In an interview with Harvard Business School’s online publication Working Knowledge, HBS professor Sunil Gupta discusses why companies shouldn’t buy advertising on social networking sites:

“The click-through rate of ads on social networking sites is extremely low . . . because people don’t go to these sites to seek information about specific products.” They’re there to look at photos and communicate with friends. So, rather than looking to older advertising-based models of reaching people, like static ads, companies should try viral campaigns that focus on active things, like contests and giveaways.

Say, for example, Dell wants to promote a new laptop on Facebook. Dell can pay to advertise and accept that most people won’t notice the ad. Or, they can give away free laptops to several fans on Facebook. The cost of the computers is probably less than the cost of advertising, and the giveaway is much more effective at getting people talking about the brand within the network.

The lesson: Use the cash you would’ve spent advertising your product at customers and put the money towards something that directly benefits them.

The wine company, Carlo Rossi, is holding a contest with a $10,000 grand prize. Information about the contest can be found on the company’s Facebook page. To win, people have to read a little bit about the company’s “legendary” founder. They have to answer a few quick questions, like what’s their favorite sport or TV show. Then, contest entrants have to write a one hundred word essay about why they should be chosen to lead “the Carlo Rossi Posse.”

The contest lets people interact with the brand, generates entertaining content, and gathers information about what the company’s customers like. The approach is more valuable to both Carlo Rossi and its fans, and is more cost-effective.   

(photo via Wired)

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