Social Commerce: In Friends We Trust

For advertising executives working with clients, there’s a low-cost, effective, and correct way to use social networks for marketing purposes. Today, some factors to consider.

Social Networks Aren’t Media

Social networks are the recent darlings of advertisers because these sites generate incredibly large numbers of pageviews and longer times on site than other sites today. But advertisers still use them as Web 1.0 advertising venues, placing banner ads on a CPM (define) basis; that is, like media buying.

Targeting is said to be better because users express their interests and preferences. This assumption is flawed, because people express these interests to their friends, not to the advertisers. Further, social network participants are preoccupied with socializing with friends rather than looking at ads; so CTRs (define) on such ads are much lower than even banner ads.

But what about the oft-touted power of recommendations from friends and word of mouth? Why are advertisers not yet able to tap into these phenomena to drive sales? Many have tried, yet most have missed the implicit value exchange users intuit when asked to endorse or promote a product to their circle of friends. When they do so, for a product they may or may not have actually tried, they spend social capital. And they risk losing some capital if the product or service doesn’t live up to the promise. In contrast, when someone raves about a product she’s used, she may earn social capital by sharing information with friends who will also love the product.

In Friends We Trust

Social actions and recommendations occur regularly on social networks; but not at advertisers’ prompting or “bribing.” User-generated product review videos, how-to guides for DIYers, and even reviews of reviews on sites like Amazon.com (e.g., was this review helpful? yes | no) provide abundant information for consumers doing online research before purchasing. This content usually offers the depth and detail not typically found in brochures or traditional mass media ads. It’s also perceived as more objective and unbiased because advertisers didn’t create it.

CGM (define) has reached critical mass, and associated social actions play an increasingly important role in the purchase decision. A friend can help a user get the right bit of information efficiently, help verify information accuracy, or be the direct recommendation to buy. “Social” is an evolutionary step that makes content, search, and commerce better. Users often turn to their online networks for input and advice, such as “I’m about to buy a digital camera. Can you recommend one you really like and why?”

The Value of Social Capital

With friends recommending products or services, we move from “commerce” to “social commerce.” When knowledgeable friends directly recommend specific products to specific friends, the potential customer can jump from no awareness straight to the purchase. For example, a couple with a newborn baby needs to buy a baby stroller, so they ask their friend who has two kids and is known to be a very picky shopper. When the friend recommends a specific stroller model, the couple buys it right away, without ever seeing advertising from the manufacturer or even having heard of the brand. The couple finds it’s the perfect stroller for their baby and the friend who recommended it earns social capital for having made the optimal recommendation.

Sometimes consumers buy what someone else bought. If a friend knows digital cameras and has done extensive research already, a consumer can save time and buy what the friend already bought — a powerful endorsement not paid for by any advertiser. Consumers may even rely on the opinions of total strangers. A potential buyer may not know any of the hundreds of people who reviewed a product on Amazon, but if enough of them have purchased, used, and reviewed the product positively in sufficient detail, the buyer may purchase the product on the strength of the collective recommendation. In this way, consumers become very savvy in judging social content’s validity and trustworthiness.

For example, a Facebook application called MyFaveThings is designed to specifically take advantage of this “I’ll just buy what he bought” impulse. With the app, individuals show off to their friends things they own and things they want. When someone loves a product enough to show it off to friends, that’s an unbeatable endorsement. On Newegg, which serves tech-savvy gearheads, buyers will purchase an item that has tons of reviews over an identically featured and identically priced item that has few or no reviews.

Use Social Networks Correctly

If old advertising tools don’t work, how can advertisers correctly integrate social networks into their marketing?

  • Don’t treat social networks as media buys. CPM-based banner ads on social networks don’t work. Even CPC-based advertising is of limited usefulness, because the ads distract and annoy people who are there to socialize with friends.
  • Get your product or service into the hands of active socializers. If the product or service is truly awesome and useful, socializers are likely to recommend it to friends for whom they think it will be useful. They earn social capital by doing so, and you don’t even need to bribe them. Just encourage them to review and discuss it after they have experienced it: “what did you think about the product after using it?”
  • Set up listening posts on social networks. A brand fan page on Facebook with flowery outbound brand messages isn’t enough. Adding a discussion board and review mechanism enables actual product users to give you direct, immediate feedback and discuss it objectively in a way visible to you (archived discussions) for real-time research and insights. The inclusion of both positive and negative reviews is crucial to the content’s trustability, so don’t delete the negative comments and reviews. Users expect and rely on objective analyses by their peers, uncensored by advertisers. If they smell foul play, they’ll never come back.
  • Make recommendations easy and the distance to commerce short. If consumers are proud enough to want to show off your product or recommend it, make it easy for them to do so through apps like MyFaveThings. And make purchase no more than one click away, to take advantage of the “I’ll just buy what he bought” impulse.

Augustine is off today. This column was originally published on November 6, 2008 on ClickZ. 

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