When the concept of “branding” really came into vogue in the mid-90’s, its practitioners touted it as a higher-minded field than raw advertising—because your brand, they said reverently, belongs to the customer. Cue the choirs of angels.

If this were really true, then you wouldn’t need to pay a branding agency tens of thousands of dollars to develop your brand, then millions more to sear it into your customers’ brains. You would just turn the whole process over to your customers and let them tell you who you are.

Which is a pretty good description of what user-generated content (UGC) can actually accomplish. Of the many forms of UGC now flourishing on the Web – a category that includes product reviews, videos and photos, personal blogging, fan fiction, etc., just to name a few – consumer participation in brand contests is among the most prominent and prolific. Despite what we hear about increasing consumer disdain for mass-market brand advertising, consumers appear eager to participate in forums that allow them to riff on brand identity.

Why is that? It’s partly a shift in the balance of power between marketer and consumer – more on that later – but brand interpretation also has a more deeply rooted appeal. When you ask consumers to get creative about interpreting your brand, you’re really tapping into the same part of their psyche that the brand was meant to appeal to in the first place – you’re asking them to make deep connections between your brand and their lived experience.

Brand-focused UGC may in fact be the most revolutionary tool that social media offers the marketer, but only if brands let it happen. Let’s say, for instance, that you’re a well-known soft drink maker with a tried-and-true brand formula. In order to “activate the base,” your run an online UGC contest and ask users to submit new ad designs and taglines. You get a raft of responses, including some truly break-out creative. You post some winners, give out some prizes, and everybody goes home happy.

That’s a perfectly legit use of UGC, and it describes the vast majority of UGC contests out there. But what if instead of folding up the UGC tent after the contest, you took your finalists for what they really are – your true brand stewards – and let them play in the big leagues? What if you ran the ads they created? What if you started a conversation with your newly minted brand stewards, soliciting their feedback on new products and campaign ideas?

Taking this second step makes marketers nervous. It’s one thing to let consumers into the brand laboratory; it’s quite another to let their newly created brand monster break out of the lab and trundle off toward the village. Who’s going to explain the crowd of angry torch-bearing villagers to the CEO?

But when branded UGC is done right, the risks are contained, and the rewards are more than worthwhile. Consider the already well-worn statistical chestnut about consumer trust and social media, based on Nielsen’s tracking data: consumers trust in advertising is in serious decline, currently ranging between about 20 and 50 percent, depending on the medium. But trust in the recommendations of others is on an upward trend – as high as 80 percent.

I’m suggesting that marketers can tap into that trust level when they let UGC out of the lab. The mere act of asking consumers to participate in UGC helps to engender trust in the brand, but letting that content live outside of the UGC contest might actually help save advertising. Imagine commercial breaks so chockfull of innovative UGC ads that consumers take their fingers off the fast-forward buttons on their Tivo remotes. Five years ago, no one would have believed consumers would pay attention to commercial content that wasn’t professionally produced. But then no one could have imagined consumers being interested in Twitter either.

Before I start to sound too utopian here, let me point out the purely practical benefits of unleashing UGC. A good UGC brand contest is a classic two-for-one: you get the brand props for consumer participation and all the gross impressions you crave, but you also get a very efficient bit of “crowdsourcing.” If crowdsourcing is simply a way of putting the crowd to work, then UGC fits the bill: you can potentially generate terrific branded material at a fraction of what you’d pay an agency. And since you may have caught wind of some dark financial clouds gathering on the horizon, finding ways to do more with less should be a popular theme in 2009.

Still sounds too risky for your brand? Consider that you have full control over how much free reign to give consumers, and you’re ultimately the arbiter of what content gets used and how. I tend to favor giving consumers maximum latitude in what they produce and letting the best ideas float naturally to the surface.

But there are benefits to the tight-reigned approach as well. We developed a UGC print ad contest for an outdoor gear company with a fairly elite customer base of hard-core mountaineers. They wanted the campaign to produce a print ad they could actually run, as close to camera-ready as we could get it. We built a contest interface that allowed users to include 100% of their own photos and content, but constrained the layout to the established look & feel of the print campaign. The results were UGC print ads of quality and content comparable to the agency-produced work.

The bottom line is this: If we really want to use UGC to help us build better brand relationships with our customers, we can’t treat it as just another brand hit or traffic driver. Before you ask your customers to pour heart and soul (or even their half-baked ideas) into the UGC bucket, ask yourself a simple question: where will this content live six months from now? If you don’t have a plan for how you’ll use the best content to advance your relationship with your customers, drop the idea. You’re not ready. But if you’re willing to let it out of the lab, your customers will reward you for it.