3 ways social media advertising is driving our economy

We’ve all seen advertising in action:

An advertising agency persuasively promotes a product or service, showing how it brings value to our lives.

We see the ad and often instinctively believe we need that product or service.

We decide to purchase it.

This isn’t new news to any of us. In fact, advertisers have been manipulating supply and demand curves and increasing sales for businesses since the mid 19th Century.

The Internet: an advertising game changer

With the introduction of online advertising in 1994, the game began to change. The incredible growth of the Internet and social media platforms since then ushered in a new era in which online advertising began overtaking the importance of traditional marketing.

In fact, according to the Journal of Creative Communications, social media advertising now consists of 56% of business advertising efforts.

This is because social media advertising incorporates elements that traditional can’t: allowing businesses to specifically target their audience and engage with a product or service—all in real time.

As social media advertising has shown itself to be effective in manipulating the supply and demand curve (just like traditional marketing), it has emerged as a powerful driving force for our economy. It’s doing this in 3 key ways:

Shifting the demand curve

Advertising raises the level of demand for products, which results in an increased number of products or services sold. A unique element of social media is its ability to create a longer lasting demand shift by capitalizing on the importance of word-of-mouth and opinions of friends in consumer decisions. Pepsi’s Refresh Project campaign is one example. Rather than spending millions on a one-time Super Bowl ad in 2010, Pepsi put its money in a social media campaign that lasted an entire year. This project allowed consumers to apply for grants each month as well as share and vote for the winning projects themselves, which created the potential for a viral spread to outlive any one-time, paid-for ad.

Rotating the demand curve

When advertising rotates the demand curve, it creates an inelasticity for a product or service. When this happens, a consumer is willing to pay the current price for a product or service, allowing the business to grow demand while increasing supply without lowering prices. And because social media advertising is so effective in encouraging ongoing connections with consumers, it naturally helps a brand build its reputation and credibility, which helps ensure this curve rotation. As consumers become more connected with and trust a brand, they are less sensitive to prices.

Creating a direct network effect

Social media has a phenomenal ability to leverage the word-of-mouth networking that occurs by users recommending and sharing products. For example, research shows that when someone recommends a product to a friend, the chance of them purchasing that product increases. As more people purchase a specific product, its value becomes directly linked to the number of consumers consuming that good. Many product trends can be traced back to word-of-mouth advertising that spreads through sharing and recommending products or services via social media. In this way, social media plays a role in creating direct network effects.

Social media advertising is proving itself to be a powerful driver of today’s economy. For this reason, it’s important for marketers and businesses to take note of social media’s effectiveness in shifting the demand curve, rotating the demand curve and creating a direct network effect.

Have you considered ways you can leverage social media advertising to build your business? I’d be happy to talk with you about the best platforms to increase your sales.