What is Social Commerce and How to Capitalize it?


One day my wife, Priya, was browsing Facebook when she saw that her friend Pat recently purchased gluten-free baking mix from a Facebook store.  Priya quickly took note because she had been unsuccessfully searching for hypoallergenic baking mixes to make for our daughter.  She asked Pat about the mixes, and he had only good things to say about Zema, a local vendor specializing in gluten-free baking mixes.

He also gave Priya an exclusive coupon code to use on Zema’s mixes.  Once Priya bought the mix from Zema’s Facebook store, an update was posted on her friends’ newsfeeds.  Priya’s friends began to inquire about this unique vendor, and she was happy to pass the promo code along to them as well.

This is a great example of how successfully social media can help generate sales.  Even though social influence marketing seems easy for merchants and customers, it puts enormous pressure on the businesses to take care of existing customers much more than in traditional commerce. As customers create new customers, business becomes more focused on operations and less on marketing. The goal of social commerce is not just immediate sales transaction but initiating engagement which will turn customers to social brand ambassadors.

In social media, businesses are concerned with something known as social engagement. Commercial transaction converts social engagement into revenue.  This “social commerce” enables consumers and businesses to make buying decisions and complete buying processes where they connect to their peers.  While social commerce is a fairly new idea, it holds merit in the business world due to its sustained growth.

Social commerce is not one coherent concept; in fact, there are several varieties of social commerce out there. First, regular social commerce allows merchants to reach customers within social communities.  The merchant enables consumers to complete a transaction within the community.

Facebook is a highly used medium for this type of interaction as a number of retailers have created f-commerce stores allowing users to buy without leaving the friendly confines of Facebook.  Another popular type of social commerce is group buying.  Connected users create demand for a certain product or service while simultaneously demanding better prices.

Popular mediums such as Groupon, Facebook deals, and BuyWithMe use a group buying platform. Additionally, flash sale sites like Hautelook and Ideeli offer a different social experience where shoppers can score quick, exclusive deals on merchandise.  Finally,  social marketplaces such as 99 Designs and SocialCart allow users to sell products from a master catalog to their in order to generate profit.

When merchants and brands began using social communities to interact with customers they focused on the marketing advantages.  Facebook launched Pages in November of 2007, but it was not until July 2009 that a transaction was made on Facebook.  After this first transaction social commerce took off because businesses realized its profitability in terms of social proof.

Research continues to conclude that people are more likely to purchase products once they see friends doing so, giving social proof a sure edge.  A recent study found that 67% of consumers buy more online after a recommendation from an online community.  This forces smart businesses to make social commerce a priority.

Who are the major players in social commerce?  Within group buying, companies like Groupon, Living Social, and Facebook Deals rule.  Groupon has over 85 Million subscribers as of June 2011.  Flash sale sites like Hautelook and Ideeli are also growing significantly.   Three of the top four private shopping websites are expected to bring in combined revenue of $300 million this year, proving that they are certainly players in this game.

Facebook founder Mark Zuckerberg recently said “social commerce is the next area to really blow up….”   Industry predictions agree, stating that by 2015 social commerce transactions will top thirty billion dollars by 2015.  This predicted growth is the proof many companies need to jump into social commerce.  Recent trends also support theories on explosive growth.

During a one year period the number of daily Groupon visitors increased by over 4 million.  Private shopping sites are also expanding, and this growth is expected to continue.  JPMorgan retail analyst Brian Tunick stated that, “It looks like these sites are growing revenues significantly faster than any other part of retail.”  These expansions will push social commerce into the everyday lives of many individuals.

While it is clear that social commerce is alive and growing, it is not without its share of challenges.  Since the world of social commerce is new and continually changing- consumers, businesses, and technology moguls are all forced to overcome obstacles.  Consumers need to cut through noise to figure out what reviews to trust.

Unlike face-to-face communication where an individual can determine the source and credibility of information, online reviews and recommendations are not always so wholesome.  Affiliates of the company type out rave reviews while competitors throw insults.  A consumer must sift through information, a task that was not necessary before the age of online social interaction.

Businesses are also presented with a large number of challenges.  Privacy and security are among top concern.  While social media sites harness the power of privacy settings, there is still much to be desired in terms of business practices.  Businesses must gain the trust of consumers before they are willing to present their information over this internet medium.  Privacy concerns rise when multiple sites and environments are introduced.

For example, a transaction is completed on a Facebook store and information is sent to Google+ used on an iPhone.  The privacy of Facebook, Google, and Apple are all applied here. What happens when they are not in sync? What type of privacy assurance can the customer expect? Add in transactions with people from multiple countries and the scenario becomes very complicated.

Reputation management is also a challenge as customer reaction requires monitoring and response.    Social commerce allows for the consumer to provide feedback, vocally or through purchase, but the business owner must always be listening attentively.

Final challenges come from technology.  Implementing a social commerce environment is far more complex than creating a simple profile page.  It’s even more difficult when different parties are involved in a single process. Who is responsible for what? How does the user deal with multiple parties?  Design is another concern.

Studies found that consumers rate the appearance of the site over the quality or functionality.  Money exchange is also an issue.  While credit cards served us well traditional ecommerce settings, a social environment creates a need for social currency. One of the first attempts for a social currency is Facebook credits, which is in its infancy.

Merchants also need monitoring technology to identify and engage with customers across different environments.  Mobile commerce platforms are going through a transition with the help of HTML5. These same changes are expected for social commerce too.

While these challenges can be overcome, they are new to many businesses.  Before the age of social commerce these obstacles were unforeseen, but they must now be placed at high priority to ensure success.

The world is certainly changing.  There once was a day when people relied on face-to-face conversation for recommendations.  Later the yellow pages arrived, with thousands of suggestions literally at one’s fingertips.  Enter the informational web, with searches providing all the information a consumer desired.

Now the world has come full circle, relying on online friends to provide recommendations and feedback.  The social web has combined the high points of face-to-face interaction with the accessibility of the web.  Companies that figure out how to utilize the social web will win this game, but only if they determine when and where customers engage their products.

Profile of Aji Abraham

Aji Abraham is a co-founder and CTO of PIO Social, LLC a social commerce platform which enables businesses to convert their existing customers into Social Brand Ambassadors using pass it on marketing. He is also founder and CEO of Armia Systems, Inc which is a web applications development company creating applications in Social Networking, eCommerce and Content Management.

Linkedin Profile: http://www.linkedin.com/in/armia

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