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Why is social media so important for companies?

It is 2013, and social networks are booming. People seem to be thronging in hordes to the various social media sites. Here are some examples of the kind of numbers social media sites are attracting:

  • Facebook boasts of a whopping 1.11 billion active users per month
  • Google+ has 343 million active users
  • Twitter has 200 million active users
  • Pinterest is catching on with 50 million active users

Not only is the volume of active users large, but the average time spent on social networking sites is about 15 hours per month. With numbers like these I can imagine companies salivating at the prospect of making money on these social networking-hungry users.

Exciting, tantalizing, and lucrative — social commerce is big now. Booz & Company predicts $15 billion in social commerce revenues by 2014. This is approximately 10% of what is expected to come from total ecommerce revenue.

Executives find social media so important now, that they feel that they leverage it to support all aspects of the ecommerce funnel by

  • Increasing awareness and consideration through advertising
  • Reducing help desk costs through consumer forums
  • Listening to and understanding consumer perception
  • Supporting advocacy through making recommendations viral

What challenges do companies face?

As companies struggle to embrace this new opportunity, they realize that monetizing social networks is not all that easy. Typically, companies take two approaches to integrating social media into their services.

The first method is setting up a direct presence on a social networking site such as Facebook or Twitter.

The second method involves use of social plug-ins to enable social functionality on an existing site. Facebook, Twitter and other such sites make it possible to integrate recommendations and interests from the customers’ friends, in order to influence purchase decisions.

Both of these approaches are fraught with many challenges. Some of these key challenges are illustrated below.


Advertising vs. Conversion

One of the major applications of social commerce is reaching out to potential customers through advertising. Companies push targeted advertisements to customers in hope of enticing them towards conversion.

Targeted advertising, though seemingly wonderful, can be of concern, considering that it could scare away your customers. Customers don’t enjoy the fact that their every click, conversation, purchase, etc. is being tracked.

Customers are also very concerned about social networks accessing their data without their permission to target advertising. It makes them feel vulnerable and exposed, causing them to lose trust. The following chart from Harris Interactive’s “Alert Shopper III” shows that consumers associate the least amount of trust with targeted ads from Facebook. Consumers are especially concerned when it comes to Facebook accessing their location and personal data.

Commonwealth Bank had attempted to create a Facebook application where customers were required to enter their account credentials to get more targeted recommendations. Here is an extract from the beta testing of the application, where customers had a very strong reaction to trusting Facebook with their financial details.

“At the moment, there is no way in the world I would even consider this. It is just not safe enough. It’s fine for photos or comments you want the world to see but privacy in Facebook is a joke.
So, is Facebook going to broadcast all your financial transactions because you didn’t spend enough effort to tailor your privacy settings? And what happens if you log in one day and find they decided to transfer all your money into an “official” Facebook branded account without your permission?
LOL … sounds fantastic … until it “frictionlessly shares” your account login details to your 574 friends’ news feeds!”

The other challenge with advertising on social networks is how success is measured. The typical measure for success here is the clickthrough rate (CTR). This, very simply, is the measure of the number of clicks on the promoted advertisement.

Greenlight, Search & social media survey conducted in May 2012 illustrates the CTR on Facebook across different sectors. The study revealed that retail delivered the CTR when compared to other sectors.

It also showed that sponsored advertisements such as the one shown below tend to have a high CTR.

Though a good CTR shows that customers are expressing initial interest, that may not be enough. A component of the same study shows a contradictory side of things. This component used a survey conducted across 500 participants, mostly from Europe and North America, but few from Asia. The survey showed that only 10% participants clicked on advertisements in Facebook while 44% never clicked on them. This showed that social networking site users, while engaged in “brief but intimate” conversations, have little patience for interruptive advertising, even if it appears relevant to them.

In conclusion, though CTR for the retail sector might be going up, the transaction volume may not. Consumers’ trust associated with advertisements on social networks is poor. Though consumers may click on advertisements sponsored by their friends, this may not be enough to influence their transaction decision.

Reducing helpdesk costs

Servicing customers who raise requests, concerns and issues on social media is an important area for companies. For customers who previously sought to get their grievances addressed through writing letters and calling the call center, this seems to be a blessing.

A survey conducted by communications agency Fishburn Hedges and Echo Research amongst 2,000 UK adults showed that in April 2012, 36% had used a social media platform to contact a big company.

Some 65% of those surveyed said they believed social media was a better way to communicate with companies than call centers.

The downside of this is that leveraging social networking sites to address customer grievances can also backfire. Many companies have discovered that simply providing a social media destination for customers to provide feedback can turn quite ugly.

Qantas discovered this when it encouraged people to use the Qantas Luxury hashtag to share positive experiences of flying with the Australian airline. Instead of sharing positive feedback, disgruntled customers showered thousands of complaints and sarcastic comments.

McDonald's was also stung when it created the McDStories hashtag, hoping to receive a stream of positive tweets. McDonald's stopped using the hashtag after just two hours of receiving a barrage of negative tweets. Unfortunately by then the hashtag had taken on a life of its own and continued to be used.

What companies are realizing is that social media presence can very easily end up being places for disgruntled customers to rant and hold customer helpdesks at ransom for the price of their fickle loyalty.


Customer loyalty & advocacy

Gauging customer loyalty and advocacy through social media is hard. One of the key ways that marketers determine customer loyalty & advocacy is through measuring “like”s and “+1”s that customers post.

When it comes to measuring loyalty, Facebook “likes” on pages don't always translate into brand loyalty. Two visualizations below from eMarketer help illustrate the behavior of consumer who “like” pages through Facebook. The eVOC insights study illustrates that a majority of consumers who “liked” a brand are not very likely to arrive at purchase intent. The CMO Council study shows that 67 percent of consumers “like” a page in the hope of being eligible for exclusive offers.

A recent campaign by UNICEF stresses that Facebook “likes” don’t amount to much. Even with 2.6 million likes on its Facebook page, UNICEF really isn’t making enough money to support the various causes. Facebook “likes” are not equal to money or transactions. They just showcase the lowest form of commitment that flippant Facebook users are ready to make.

In the case of customer advocacy, “likes” again don’t add up. Steve Knapp, Director of brand activation, senior partner at Carmichael Lynch, states that consumers may like your company, but that doesn't mean you have their attention. He elaborates that research indicates that anywhere from 3% to 10% of the Facebook fan base has hidden your company updates from their news feeds.

Facebook “likes” also don’t work as advocacy, as they have minimal influence on the friends who receive them. Researchers at Harvard University examined the Facebook activity of about 200 college students over four years, beginning at the start of their college careers in March 2006. Information was collected annually about their social networks, including who they were 'friends' with, and what they “liked” online. This data was combined with academic and housing data on each of the students.

Researchers concluded that users are more inclined to befriend people because they have a lot in common, rather than adopt the same tastes and preferences of current friends.

How do we get social commerce right?

The challenge here is to stop looking at social commerce as a quick bandage solution to business success. Executives need to start looking at it through the lens of user experience (UX) strategy. A well balanced UX strategy is derived from a combination of the right channels, research based customer understanding and persuasion/design strategy.

Build a customer understanding

One of the most important components of implementing social commerce is to understand customers and how they engage with social media. Google Advanced Global Mobile Trends 2011 states that the rules of engagement around social media are unequivocal. We cannot assume that Facebook or Twitter are being used similarly across the customer population. It is evident that users create their own rules around how they will leverage/use a certain social network or even the different communication modalities present within it. Thus it becomes imperative to conduct research which helps us understand the customers better. Ask questions which help clarify…

  • How do they use different social network sites?
  • How do they use the different communication modalities within social network sites?
  • How do they associate with others through social media and how would that influence their click/purchase decisions?
  • What are their drives, blocks, motivations and feelings around how they associate with your product/service?

Which channel is right?

Social media is accessed from across multiple channels. Customers tend to use social media differently across channels. An understanding of how customers engage with different channels can be gained through ecosystem research. An ecosystem model illustrates the channels, players, scenarios, needs and opportunities that surround the customer. This helps us look at the relationships which could be leveraged to engage the customer.

One of the important trends to look out for, with regards to social commerce, is the rise of mobile phones. It is easy to see that in the coming years, much of social networking presence will be through mobile devices.

This symbiosis for the first time provides a great way to do away with “digital dualism” and to create a singular seamless experience across physical and digital devices. Though companies strive to integrate mobile with their services, the full potential of mobile and its integration with social media is yet to be seen.


Develop a Persuasion/Design Strategy

Once there is a sufficient understanding of the customer and the channels he employs, the third component is to develop a persuasion strategy. A careful selection of persuasion tools needs to be threaded together contextually to the customer type. The tools may also differ based on what you want your customers to do. So, what do you want them to do? Should they…

  • Do more than just click on advertisements on social networks
  • Leave positive feedback
  • Be loyal to your brand and purchase repeatedly
  • Become advocates and influence their peers to become your customers

The promise of social commerce is tremendous, but we have to be mindful of the challenges it poses. It is only through following a process-driven approach of understanding your customers and the associated complexities of social media that you will be able to develop a UX strategy that achieves business success.

More information

Eric Schaffer, founder and CEO of Human Factors International, discusses how UX strategy translates executive intent into a clear strategic direction by defining a motivation strategy unique to specific users and creating a seamless cross channel solution. Request this white paper on UX strategy to learn more.

Message from the CEO, Dr. Eric Schaffer — The Pragmatic Ergonomist

Leave a comment here

Reader comments

Arvind Krishan

Very good paper. Well supported with intensive research.


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