One of the toughest things about social media is measuring its effectiveness. What may be harder still is measuring the effect of not being involved in social media, and being unaware of negative buzz about your company — or being aware of it and deciding to do nothing about it.

I chatted about this today with Paul Philp, VP Product Development for dna13, and I suggested the term “brand shrinkage” to describe the difficult to measure but very real effect of unchecked consumer dissent.

In the retail industry, shrinkage is the percentage of inventory that breaks, is spoiled, is stolen by employees, or that simply vanishes. For many retail businesses, a few percentage points of shrinkage are considered an acceptable cost of doing business. It’s a strange concept really, having a business problem with a significant and measurable impact, and instead of dealing with it, choosing to write it off as acceptable.

But the same thing is happening to companies that ignore what’s being said about them on social networks and other online forums. They are experiencing brand shrinkage — a decline in the value of their brand — and choosing to “write it off” by not participating.

It’s common to see people “slamming” service companies in particular. Telecoms companies get it all the time, as do IT companies and the airlines are a constant source of aggravation to consumers. And it’s a mistake to say, “people are prone to complain, we can’t respond to every disgruntled troublemaker with a blog or a Twitter account.” Because the business costs of failing to respond are very real. Because, for consumers, the next step in these conversations is to change providers, a process made highly efficient by their network of online friends ready to suggest an alternate provider. I don’t think it’s constructive to mention company names here, but I have SEEN this happening. It’s a real business cost. It’s a real risk of deciding not to “do” social media.

To see what people are saying about your company, or a company you do business with, do a Twitter search on the company name, or search on “worst customer service” to see a list of favorite targets. Also, check out Get Satisfaction.

Is brand shrinkage, and the resultant loss to reputation and revenue, something that should be considered an acceptable cost of doing business? And if the cost of mitigating the risk is simply to monitor a few search engines and a few social networks, and respond to negative buzz when appropriate, why wouldn’t you? From a traditional cost/benefits analysis, failure to participate in these discussions at some level simply does not make sense.

Tags: brand shrinkage, social media, business costs, business benefits, risk, get satisfaction, twitter