Extracting consumer trends from social media conversations- Are they reliable?

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Recently I came across an article published in the New York Times about how Frito-lay is in the process of developing new potato chips flavor using their Facebook page. Visitors visiting Lay’s facebook page is asked to suggest new flavors and click on “I’d Eat That” button to save their preferences.

Social media websites are fast becoming the new means for getting consumer preferences. While for consumers social networking sites like Facebook, twitter and foursquare are places for them to interact with friends and families and to post comments, companies like Wal-Mart and Frito Lay are extending them as their consumer research tools.

Last year, Wal-Mart bought the social media company Kosmix for $300 billion for the sole reason that Kosmix is a specialist in extracting consumer trends from social media conversations. In one of their analysis, the unit, now known as @Walmart labs found that the cake pops were becoming popular and decided to carry out the cakes in the Wal-Mart stores.

But what is banging my head is that do really social media conversation can be trusted as a sign of larger trend? Just because people tweeting and liking on facebook pages a lot about pop cakes does it mean that future buying habits of consumers are changing?. My thought on this provoked when I read an article on tech crunch which portrays social media as a medium that distorts us from the real world. According to the author, social media misrepresents reality a lot. For example when you start spending time in twitter and facebook you get the feeling that whole world is around you in the sites while in reality only 50% of your friends list will be online.

However, many studies show that analyzing the moods in social media can definitely help in predicting the stock market movement. A study from Pace University showed that social media can be used to predict the share prices of Starbucks, Coca-Cola and Nike. Another study showed that tweets can be used to analyze the box-office revenues for Hollywood movies.

Another example that validates my doubt is what if apparel designers follow the social media conversations to predict latest trend and launch new set of apparels?. They would end up nowhere my folks. I may talk a lot about my love on premium designer brands like Louis Vuitton in social media websites, but that doesn’t means that I can afford to buy branded apparels on a routine basis!!.

This example can be extended to many other consumer products as well. Yet another thought that came across my mind was how companies can predict consumer trends by observing social conversations in a club or group when we being social beings don’t like to stick to single fan clubs.

Well it is true that studies validate the fact that social media conversations can be used to predict future but there are some evident potential risks in predicting brand intentions as I mentioned above. I would love to know your comments as well on the thoughts on this.