success of a business will weigh greatly on how they implement the use of social media in the future.

14

REFERENCES
Brake, D. K., & Safko, L. (2009). The social media bible: Tactics, tools, and strategies for business success. Hoboken, NJ: John Wiley & Sons, Inc. Brennan, V. (2010). Navigating social media in the business world. The Licensing Journal, 4-8. Clark, L. A., & Roberts, S. J. (2010). Employers use of social networking sites. Journal of Business Ethics, 507-525. Comm, J. (2009). Twitter power. Hoboken, NJ: John Wiley & Sons, Inc. Hernandez, G. M. (2010, April 8). The corporate side of social media. Caribbean Business, 44. Lontos, P., & Ramirez, M. (2009, October). Five mistakes of social media marketing. JCK, 40-41. Qualman, E. (2009). Socialnomics. Hoboken: John Wiley & Sons, Inc. Rotolo, A. (2010, May). Beyond friends and followers: The next steps for social media. Public Relations Tactics, 9. Russell, K. (2010, March). Making time for social media in business. Kitchen & Bath Design News, 40.

15