Julian Cole, digital strategist at The Conscience Organisation, said firms were "scared" of social media because it enabled consumers' opinions to be voiced more loudly than ever before.
"Where someone used to tell their 10 closest friends about their bad experience with a product, they can now tweet, status update and blog to 1000 of their friends about their trouble," he said.
"The other major impact of this is that there is a higher chance for consumer stories to spread faster using social media."
Mr Cole cited as an example a video uploaded to YouTube in which a consumer demonstrated how they could pick a Kryptonite bike lock in seconds with a BIC pen.
He said social media also led to companies losing control of what their employees were saying about their brands online. Mr Cole used the infamous example of the Domino's Pizza employees who published videos of themselves on the web fouling up customers' food.
Another example is the three scantily clad Californian teens who were fired from their jobs at KFC for publishing photos of themselves on MySpace bathing in a KFC basin.
Companies can even be held responsible for false, misleading and deceptive testimonials published on their Facebook pages by outside observers, the Australian Competition and Consumer Commission recently said.
Electronics retailer Bing Lee faced an onslaught of criticism for trying to raise money for the Queensland flood victims by getting people to "like" its company on Facebook.
Iain McDonald, founder and executive creative director of digital marketing firm Amnesia Razorfish, said brands had realised the power and influence of social media but many still saw it as a threat or a mysterious force that existed beyond their immediate control.
"Social media is not something you can manage by paying someone like you can with PR or advertising so it represents a significant challenge and is likely to take a few years for brands to adapt to [it] fully," he said.
Mr McDonald said the primary currency of social media was authenticity and brands could rarely get away with spin or manipulating their performance. One mistruth or bad consumer experience could be front page news within hours, courtesy of Australian journalists using social media and Twitter to seek out stories.
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