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In a sluggish economy, companies of all sizes are slashing marketing budgets, yet the need to build relationships with existing customers and reach out to new customers is stronger than ever before. In response, many companies are turning to social networking tools and reaping rewards in terms of sales growth and profitability.

Social networking tools, also known as Web 2.0 tools, offer a low-cost way to facilitate relationship-building, communication, and regular interaction among customers and companies. Companies are choosing to use these new tools in different ways and, consequently, are achieving varied results.

For example, the online shoe-and-clothing store Zappos.com heavily uses Twitter and Facebook to create interest and buzz around its products. Almost one-third of Zappos’ employees are using Twitter on behalf of their employer, and the company’s CEO, Tony Hsieh, has more than one million followers, making him one of the most popular users on the site.

Yet, perhaps surprisingly, Mr. Hsieh and other Zappos employees don’t use Twitter to share information specifically about the company’s products or pricing. Instead, the employees are encourages to tweet about their daily life, their work on the company, and their thoughts about just about anything. In this way, the company is trying to establish more personal relationships with its customers, responding to their comments and expounding on their interests. People are interested in the inner workings of the company, and follow the tweets as a way to satisfy their curiosity. Apparently this translates into sales, because the company’s sales figures have continued their upward trend, despite the current recession.

Other companies take a very different approach in adopting the use of Twitter and other social networking tools. Larger, more established corporations like Dell tend to use Twitter and Facebook to send customers information about new product developments and sales promotions. Some companies even send coupon codes to their loyal followers. This is a less personal approach that doesn’t necessarily develop a comfortable rapport or build customer relationships, but it can encourage brand loyalty.

Social networking tools also let customers interact directly with one another. Some companies, such as IBM, harness the power of Twitter and Facebook to create groups where customers interested in a specific product or service can chat with each other, with only limited involvement by the company’s employees. This is probably one of the most cost-effective ways to build consumer interest and generate brand loyalty.

However, the corporate use of social networking tools can backfire. Whenever businesses open the lines of communication with their customers in a social networking environment, they need to be aware that any comments, whether positive or negative, can be seen by any member of the public. If a customer uses Twitter to complain about a poorly performing product or a bad in-store experience, other potential customers can access that information and use it to make their own purchasing decisions. However, the company’s response is also public, so if a business responds to the complaint promptly and adequately, the interaction may actually work in the company’s favour, stimulating additional sales and building a reputation for good customer service.

Negative comments on social networking sites can come from within an organization, too. Disgruntled employees who are passed over for a promotion or don’t receive an expected bonus can use social networking tools to try to take revenge and harm their employer. The anonymity of blog comments and tweets tends to encourage people to use more critical, negative language than they would normally do, and things can quickly spiral out of control.

It’s important to remember that angry customers and disgruntled employees will always have the option of turning to social networking tools to voice their complaints. If a business is also using those same social networking tools, it will at least have the ability to respond and try to turn the situation around in its favour.

In the end, the decision of whether a business should use social networking tools boils down to whether it fits with the organisation’s corporate culture and can advance the business’s other goals. If and when the business decides to use social networking tools, the next step is to establish a clear policy regarding who will be responsible for the accounts, what type of information should (and should not) be shared, and the consequences for violating that policy. This provides a solid foundation for the company to move forward and venture into the bold new world of social networking.

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