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We're frequently asked by executives that reach out to us: “We’re thinking about our social commerce strategy: Where are the landmines? Where are the low hanging opportunities? Should we be selling on TikTok?” In this blog we’ll explore the different aspects of developing a social commerce strategy. The answer for each brand and retailer will likely be different based on your product lines, margins and brand strategy.
Social is where the customers are
Social commerce isn’t new – its been around for at least 10 years – but over that time it has had many false starts. During that time brands have experimented with selling on social channels as well as driving social traffic to their brand sites. And given all the regulatory headwinds facing social platforms there will be more twists, turns and pivots to come.
A whole new way of shopping
Social commerce has, however, reached a tipping point: consumers spend 2.5 hours per day on social media and 74% of US online shoppers think that social media is a ‘great place to discover new products.’ Our research also shows that two-thirds of US online shoppers use social media for shopping every week. This rises to 93% for Generation Z.
When looking for a new product, coffee shop or restaurant, 41% of GenZ turn first to Instagram or TikTok, not to Google. It’s a whole new way of shopping.
Social is also the most important medium for new customer acquisition for brands and retailers irrespective of where the sale takes place: online, on-social or in-store. Measurement is impossibly hard and our data shows that social’s contribution to revenue is significantly under reported by current tracking and modelling methods. When Google Analytics tells you that social is driving 10% of site visits, you’re probably sceptical: it just seems too low. When you ask customers via a post-purchase survey don’t be surprised when the it reveals 50% or more of revenues being driven by social.
The two biggest social commerce questions
The two big questions in formulating a social commerce strategy are:
1. Where does the brand / retailer want to sell?
2. Where do the customers want to buy?
Selling on social channels
The first thing to get clear is that selling on a social platform is a channels decision. When you sell on a social platform you can potentially tap into volume sales, but at a low margin. Just like selling on other marketplaces you also have no direct relationship with the end customer with the knock-on impact on profitability compared with a direct to consumer model. Get it right and you can shift high volumes of product. In fact, it’s a similar decision to ‘Should we sell on Amazon?’ which you’ve probably already answered. All the same issues are present with social:
- No access to end customer data or rights to contact customers
- Platform fees (currently 6% on TikTok rising to 8% in July and 8% - 20% on Amazon)
- The need to advertise / use affiliates or influencers to drive traffic to your store
- No control over returns and refunds
- Copycat brands
- Focused on hot products
- Product launches are hard
- Delisting
- Price sensitive shoppers, especially on TikTok
- A race to the bottom to win the buy box
- Maintaining a second storefront
Potential goldmine or fool’s gold?
When social networks introduced social checkout, incentives made the economics look highly attractive. Brands and retailers were enticed to test out the channel with social network funded free shipping, 20% off channel-wide discounts and a ‘50% off’ for first time shoppers on the channel to name just a few examples. In addition, some brands got ad credits worth millions to promote their stores. But over time these introductory offers have faded away, and platform and shipping fees inevitably creep up.
Experience has been mixed. For example, of the 26 launch brands for Instagram Shops, two years later only 15 were still selling on Instagram. Others have complained that the type of customers acquired are price sensitive, no doubt a function of using discounts to drive volume. Maintaining multiple stores on multiple channels is also a significant issue.
Maybe this doesn’t matter. If your products target a price sensitive segment with a one-off, potentially impulse purchase, then selling on social could drive a lot of volume, especially if you’re targeting Gen Z and you can make it go viral (think TikTok Shop).
If your business model is to acquire new customers to build a brand relationship where you can drive a sequence of sales over time to maximize customer life-time value, then selling on social channels likely isn’t for you. But you probably already know that because you likely don’t sell on Amazon.
The second big question, is where do customers want to buy?
Our research shows that 75% of US online shoppers prefer to buy directly from a brand or retailer’s website than on a social channel. It’s all linked in with authenticity and trust – social is a pretty sketchy place with more than its fair share of scams and counterfeit products.
But it’s more than this: our research also shows that inventory is not typically synched in real time and promotions are frequently not reflected on social channels. Customers get wise to this fast: if the product is out of stock on social and more expensive than it is on the brand site then it’s pretty clear where they’ll head to make a purchase.
This alone should suggest that for most businesses, even if you do decide to sell on social channels, you probably should have a direct presence as well.
One more thing – the product returns experience on social is frequently problematic. So much so that only 13% of US consumers that have been through a social channel returns experience would be willing to buy there again. So, if you are going down the channels route the data integration of price, promotions, inventory and returns need careful attention to get right.
The low hanging opportunity
The biggest opportunity for most brands and retailers of course is to create a better shopping experience for social traffic on your existing ecommerce websites. Traffic from social suffers from bounce rates typically in the 70% range and conversion rates of 0.5% - 1% range. These are appalling figures, reflecting the very poor experiences when clicking through from social. Get these closer to more normal ecommerce bounce and conversion rates (say a 50% bounce rate and 3% conversion rate) and you can drive up to 3x more revenue from your current social traffic.
If you want to learn more about developing a social commerce strategy, we’re running a webinar on this topic. Checkout more details here:
