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Meta has just announced that they will no longer support Shops without checkout in the U.S. and other major markets. In this article, we look at what this means for brands and highlight three key decisions they need to consider in response.
Meta has had multiple attempts at selling products on its platform, and it has struggled each time (with the exception of Facebook Marketplace which has been a great success). Meta’s motivation isn’t that it really wants a cut of e-commerce revenues but, more critically, that it can target audiences based on who buys after clicking on an ad. In short, Meta is focused on conversion data.
Meta has announced that brands will no longer be able to direct traffic from Instagram or Facebook Shops to their e-commerce stores; instead, they will have to use social checkout.
From Meta’s point of view, this is plugging a revenue leak because this was a “free” link to the brand’s website. The only other free link is the “link in bio,” which is frequently used by consumers to verify authenticity of a site, and Meta would be unwise to try and charge for this. The only alternative to send traffic to your brand’s site is via a paid link, either through a boosted post or via and. Some of the larger brands can also add free links in Reels, but longer term, this is likely to cost.
Meta is also rolling out “Shop Ads,” where a customer can buy a product directly from the ad but only via social checkout. See it, click it, buy it. However, impulse purchases are much rarer than people think. Our research shows that less than 1% of new customers will make a purchase on their first visit to a brand site. The average time taken between a visit and purchase is 19 hours and therefore spans across more than one session. Very few first-time customers will be willing to buy only having seen an ad for an unknown brand for the first time, and of those that do, 56% go on to regret their purchase, leading to higher product returns. Exactly how effective Shop Ads will be remains to be seen, but if you want to try them out, you’ll need to use Meta’s checkout.
So, this begs the question, “Just how important is having a shop on Instagram and Facebook for e-commerce?” The answer depends; for small mom and pop shops that are not trying to build a brand, it could be important. But for most larger brands, this will likely trigger some soul-searching about where Meta fits in to the marketing mix and where repeat sales are going to come from. Let’s look at the three critical questions this raises:
1. Do we need Meta?
Social is where consumers spend on average two and a half hours every day. Brands need to be where customers are, and increasingly, that’s on social. Meta, or Instagram specifically, is still the most important social channel for e-commerce, and approximately half of consumers describe social as a “great place to discover new products.” But only 20% of consumers prefer to check out there, establishing a clear pattern where products are discovered on social but bought on the brand’s website.
So, Meta remains an important part of new customer acquisition for brands. When Instagram checkout was first launched, some brands experimented with having a checkout on Instagram itself. Many brands found it problematic and not worth the effort to maintain more than one store. One brand described the experience to me a few weeks ago as “excruciatingly painful.” Of the 26 launch partner brands that were part of the Instagram Checkout launch, only 15 are still using it today.
There’s a host of issues with checking out on social: Inventory isn’t synchronized, leading to social orders being canceled; brands typically don’t upload the full assortment onto social; and they rarely mirror promotions, leading customers to realize quickly that the same products are cheaper on the brand site. And then there are returns. Returning products purchased via social checkout is highly problematic, so much so that our research shows that only 17% of U.S. social shoppers would be willing to purchase again on a social network after having been through a social returns experience.
This announcement does nothing to address the very real messy issues that are at the heart of actually making e-commerce work.
2. Where are repeat sales going to come from?
Most brands view social as the most important channel for new customer acquisition. The combination of creators and influencers and a stream of fresh consumer eye balls make it a unique place to attract new customers. Our research shows, however, that due to rising costs of customer acquisition, brands lose $29 for every new customer acquired. This is a fully loaded cost calculation, including overheads and returns, up from $19 10 years ago. It makes the point that profitability doesn’t come from the first sale but rather from subsequent follow-on sales.
Selling on social using in-built social checkout creates a problem for brands because the merchant of record is the social network. The brand has no first-party customer data or the consent needed to drive repeat sales through email or messaging. In essence, this means that every sale through a social channel is a “new customer”sale — even for repeat buyers, and the $29 loss applies to every sale through the channel. This is not a path to profitability.
Most brands need a first-party relationship with customers and consent that can be used to drive a long and profitable relationship between brand and fan. If this is your strategy, then social checkout isn’t for you.
3. What are you measuring?
It is notoriously difficult to measure the revenue impact of social correctly. Our research shows that e-commerce revenues from social are underreported by as much as 245% because on discovering products, many consumers will leave social and head over to the brand’s site, bypassing Meta’s (and other’s) conversion tracking. This leads to social’s impact being incorrectly attributed to direct traffic. Even for the traffic that does click through, measuring the effectiveness of advertising on social is also problematic.
Social networks, including Meta, like to focus on return on ad spend (ROAS) as the critical metric proving the effectiveness of advertising. The “spend X, get Y back” formula is simple to understand. However, brands that want to use social primarily for new customer acquisition should be wary. Meta is focused on optimizing ROAS to help justify additional advertising spend, and its algorithms prioritize conversions irrespective of whether they are for new or existing customers. Naturally, existing customers click and convert at a much higher rate (think nine times higher) than first-time customers. This leads to higher ROAS but also higher new customer acquisition cost (CAC). It’s worth calculating your ROAS for just new customers to give you a much clearer view across channels of the most effective way to acquire new customers. After all, you don’t need Meta to reach existing customers; you have email for that, which is much cheaper and way more effective — always assuming that you have the customer’s consent.
Wrapping it all up, Meta will turn off the ability to tag products in organic posts and direct the traffic to the brand’s site. Beginning April 2024, Meta will disableFacebook and Instagram stores that do not use the checkout built into the platform. This leaves you with a choice to either use social checkout or turnoff your product catalog feed.
All brands that have a product catalog being uploaded to Meta and directing traffic to their websites now have to make a decision: Should we continue? Should we enable social checkout?
The answer will differ based on your market presence and goals for your brand. In fact, it’s very much the same question that you’ve already answered about selling on Amazon, and the chances are that the answer will be the same. If you need volume and market share at the expense of margin and repeat sales, then selling on Amazon or Meta may make sense. If you want to build a brand, deliver a great branded experience, and build a base of repeat and loyal customers that know and love what you do, then the answer is probably no.
Given this, many major brands will likely opt to turn off their catalog feed to Meta, saving their teams some hassle and providing one or more less stores to maintain.
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