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Social Commerce Reshaping How Brands Sell and Customers Buy

by EOS Intelligence

Social Commerce Reshaping How Brands Sell and Customers Buy

by EOS Intelligence

by EOS Intelligence
374views

Today, social media is at the core of many brands’ marketing strategies. The growing value that customers (especially the younger demographic) place on social media content and the increasing use of social media to gain information about a product or brand have made social media an essential part of a customer’s purchase decision and experience. However, till recently, the use of social media was limited to being an advertising tool or referral channel for retailers, who used these channels to drive traffic to their e-commerce sites. This is expected to change in the future. With social media giants, such as Facebook, Instagram, and Pinterest offering direct sales options, it is quite likely that these apps will move from being mere marketing tools to becoming the final destination for sales, creating a new retail category – social commerce.

It is no secret that visual content social media apps, such as Instagram and Pinterest, offer a more engaging shopping experience for customers, who now look at these apps as an integral part of their purchase experience. Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion.

Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms. Retailers are increasingly offering quick access to their e-commerce websites via social media apps, through which they aim to drive traffic to their sites and in turn convert it into sales.

Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion. Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms.

This has paid off well for retailers, with reports stating that in 2017, the top 500 retailers globally earned about US$6.5 billion through sales that were a direct result of social media presence/marketing. This has increased by about 24% when compared with sales resulting from social media for the same set of retailers in 2016. This clearly demonstrates social media’s increasing influence in a shopper’s purchasing decision.

While it has become critical for retailers to have presence on social media, it is expected that social media will play an even bigger role in the consumer shopping experience in the future. Several social media platforms have been experimenting with direct selling options, wherein users do not have to leave the social media platform to make a purchase. While platforms such as Facebook and Pinterest have been offering direct selling options for a few years now, Instagram has recently joined the bandwagon.

As per a study by Bazaarvoice in 2019, the number of users who wish to discover and purchase directly through social media platforms has risen by 38% in 2018 over the previous year. Due to this, several social media platforms are forging their way into the e-commerce space, creating a new category, known as social commerce.

Facebook

Facebook was one of the first social media pages to move to direct selling, having introduced in December 2015. Facebook has a huge active user base (about 1.6 billion daily users) who visit the platform to engage with friends as well as brands.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required. Moreover, it provides an overall integrated shopping experience for users, who can rate, review, and comment on the products that they have purchased. This in turn increases overall engagement for the retailer, which in response may facilitate better visibility and credibility for them.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required.

Facebook store (its direct selling feature) is free to set up for retailers, however, most retailers setup their Facebook store with e-commerce website builders such as Shopify, Ecwid, and BigCommerce for ease of checkout and payment options.

While Facebook has been undertaking direct selling for a couple of years now, the response has been slightly underwhelming. This is due to several shortcomings. Firstly, the ticket size of products sold on Facebook is on the lower end, primarily due to encompassing mostly impulse or low consideration products. The average order value of referrals by Facebook is US$55, suggesting that the value of products ordered directly through Facebook would not be much higher than that. Moreover, the interface for a Facebook store is standard for all retailers, with no room for customization at their end. This also limits their opportunity to upsell/cross-sell other products. Lastly, the rights for ads shown on a retailer’s Facebook store remains with Facebook. Thus it is very likely that a competitor is advertising its products on the retailer’s page.

Thus, while Facebook store may be ideal for small and medium businesses with limited presence and scale, it may not be used by large retailers who sell high-value products and wish to provide an engaging and enriching shopping experience to their customers.

To further strengthen its hold on the social commerce aspect, Facebook launched Facebook Marketplace in 2018, which provides a destination for users to discover, buy, and sell items. However, the Marketplace differs from the Facebook Store and is more similar to eBay and Craigslist, wherein users can list products and conduct transactions through the platform. While it started as a peer to peer shopping marketplace, it has expanded to include merchant selling. As of October 2018, about 800 million people globally used Marketplace monthly to browse, buy, and sell items. This presents a unique opportunity to retailers who can drive sales of products at a platform where customers are already shopping.

While Facebook may not be the one-point solution for retail sales, it is definitely not to be ignored, especially for small to medium businesses. As per Ecwid, one of the largest e-commerce platforms, merchants who sell through this platform drive 15% of their sales from Facebook (as of 2017). Moreover, with people becoming more open to shopping through social media apps (as per a 2016 survey by BigCommerce, one of the largest e-commerce platforms in the USA, about 30% consumers are willing to make purchases directly from social media pages) and an increase in mobile shoppers, direct selling through Facebook presents a great number of benefits to retailers.

However, in 2018, Facebook announced a big change to its News Feed algorithm, which will now prioritize content shared by one’s friends and family instead of content shared by businesses and media outlets. This may further impact direct sales on Facebook, since going forward, business-related posts will feature less on the News Feed.

Social Commerce Reshaping How Brands Sell and Customers Buy

Pinterest

In June 2015, Pinterest also entered the social commerce space by introducing ‘Buyable Pins’, which are Pins that allow customers to buy products without leaving Pinterest. Since Pinterest is widely used by close to 250 million users, who visit the platform to discover new products, designs, and ideas, an option to buy pinned products seems like a natural extension for the social media player.

Buyable Pins help retailers streamline the e-commerce experience and improve conversion rates. As per a research by Shopify (another leading e-commerce platform) in 2014, Pins with prices get 36% more engagement compared with those without. Moreover, according to a 2016 survey by BigCommerce along with research firm, Kelton Global, 26% of the GenXers and Millennials surveyed claimed that they are more likely to purchase a product directly from Pinterest if given an option.

While Pinterest does not take any commission from retailers for sales through their platform, it makes money through advertisements as retailers promote their ‘Buyable Pins’ to users. Moreover, Pinterest lets the retailers handle the order processing, which includes processing payments, shipping, and customer service. This further helps retailers obtain and retain the customer’s information, which can be used in the future for sending follow-up mails, sharing promotions, and making future sales to the customer (unlike on Amazon and eBay).

‘Buyable Pins’ are currently only available in the USA and to few selected merchants. They are also available to merchants who use a listed range of e-commerce platforms, which include (but are not limited to) Shopify, BigCommerce, and Salesforce Commerce Cloud. However, the platform has been expanding, and over time will include a greater number of merchants.

Post the introduction of ‘Buyable Pins’, Pinterest also introduced a shopping cart option which is integrated across the mobile and desktop platforms, and which helps users to purchase multiple ‘Buyable Pins’ at a time.

Several retailers, especially small and medium size enterprises, have achieved significant success with ‘Buyable Pins’. FlyAway BlueJay, an online retailer selling artisanal products such as beauty products and small jewelry, attained tremendous success by using ‘Buyable Pins’ during the holiday season in 2015. All of their ‘Buyable Pins’ sales came from new customers, with ‘Buyable Pins’ driving 20% of their overall sales in the last quarter of 2015. In the beginning of 2016, Pinterest drove about 28% of their overall website traffic. Thus, it helped the company reach new customers and reduce their customer acquisition rate. Another small-scale retailer, Modern Citizen (a San-Francisco based women’s fashion and home goods retailer), introduced Buyable Pins shortly after they were launched by Pinterest and witnessed a 73% increase in their sales from Pinterest by using ‘Buyable Pins’.

Direct selling on Pinterest appears to be a must consideration for small to medium businesses that are selling unique and new products. With women making up 85% of Pinterest’s user base, brands selling to female audiences are expected to achieve higher success rate when compared with male-centric products sellers.

Instagram

Owing to its visual and interactive content, Instagram is one of the most widely used social media apps for discovering new products and inspiring purchase decisions. As per statistics shared by Instagram in June 2018, it had 500 million daily users. Moreover, as per an Instagram user survey (November 2015), 60% of its users claim that they leverage Instagram as a product discovery platform and 75% of these users have taken an action based on the products they discovered via Instagram (such as visit the website, purchase the products, or tell a friend). This puts the platform in a strong position to leverage its role (in the purchase process) and further extend brands’ offerings to include direct shopping from Instagram’s app.

While Instagram had not entered the direct selling market up till very recently, in 2017, it launched ‘shoppable posts’ (in a testing phase), wherein brands tagged their products on their organic posts. When a user clicked on a tagged product, they could see the pricing and a streamlined path to purchase it.

‘Shoppable posts’ received significant success on Instagram and the company launched them across the platform in 2018. In addition, it also launched ‘shoppable stories’ (stories offering the same tagging features as shoppable posts) and ‘shoppable collection’ (which allowed users to bookmark ‘shoppable posts’ to in turn create a shopping folder for the user).

Several companies that were part of the testing phase of ‘shoppable posts’ achieved significant increase in sales and Instagram-driven traffic to their websites. During the beta testing phase, participating brand, Natori (a US-based upscale woman’s fashion brand) posted 61 ‘shoppable posts’ and achieved a 1,416% week-over-week increase in traffic from Instagram and a 100% week-over-week increase in revenue from Instagram. After the testing phase, BigCommerce merchants using shopping features on Instagram witnessed a 50% increase in their Instagram referral traffic to their website.

In March 2019, Instagram launched a testing phase for a checkout option on the platform to tap on the potential of direct selling. Under this feature, Instagram allows users to buy directly (without leaving the app). Instagram aims to monetize this by charging a small fee from the retailers who look to offer this service to their Instagram followers/customers. Instagram will process the payment and store payment information for future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

Instagram will share a small fee from the retailers looking to sell directly on Instagram and in turn offer an option to the user to purchase and checkout through Instagram without leaving the app. Instagram will process the payment for the user and store payment information for all future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

This is likely to facilitate impulse buys and convert abandoned shopping carts into actual sales, since customers will not need to fill in their details again and again (as is case of shopping directly at different retailers with shoppable posts and signing in/logging in separately for each retailer/purchase).

This is expected to provide the perfect blend of social media experience and frictionless e-commerce experience (such as Amazon). However, unlike Pinterest, where social media platform is only the facilitator and the transaction in terms of payment and service is completed by the retailer, Instagram will be handling the payments itself and only sharing the basic details necessary to fulfill the order with the retailer (i.e., contact information and shipping address). This is expected to be a slight downside of selling on Instagram vis-à-vis on one’s own website as the retailer will receive less data and may not be able to build a relation with the customer.

Instagram is currently running a testing phase of this feature with a few brands across the USA, including Adidas, Anastasia Beverly Hills, Balmain, Burberry, ColourPop, Dior, Huda Beauty, H&M, KKW Beauty, Kylie Cosmetics, MAC Cosmetics, Michael Kors, NARS, Nike, NYX Cosmetics, Oscar de la Renta, Outdoor Voices, Ouai Hair, Prada, Revolve, Uniqlo, Warby Parker, and Zara. Payments will be processed through PayPal and customers can pay through PayPal, Visa, MasterCard, American Express, and Discover. The retail merchants can also integrate their e-commerce tools and partners, such as Shopify and BigCommerce, with the checkout feature.

While it is currently in its testing phase, the company is bullish on the success of this new feature. Although checkout option is currently only available for organic posts, Instagram will look to roll it out for ad-based posts as well in the future. It is expected that Instagram is likely to make US$10 billion in shopping revenues by 2021.

Instagram has been one of the most successful social media platforms with regards to consumer purchase decisions and unlike other social media apps that are apt for small to medium businesses, it also has a huge market for high-end and upscale products.

Challenges ahead

While social commerce seems to have a major role to play in the retail landscape in the future, it still has a long way to go. Social media pages have already showcased their worth as product discovery platforms, but exhibiting their potential of converting discovery into sales is a different ball game altogether and may also require a different strategy. Users will need to be organically cajoled to complete sales on these platforms and social media platforms must constantly work towards improving their buy-button experience, otherwise success is not guaranteed for them.

Twitter introduced a direct selling option in 2014 but retracted it by 2017 due to poor reception. Facebook’s initiative has also been met with moderate success with regards to direct selling, which lead the platform to change the direct selling features and strategies over the years to engage both retailers and customers.

Moreover, retailers who focus on selling on Instagram and other social media apps run the risk of alienating followers/users with constant promotions of their retail and shoppable posts, instead of their current subtle engagement posts that are working and preferred by users.

EOS Perspective

Social commerce is often being pegged as the future of online sales. While this may be true, there is a long road ahead for this to happen. Currently, the social media giants are applying different strategies to enter the space of direct selling, however, for most of them the focus is not on revenues from commerce but from ads. Therefore, till the time direct sales do not become a key revenue stream for social media apps, their focus on the apps will also remain limited.

That being said, the emergence of social commerce cannot be ignored by retailers, both large and small. Customers have taken to social media apps and use them extensively to learn about new products. Retailers are in a unique position to leverage this space and work towards reaching a new customer base, converting impulse sales that are otherwise being missed.

However, the social commerce experience needs a lot of shaping. Today, customers greatly rely on user-created content on social media (which includes content by influencers as well as other users’ reviews and product ratings) for their purchase decisions. Social media features must include direct selling not just from a retail’s social media page but also from influencers’ and bloggers’ pages. Till the time direct selling on social media apps is not a fully integrated solution, it will not reap results for users, retailers, nor for the social media platforms.

In the end, it is safe to say that social commerce is currently in a very nascent stage of development but nonetheless, it is here to stay. With the consumer’s attention span constantly reducing and people spending great amount of time on social media, social commerce undoubtedly offers great potential.

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