Can Social Media Spur Companies to Increase R&D Spending?

Published: January 21, 2011 in Knowledge@Emory


When the U.S. economy turns down and companies cut back on expenditures, innovation doesn’t have to be one of the casualties, according to faculty at Emory University's Goizueta Business School. Instead, businesses that budget carefully during the boom years, and ones that are willing to explore new channels in good and weak times alike, can maintain their innovation strategies even if their revenue stream slows during a weak economy. 

“Our research shows there’s a clear tie between innovation and competitive advantage,” says Ashish Sood, an assistant professor of marketing at Goizueta who has studied the ways that firms develop new products. “Our research also indicates that the strongest firms continue to engage in research and development despite a recession or other broad economic downturn.” 

The stock market appears to reward these R&D leaders, he adds, with innovation being a primary driver of shareholder value. Such firms generally turn in a better performance than peers that do not continually invest in innovation. 

“Think of front runners like Apple Computer Inc. or Google Inc.,” says Sood. “These companies continue to plow funds into R&D and continue to produce innovative products and applications that are well received by their customer base.” 

Sood contends the link between R&D and customer demand tends to hold across industries and across periods of recession. For example, the weak economy has not cooled off demand for some of the hottest segments, like social networking applications. 

“But the key is to direct your innovation efforts to products and services that actually satisfy customer needs,” he adds. The products or other offerings have to be well designed with the customer in mind. “Building something that’s technically advanced isn’t enough—it has to be meaningful to the ultimate buyers.” 

Sood has monitored Facebook, Twitter, and other social media sites and says “there’s a lot of excitement” when products that meet these criteria are introduced. 

“We found a spike in Web chatter,” he explains. “People are trading tips and talking about how these products work and where they are offered.” 

Because social media sites spark conversation not only among consumers but also with the company, firms can ignite chatter at early stages of product development. The feedback can be incorporated into the research and development efforts, then, post-introduction, a company can use these same sites as a component of its R&D efforts. 

According to Sood, we may see a major shift in how companies gather information about customer tastes and preferences. 

“In the past, it was difficult for businesses to determine what their customers were thinking,” he says, adding, “most of the time, the effort involved costly market research studies and surveys that, in a fast moving market, might be obsolete by the time they were completed. Now though, firms may be able to find out what excites customers and sparks chatter. It’s easier now to do smaller experimental studies and use that information in a larger product development environment where the findings can be used to adjust a company’s efforts during the R&D stage.” 

But even with today’s tools, there is often a lot of “noise” that can confuse the results, Sood explains. “It’s important to be able to cut through the clutter and understand your customer segments and what they want.” 

Companies that continue to innovate despite today’s weak economy can reap the benefits that come from being a “first mover,” according to Sood. “An increasing number of firms realize this, but there’s still a great deal of inertia out there,” he says. “Some companies are resisting the shift to new media and other innovative activities simply because they’ve always done things a certain way. But the bottom line is that whether there’s a recession or not, successful companies are the ones that are able to stay close with their customers and introduce products and services that meet the requirements of their customer market.” 

Advantages of social media

For those firms that do invest heavily in innovation, social media also can provide cost savings on the other end, once a new product or service is launched. Indeed, social media casts a wide net and its interactive nature—business to consumer, and consumer to business—can make it more effective than traditional advertising, which is generally limited to a one-way push from a company to a consumer. But even as a low cost method of attracting and retaining customers, the social media experience still needs to be managed. 

“While firms are adopting social media, they are not necessarily making the investments needed to effectively manage their social media programs,” says Manish Tripathi, an assistant professor of marketing at Goizueta. “They are treating it more like a ‘Yes, we have a Facebook page,’ exercise. This may be due in part to the recession, but it’s not really leveraging social media the way it could be utilized.” 

In fact marketers used to traditional advertising campaigns find they can save money by creating excitement with social media, notes Reshma Shah, an assistant professor in the practice of marketing at Goizueta who recently co-authored a book with Jamie Turner entitled How to Make Money with Social Media

“If they’re savvy, they know it’s not wise to cut back on innovation efforts when others do so,” Shah says. “Staying active on social media sites can keep a company at the front of consumers’ minds. So even if they’re cutting back on traditional media advertising during this challenging economy, smart businesses are continuing to invest in social media development.” 

Part of the urgency to maintain Facebook and other innovation in spite of a slow economy is the fact that “other people will be talking about you on Facebook, Twitter, and other social media sites, so your firm might as well be part of the discussion, instead of being an uninformed bystander,” observes Shah. 

She points to companies like Comcast Corp., which has staff members monitoring the blogosphere and responding to negative tweets or other comments. 

“Some companies aren’t sure about how to approach social media innovation,” she says. “They think blogging, for example, should be limited to the top executives. In fact, it’s best assigned to the marketing department, which can launch and maintain an integrated cross-platform effort.” 

There is a price for this kind of innovation, cautions Shah. 

“The instant connectivity offered by social media means that when a company representative posts something, it’s immediately going to reach a lot of people, and it’ll be out there forever,” she explains. “Companies need to establish social media posting guidelines then clearly communicate them to employees. An unauthorized posting—like an unflattering video launched by employees of a food company that went viral—can damage a business’s reputation.” 

In addition, taking TV ads and simply posting them online doesn't guarantee they will have the same impact either, notes Shah. 

“There are two key elements to consider in social media innovation,” she says. “One is that the idea involves taking what’s unique about your brand and determining how to bring that exclusivity online without diluting or otherwise damaging it. The other element is to remember that the Web is highly interactive, while traditional media delivers a one-way message. So your social media efforts should involve and engage your target audience. In today’s economy especially, consumers are looking for value, and a good marketer can engage them, find out what they truly want, and then deliver something that will meet that desire. But you’ve got to constantly keep innovating, adjusting your strategy and delivery to meet changing conditions.”


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Total Comments: 1

#1    Case studies

Many of the points made in this post can't be argued, but are there any successful (or failed) examples you could point to showing applied use of these techniques?
By: Jeff Stender, 3M
Sent: 01:01 PM Tue Feb.01.2011 - US

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