The Washington Post (via Dion Hinchcliffe)

The article cites Nielsen data that 70% of Internet users trust online recommendations and reviews (we cited the same study here), and quotes a Boston University professor as to why: “[C]onnecting with other consumers is more helpful [than traditional ad messages]. It’s more fun. Consumers love to interact.” The article also reports that digital word-of-mouth marketing is expected to top $3 billion a year by 2013.
The article describes at some length how marketers and agencies are using Social Media tools to influence customer perceptions, including by sponsoring posts and tweets. This is a controversial subject that has been discussed extensively online, including by us. Sponsorship raises issues about the nature of Social Media, including whether media such as Twitter will eventually become less effective if sponsored tweets become more prevalent.

Sponsorship also inevitably raises the issue of disclosure: when and how prominently to disclose, and whether even full disclosure can prevent consumers from losing trust in the communication and, by extension, in the marketer itself. All of the agencies mentioned in the story claim that they fully disclose any sponsorship, either with a hashtag such as “#ad” or some other signifier such as “(sponsored)”.

Interestingly, however, the Post reporter seems openly skeptical about whether the average user understands that these communications are sponsored. A writer for Time voices similar concerns. This is a perspective that we all would do well to keep in mind. Much of the online commentary about sponsored tweets and posts seems to focus on issues other than whether the consumer comprehends the disclosure. If it’s true that casual users might actually be misled (as opposed to merely annoyed) by sponsored tweets and posts, marketers should be extra cautious before launching a Social Media campaign that involves sponsored communications.

The Zavee takeaway:

• It’s official: Social Media Marketing has arrived.
• Users trust online recommendations and reviews. Let’s keep it that way.
• Sponsored tweets and posts raise a lot of issues. If the risk of misleading consumers is one of them, it’s time to think twice about the tactic.

However, Valeria talks about these concepts in the context of in-stream advertising on Twitter:

Will relevance trump authenticity? Do you care if your friend truly believes in something he advertises if it’s relevant to you? This question goes to the heart of behavioral science and trust – you might want to think about it more than just a little.

Relevance matters because consumers demand the responsiveness brands are capable of providing. Brands are learning about their audiences and either developing products to meet their needs or finding the best audience for the products they have. McDonald’s has added new products and changed others to respond to the needs of an audience it now understands better than before. Cadillac realized that there was an audience for upscale American cars that was younger, more active and more diverse than the stereotypical Cadillac owner, and created fresh (if not perfect) new vehicles for that new market. Social media is an efficient way to promote relevance, because brands can respond to consumers in near-real time. This has captured the attention not just of brands such as Best Buy, with its twelpforce program that uses Twitter to engage customers, but also of brands such as … McDonald’s and Cadillac.

Effect of In-Tweet Ads?

Authenticity matters because, if consumers are going to be influenced in their purchase decisions they want to be able to trust the source of that influence. It isn’t surprising that personal recommendations are more powerful drivers of consumer behavior than brand messages. If we trust recommendations from peers it isn’t just because they know what we like, or even that they know what they’re talking about, it’s because we trust them not to screw us when they recommend a product or brand.

We don’t think the long-term risk from sponsored recommendations is that consumers will be screwed, especially if those making recommendations both disclose that they are being compensated and are truthful in their suggestions. We think the greater risk is that consumers will become less trusting of social media generally and will require a deeper or longer relationship before relying on any online recommendation. That would be bad news for brands, because making consumers more cautious about relying on peer recommendations should be the last thing brands want to do. Their strategy should be to increase both the number and influence of their brand advocates. Sponsoring tweets and blog posts could be one of those strategies with short term benefits but long term costs.

Update (1/26/10): Fixed typo in last paragraph.