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: Gabriel Fitzhugh

FROM: Clare J. Cawley

DATE: November 16, 2010

SUBJECT: 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 today’s 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 Texas’s

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.

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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.

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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

company’s product, the product fails to sell. Unfortunately, many businesses willing to

advertise on social networks have no knowledge of these tools.

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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 today’s 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

Texas’s Willis Library.

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It consists of excerpts from books on the subject of social media and from articles and

journals published on the library’s 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 Starbucks’s 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.

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CHAPTER II

DESCRIPTION OF SOCIAL MEDIA

With today’s 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).

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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) it’s 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).

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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.

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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, “There’s 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).

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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 résumé 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.

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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 “it’s

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).

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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.

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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

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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.

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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

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completely new way of communicating. In today’s economy, it spreads the company’s

marketing dollar that much further, saves a great deal of time when it comes to promoting

and recruiting, all the while making the company’s 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.

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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). Employer’s 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.

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