What Is Social Identity?

Social identity is an organization or company's image as derived from its relationships with its customers, suppliers, shareholders, and other stakeholders. An organization's social identity thus comes from the groups that the organization belongs to or is affiliated with, the way it is structured, the industry it belongs to, and other social factors. A company's social identity will impact how it is perceived by consumers, so social identity affects a company's bottom line and should be closely managed.

Key Takeaways

  • Social identity is a company's image as derived from its relationships with its stakeholders.
  • A company's social identity, whether positive or negative, impacts its bottom line.
  • Relationships, branding, public relations, and marketing all affect what a company's social identity is.
  • In a world that is becoming more socially conscious, a company's activities and their impact on society are becoming increasingly more important.

Understanding Social Identity

A company's social identity derives from its relations, connections, and perceptions embedded into the minds of its stakeholders and observers. This takes place through branding & marketing efforts as well as through public relations departments, social media channels, and the company's own products and services.

For instance, some companies pride themselves as being environmentally conscious, or "green," and so either produce eco-friendly products or use green technologies in their production processes.

So-called ESG investing (environment, social, governance) criteria are used by socially conscious investors to ensure that they put their money behind companies with environmentally-friendly social images.

A company's brand image is also part of its social identity and is increasingly managed in part on the Internet through social media channels, such as Twitter and Instagram, as well as through traditional forms of media and public relations channels.

Components of Social Identity

Making strategic alliances or joining professional associations or platforms can be an important signal for social identity. For example, whether a public company becomes listed to trade its shares on the Nasdaq or the New York Stock Exchange (NYSE), could be considered part of that company's social identity that signals legitimacy, which attracts investors.

Being added to an important equity index such as the S&P 500 adds further cachet. Social identity can also refer specifically to a company's image as portrayed through social networking websites such as Twitter, Facebook, and LinkedIn.

Companies now have their own verified Twitter and Instagram accounts that provide company updates, news, and promotions to their followers. Some companies' Twitter feeds have built a social identity around wry humor, such as Wendy's Inc., which often responds cleverly to online posts. This endears customers and brings a personality to the company.

Once a company's social identity is negatively impacted, it is very hard to bring back into a positive light. It is for this reason and the effect it has on the bottom line that a company must always safeguard its social identity.

One of the most famous examples of social identity is that of Apple (AAPL) in the 80s and 90s. Apple portrayed its social identity in contrast to the larger and more successful Microsoft (MSFT). The identity that Apple created for itself was that of being the underdog, the revolutionary, and much "cooler."

Company CEOs or other important figures may also take to social media under their own name but in service of the corporations that they run. When someone falsely impersonates an individual or company online, it is considered social identity theft.

Companies can also damage their social reputation online by consistently posting unfavorable tweets, which has been the case with Tesla (TSLA) CEO Elon Musk, where his board of directors have cautioned him against using social media as the stock price retreated after a series of ill-advised tweets.

Social Identity and Financial Performance

When a company has a positive social identity, it translates to its bottom line. With the world becoming more and more socially conscious, investors and the general population seek out companies that play a positive role in society. Individuals prefer to do business with companies that are seeking to do good.

Conversely, companies that have a poor social identity are criticized, ostracized, and often see a thinning of their customer base, resulting in lower sales. Though oil companies are financially robust and powerful and can weather many storms, they often come under heat when there is an oil spill or when they've been seen to pollute the environment.

Not only are they held liable for millions or billions of dollars in cleanup efforts, but often witness their social identity damaged and, therefore, their business. This is becoming more of a concern for oil companies now that clean energy is becoming a viable option for many individuals.

For example, after the BP oil spill, in the second quarter of 2010, the company recorded a loss of $17 billion. The company's CEO resigned that year and that year's dividend payments were stopped. Furthermore, BP petrol station owners reported declining sails after the oil spill.