Monday, November 26, 2012

How Powerful Is Social Media Sentiment Really?

In the church of social media, there is no concept more sacrosanct than that of public consumer sentiment. In the social era, the gold of the realm is no longer the number of impressions made by your ads but the number of impressions created peer to peer. With brand praise and gripes broadcast to hundreds of friends and followers, public opinion has never been more public, so brands must bow before alter of social media sentiment.

That is the party line among social media professionals, but does it stand up to scrutiny? While it may seem heretical to say, I believe there is ample evidence social media sentiment does not matter equally in every industry to every company in every situation. By focusing attention and altering corporate behaviors where it matters, we might better change sentiment in ways that protect and enhance the bottom line.

Before you sharpen your knives, let's define what social media sentiment is and is not. In our highly networked world, we are exposed to more people saying more about brands than ever in the past, but do all those exposures influence purchase decisions as much as we seem to believe? Clearly individual sentiment matters--what you think about a brand affects your own decisions--but how much do the opinions of crowds impact your buying behaviors?

Look at Hostess Brands. The news of the impending death of  Twinkies, Ding Dongs and Ho Hos has been greeted with the sort of wailing and rending of garments usually reserved for the passing of a beloved public figure. But if we all love Hostess so much, how did it come to such an ignoble end? The positive sentiment the public has for Hostess is based on golden-hued memories of childhood, but in an age of "buy local," organic, health consciousness, these positive feelings drove insufficient sales in the harsh, fluorescent reality of the grocery store aisle. (Of course, while the public sentiment for Twinkies, Ding Dongs and Ho Hos will not save Hostess, it may drive the acquisition of the iconic brands.)

In 2010, Harris Interactive released a list of most and least respected companies. Given how networked we were in the intervening two years, it stands to reason that all the buzz shared about the most respected companies would be lifting those stocks while the anger and frustration directed at the least respected firms would be evident in depressed share prices. Of the ten most respected companies, seven are, in fact, on the list of the United States' 50 most profitable corporations, but so are five of the least respected. Moreover, in the last twelve months, the seven publicly traded companies on the 2010 "least respected" list have outperformed the DJIA by more than 200%. The fact so many people dislike these companies and share those feelings online does not seem to dent the financial success of these firms.

Scan the list of the most hated companies in America according to the American Customer Satisfaction Index and you will see that certain industry segments seem immune to the power of consumer sentiment.  Corporations in cable and internet service, banking, power and airlines, many of which are among the most profitable companies in the U.S., dominate that list. How can these industries be continuing to thrive in the social era despite the negative public sentiment? They share some commonalities that help to inoculate them from the dangers of negative sentiment--they are capital intensive, highly regulated industries with limited competition and have both great barriers to entry for new competitors and high switching costs for consumers.

Other factors may also be at play. For example, banks often make the lion share of their money off a small minority of their customers. Bank of America suffered what should have been a damaging blow to its business results due to the wave of negative sentiment associated with Bank Transfer Day, but BoA seemed to emerge not just unscathed but stronger for it. At least part of the reason the bank did so well is that the lowest-profit, highest-cost customers likely were the ones who abandoned BoA for credit unions. In other words, not all sentiment is equal in a vertical where customer contribution to the bottom line is wildly unequal.

Even within some industries, it can be impossible to see the impact of sentiment on business results. Look at the retail vertical, where the ACSI tells us Nordstrom, J.C. Penney and Kohl's enjoy customer satisfaction rates well above average while Walmart not only anchors the bottom of the list by a substantial margin but actually saw a decrease in satisfaction in the prior twelve months. Now look at the stock performance of these retailers in the past year--J.C. Penney is the worst performing stock of the bunch,  Kohl's is one of the few with a stock price down in the past year and Nordstrom's stock performance is in the middle of the pack. Despised Walmart? Its stock is up more in the past year than the three retailers with the strongest customer satisfaction ratings. Many hate shopping at Walmart, but apparently low prices trump sentiment, reputation and customer satisfaction.

Obviously, a year or two of stock performance and social media sentiment data is not a lengthy enough period to evaluate the interrelationship. Strong negative sentiment is not an explosion that tears apart the financial foundation of a company but is more like a river that wears it away over long periods. Nevertheless, some of the most hated companies have been hated for many years and remain solidly in the black--the consistent revenue and profitability of AT&T, Comcast, Walmart and others seem to mock our current obsession with public sentiment.

It is easy to understand why the adoption of social media caused us to worry more about the public sentiment around our brands, but step back and ask yourself what has really changed. People's perceptions of companies such as McDonald's, Walmart or Comcast did not change simply because Facebook was adopted by a billion people on the planet, nor were the attitudes of these brands shrouded in secrecy until Twitter ripped the blinders from our eyes. Did anyone really get on Twitter, see what people are saying and think, "Holy cow--I had no idea people find shopping at Walmart a bit unpleasant, that cable companies offer poor customer service or that McDonald's serves food of dubious health value"?

Let's move this out of the realm of the theoretical and into the real and personal:
Another way to explore this is to look at the companies who earned headlines in the early days of social media for leading the charge to listen and respond to social media sentiment. If public sentiment is as vital as we have been led to believe, it stands to reason the leaders in listening and managing consumer sentiment must be soaring, but instead many are struggling:
  • In December 2010, Dell created waves with a social media command center that would make NORAD blush--and since then the stock is down 33% and the company is now facing layoffs.
  • The first brand I recall launching its own command center to listen and respond to social media sentiment was Gatorade, but while the brand's marketing lifted sales for a while, it has continued to lose market share to Powerade.
  • Remember Twelpforce, Best Buy's all-hands-on-deck push to respond to public comments and questions on Twitter? It launched in mid 2009 to much praise and is still going strong on Twitter, yet since Twelpforce was deployed, Best Buy's stock is down two-thirds while the DJIA has climbed nearly 50%.

Social media sentiment has been elevated to God-like status when really it is more of a minor deity. In most situations, what others are saying does not trump our own personal experiences. Nor does it trump our laziness and the costs of switching (or even our own well-worn habits) in the vast majority of cases. In addition, while public sentiment may be a factor in our purchase decisions, we weigh it against many other important factors such as price, convenience, perception of quality, etc.

Let's face it, we all expect brands to disappoint us some of the time, so individual complaints we see on Twitter or Facebook become part of the fog of social media sentiment--none of us have the brain cells to receive, store, recall and evaluate every gripe we see on social media. Hell, I can barely recall my own gripes! I know I have tweeted complaints about airlines, but I couldn't tell you if I have shared more criticism about United, US Airways or Delta. Like most consumers, I continue to fly the same airlines (and gripe about them) because they have the routes and prices I need.

Even if public sentiment has been overvalued, there are situations where it matters a great deal. Moreover, the way we deal with these situations cannot be to conduct business as usual, wait passively for bad sentiment to bubble to the surface and then try to appease people with responsive tweets and comments. We need to recognize when social media sentiment matters most and alter not just our communications and service strategies but our business practices. For example:
If brands come to realize social media sentiment is not as strong a factor for success as we first thought, how should they react? First, they should not pull away from social, because it is becoming a channel of choice for many consumers. Whether or not public sentiment is as powerful as predicted, individual sentiment still matters, and you can no more ignore consumers tweeting your company as you can ignore their phone calls.

Secondly, as I have shared on this blog many times, social business and peer-to-peer models are changing products and services themselves. Today we are much too focused on how to tweet and post while ignoring how the social era demands changes in the way we conduct business. Brands that ignore the changing nature of the consumer/brand relationship in the social era may find themselves facing the same fate as those companies who ignored it in the web era. Ask Borders, Kodak, Blockbuster and others how that worked out for them.

I had difficulty writing this blog post, because it was hard for me as a social media professional to wrap my head around the idea that social media sentiment may be overvalued. In addition, I knew (and hoped) that this blog post would be subject to criticism among my peers. What do you think?  Am I missing key data points and concepts that tie social media sentiment to business results? Or are there additional instances when social media sentiment becomes more vital to brands?  Your input would be greatly appreciated.


Kim Phillips said...

Fabulous post; surely not all things are equal, as you say, and low price may trump a lot of other considerations. However, social media is where I learned more about, and have gotten constant confirmation of, WalMart's crappy labor practices vs. Target's philanthropy. When I want a big, low-cost store, I go to Target.

Augie Ray said...

Thanks for the comment, Kim. I am waiting to see social media make corporate practices even more public--maybe then sentiment will really have the impact we want. Think of Google's glasses--if our mobile devices could learn what we care about and provide proactively provide us with info, then a stroll down the grocery aisles could be a flow of information about which brands support the environment, community and employees and which do not.

Much will change in the future!

Ken Hittel said...

Agree, Augie -- about 90%, anyway. I think there are individuals, such as Kim, who take these things fairly seriously and alter their behavior accordingly. I like to think I'm one of those individuals, as well. Are we (few?) enough to actually change business results of a company for any considerable period of time? Perhaps not, but I think you also have to consider the fact that in most cases the decks are simply stacked against us: We simply don't have unlimited choices when it comes to whom we do business with.
Target vs. Walmart is indeed a fairly simple choice, but can I really boycott United all that easily, when routes are limited & restricted and esp. when I have no particular reason to have greater trust in or respect for any other airline? You vote your conscience where you can, when you can, & Lord knows you violate it more than occasionally for convenience or price. But you do what you can, I find.

Jeremy Pepper said...

Remember FedEx Furniture, and the big brouhaha that the company went through because they had the audacity to call out a kid making furniture from their boxes ... and the SM threats to boycott the company? '

Yep, didn't hurt them.

Or the issues with Kryptonite - who did the right thing by going to the bicycle forums, but got caught when it broke through months later to mainstream press?

Yah, didn't really hurt them much either.

Most of this is SM "practitioners" that have nothing else to fall back on, showing how great something is that really isn't that great when it's a standalone product.

Jeremy Pepper said...

Oh, and a side note - while the FedEx furniture story broke, I was the person that actually went to FedEx for their side of the story ... and that included morning news shows.

Augie Ray said...

Thanks, Ken. I think all of us can name a brand or two we try to avoid thanks to something learned on social media, but think of all the gripes and news we see. I'm sure someone has done the research, but we must see two dozen P2P brand impressions a day. I think that's the real rub--there are only so many brand complaints we can receive, store, care about and act upon.

Augie Ray said...

Thanks, Jeremy. Great stories. Appreciate the input!

Alan Bergstrom said...

Great piece of research and insight! Thanks for another interesting POV.

Augie Ray said...

Thanks, Alan. I appreciate the nice feedback. Glad you enjoyed it!

Anonymous said...

Fab post. Thanks. I guess part of the issue is, we won't know how much BETTER a company might perform WITH more positive sentiment. Over here in UK, banks are taking a bashing - everyone's favourite enemy - due to high profile stories, and pay scandals - but of ocurse, people who ARE already customers of a bank will probably continue to bank there (as it's easier) but I wonder about the extent to which such a backdrop changes the nature of the 'relationship' with the bank. Ie, I know I can't basically trust you to do the right thing for me, I know all you really want is my money etc - so, if this is what the relationship has morphed into, then I'd imagine this would damage and dampen prospects for future business from the same individual. It's pretty hard to measure lost opportunities. I agree this is a long term 'drip drip' type of threat too, and again, most companies aren't too good (or willing) to pay much attention to the long term. Great post.

Anonymous said...

I couldn't agree more: we should move beyond the "angst agenda" when explaining the value of social media analytics to the enterprise. As your post thoughtfully points out, the impact of "the perfect xxxstorm" on bottom-line revenue is either exaggerated or simply not there.
I'd venture to say that companies can get a good picture of what their customers do not like by better analysis of their "traditional" customer communications - email and call center transcripts. However, analyzing positive sentiment expressed in social media can help balance this view - or did you ever call up a company to tell them "I really like the fact that product X has such a good feature A"? I sure didn't.
Understanding what people like about a company, a certain product/service or a certain feature can provide valuable input for brand and product managers - especially when combined with insights on where the competition is doing well, according to social media.
I hope that posts like yours will put the hype around negative sentiment further to rest, and allow more people to concentrate on the value of the other side of the opinion coin.

Tom Liacas said...

Hi Augie, as a fellow social media pro, I must reluctantly accept your arguments because you have done your homework. Why reluctantly? Because, as you said at the end, adoption of social business practices is crucial for the survival of businesses. When you come at them from this angle, however, their eyes glaze over and you can tell that they'll wait another two years before they make the effort. Talk to them about reputation risk, on the other hand, and they perk up and get moving. Perhaps crises are overblown but they do get businesses moving into social where they need to be long term anyways... Do the ends justify the means here?