Report

8Economics: Report

Report a company that crashed due to the social media

(University Affiliation)

Introduction

The emergence of the social media in the modern corporate world has definitely come with a lot of blessing to corporations and an equal proportion of curses. The social media is a platform where millions of people get to interact such that one would get to get informed on real time events taking place thousands of miles away (Ho, 2014). Many companies all over the world have embraced the social media since it is now easier for a marketer to reach a huge number of people at the same time. Issues arise when the social media platforms are misused either by external detractors or people within the organization either deliberately or accidentally. The effect in most cases is irreversible considering the speed at which the information travels (Townsend, 2016).

The main purpose of this report is to analyze the negative effects that the social media has on a company. The report is specifically focusing on the financial losses that the particular company incurred as a result of its strategic teams to effectively deal with the social media to avoid mistakes that would cause negative reactions from the public. The report will analyze YouCastr’s financial losses that are as a result of poor management of their social media platforms by assuming that the sporting networking site could guarantee them increased sales.

Social media and Firms’ Performance

Reports indicate that on average, firms are expected to lose up to 4.3 million dollars in sales globally as a result of mistakes they make in the social media (Ho, 2014). Research has also indicated that crisis brought about by the social media is on the rise from year to year. This shows that companies that do not pay a closer attention on their branding strategy in the social media can frustrate and in most cases confuse the customers whose concerns can now be able to reach millions of people all over the world thanks to the social media platforms (Ho, 2014). It is a major concern worth considering because any mistake is likely to lead to massive financial losses and in extreme cases, the collapse of the enterprise. In some cases, organizations can decide to set up a social platform that would make it possible for the organization to communicate to its customers but eventually fail to connect to the customers. It is one thing therefore to set up a sporting network site and another one to consider the market under which the core users of the commodities existed (Townsend, 2016).

Evaluation of YouCastr’s startup

Youcastr was a startup firm that gave its clients an avenue aimed at making it possible for the sport lovers across the world to improve their interaction techniques using online streaming. The organization made effective use of its internet connectivity to target its audience. The firm, however, closed down due to the failure of the company to focus its time and resources on the engineering aspects rather than the development of a closer relationship with its customers (Chubby Brain, 2010).

It is the 21st century and everyone is pretty much involved is some sort of a social media platform (Akula, 2015). At least over 73% of the world’s population adults do have a social media account. The role it has played in getting people to know the products offered cannot be underestimated. However, it has impacted negatively on the sales of the company due to reduced demand occasioned the company’s inability to use the social media platforms to connect to the customers (Chubby Brain, 2010). As individuals get to learn little about the aspects of a commodity, the reaction is to either quit its consumption or reduce its consumption. YouCastr’s social media strategy, has been more than just posting updates to let people know about the new products and services. It is also more than sharing a piece of information. It is a platform that the company uses to engage their target audiences and let them know what they think about the products (Akula, 2015).

The negative economic impact on YouCastr

YouCastr’s’s negative encounter with the social media has had a very huge impact on its economic performance. As people get to know less about a brand, the most likely reaction is to either quit its consumption or reduce its consumption (Chubby Brain, 2010).

This in economic terms has an effect on the taste and preferences of the consumer since they are more likely to shift their loyalty to other competing brands in the market. This will definitely affect the sales volume and consequently the profit margins (Chubby Brain, 2010). When a company’s demand shrinks, a shift in the demand occurs. In the case of, a negative shift in the demand curve has occurred due to a change in the preferences of the consumer occasioned by the bad rumor that the company has attracted on the social media. Shifts in the demand curve are brought about by the changes in factors like taste, the prices of other related commodities, income etc other than the price of the commodity (Sunil.sh, 2013). The change in the demand for the commodity or service is indicated by a shift to the right or left of the original demand curve. Economists state that there is a direct relationship between quantity demanded and taste. For instance, if consumers’ taste and preferences change in favour of a commodity, demand will increase. On the other hand, if taste and preferences change against the commodity, e.g. due to changes in fashion, demand will fall. Taste and preferences are influenced by religion, community background, academic background, environment, etc. (Sunil.sh, 2013).

In the figure below, D2D2 represents the initial demand before the changes in the tastes and preferences. When the demand decreases, the demand curve shifts to the left of the demand curve from D2D2 to DD. The quantity demanded at price P1 decreases from q1 to q1 (Sunil.sh, 2013).

report

Figure 1 (Sunil.sh, 2013) 

It is important to note that shifts in the demand curve occur due to factors other than prices. In this case, therefore, if it was to reduce the prices of their products, the change in the levels of demand is less likely to be significant. (Cohan, 2016). By doing so, the company would be able to restore the confidence of their loyal customers regarding their brands and the sales volume would be on the rise again. Although reversing the damage is usually a very toll order, the organization needs to employ the best strategists who will convince the consumers all over the world that the products they offer do not have a negative effect on their financial assets (Burrough, 2008).

The level of demand for a product in the market depends on the amount of information, whether negative or positive that consumers have regarding that particular product. In this case now, studies have shown that the social media has concentrated on a number of particular assets, i.e. its securities. Customers are sensitive on information they receive especially the high income earners who have an inelastic elasticity of demand so that they do not focus on the cost of the assets that they intend to purchase but rather the value (Cohan, 2016). The inelastic demand curve faced by can be illustrated in the graph below.

report 1

Figure 2 (Sunil.sh, 2013) 

From the graph above, a change in price is going to lead to a less than proportionate change in the quantity demamded. This means that those customers with this kind of elasticity can be brought back with the use of advertising messages aimed at developing a close relationship with the customers.

For the low income earners, it would be wise for the company to lower their cost of assets and services in order to attract the customers. These types of individuals have an elastic demand curve as shown below.

report 2

Figure 3 (Sunil.sh, 2013) 

From the table, a small price change from po p1 leads to a larger than proportionate change in the quantity demanded from QO to Q1

Conclusion

In conclusion, it is no longer possible to imagine a corporate world without the role that the social media play currently. While acknowledging the role it has played in getting people to know the products offered by, it has caused a proportionally huge negative impact on the sale of the company due to reduced demand occasioned by the decision of the company to focus on the engineering aspects rather than the development of a close relationship with prospective customers. The report indicates that the reduced demand has shifted the company’s demand curve to the left, which means that the sales levels have reduced significantly. The company needs to ensure that they provide more information to the public to create more customer loyality. The beauty of doing a business is positive publicity and an ever increasing sales volume and anything that distracts the course should be dealt with as soon as possible.

Reference

Akula, S 2015, The influence of social media platforms for startups. Journal of Mass Communication & Journalism, 05(06): 264-266. doi:10.4172/2165-7912.1000264

Cohan, W. D. (2016). What happened on wall st. Ahead of the crisis? We may yet find out. DealBook. Retrieved from http://www.nytimes.com/2016/08/10/business/dealbook/what-happened-on-wall-st-ahead-of-the-crisis-we-may-yet-find-out.html?ref=topics

Chubby Brain. (2010). Youcastr — company overview and description. Retrieved September 30, 2016, from http://www.chubbybrain.com/companies/youcastr#axzz11MEfKLwc

Ho, M. (2014, October 17). How a social media mistake can cost $4.3M in losses | SEJ. Retrieved September 27, 2016, from Social Media, https://www.searchenginejournal.com/small-social-media-mistake-ended-costing-companies-4-3-million-losses/116100/

Sunil.sh. (2013). CHAPTER – 2 THEORY OF DEMAND AND SUPPLY unit 1 law of demand and elasticity of demand. Retrieved from http://www.icaiknowledgegateway.org/littledms/folder1/chapter-2-theory-of-demand-and-supply-part-1.pdf

Townsend, T. (2016, September 26). In this startup metropolis, these fast-growing companies stand out. Retrieved September 27, 2016, from Inc. 5000, http://www.inc.com/tess-townsend/ss/these-companies-are-growing-even-faster-than-the-rest-of-silicon-valley.html