By Marcus Leach

Companies able to grasp social media’s potential to transform the way organisations function will secure a significant competitive advantage over their rivals, according to a new report from the Economist Intelligence Unit.

The dynamic, user-generated information exchanges that are social networks can provide companies an extraordinary opportunity to understand and work with their customers in beneficial ways. To benefit most, companies should use new forms of valuation to shape their customer engagement strategies, according to the report, Re-envisioning customer value, which was sponsored by SAS.

Applying conventional valuation methods, which identify companies’ most valuable clients by their transaction activity, can wastefully misdirect a firm’s interaction with its customers.

New approaches are necessary to avoid mistaking customers’ monetary value with the value of their influence. Harnessing the value of social media provides business with deeper insight into customer preferences and captures product feedback while identifying influencers and their networks.

Furthermore, updating metrics of customer value in order to improve a firm’s customer engagement can boost the company’s market capitalisation by more than 30%, according to academic research and data across two different industries. Drawing on this untapped wealth of customer information can open the floodgates of new potential value, driving growth and shareholder value.

The research explores the changing face of customer valuation. Other findings from the report include:

· Organisations must learn to distinguish between noise and valuable business information. Rigorous analyses can provide fresh insights from customers’ social media behaviour and from the digital trails found within companies’ systems. However, many current measures do not yield actionable intelligence; companies must proceed thoughtfully in this new field to avoid heading down the wrong track.

· Influence is valuable. Social media provide everyone with a platform, but reaching the right people can drive profitability. For instance, seeding an online word-of-mouth marketing campaign with people identified as influencers is 45% more effective in ROI terms than random seeding, according to Michael Wu, a scientist of analytics interviewed in the report.

· Senior executives need to integrate customer engagement across departments in order to capitalise fully on new insights into customer valuation. This requires significant organisational flexibility and relinquishing some measure of control. Social media need to be employed as tools in the service of wider business aims, not siloed as a discrete functional area.

· Organisations must ensure their interaction with customers and social networks does not appear intrusive or inappropriate. Inadequate governance policies expose many firms to significant risks as they seek to derive value from social media — not only reputation hazards but legal compliance issues and protection of their intellectual property.

Engage and interact with your customers — or someone else will! The Fresh Business Thinking Guide To Social Media looks at how businesses can harness platforms such as Twitter, Facebook, LinkedIn, YouTube etc to engage with customers, employers and others. The event will be held at the Microsoft HQ, in London on 28th June 2011 and will feature a number of social media experts who will introduce you to the mechanics and benefits needed to survive in today’s connected world.

To find out more, please visit Fresh Business Guide To Social Media