Here's how I see it.
Traditional advertising - and I'm including standard digital banners/sites in the mix here because at this point, that's traditional- is about brands talking and consumers listening (hopefully).
Social Media Marketing, on the other hand, is about consumers talking and brands listening.
Some people & brands think that stretching your brand tagline on to a social network site counts. I tend not to agree. Simply advertising "relevant" ads on the right side of Facebook - does not count as social media marketing in my eyes.
Its about creating environments & bringing together communities for consumers to discuss or interact with something important to your brand. As the creator of this space you can have an influence - all power is not lost. You can set the mood, select the topic, create the surrounding content. But you have to let your customers talk. Companies invest mucho $$$ in research every year to get to know their consumers yet often balk at creating social media places where their consumers can go - where subsequently they can see what they are doing and hear what they are saying for little to no cost.
There is so much power in social media & networks because brands now have a way to hear what their customers are saying so they can respond appropriately. The example that comes to mind is Dominos. After the recent video of employees doing not so nice things with a customer's pizza circulated around YouTube, the CEO released a statement about what the company was doing to respond to the incident on the very platform that got them in trouble in the first place. Brilliant. What would really be awesome is if his response was the top related video that appeared at the end so all viewers would instantly be able to hear the companies response after watching the debacle.
Only a small % of your audience is going to actively participate in social conversations about you. Most are only going to listen. But the talkers are the ones who will either champion your brand to your networks or trash it. If they especially love something about you or especially hate a feature of your latest product, not only should you want to, but you need to know. Get in the conversation and listen.
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