More on Social Media and the Supply Chain

Stephen DeAngelis

April 27, 2011

In a post entitled Social Media and the Supply Chain, I examined the views of a number of analysts who concluded that the future belongs to social commerce. At the end of that post, I indicated that I would, at a later date, discuss why some analysts believe that full-blown social commerce may be further in the future than some anticipate. What prompted me to reflect on this subject was an article in The Wall Street Journal [“Facebook Won’t Become E-Commerce Force, Analyst Says,” by Stu Woo, 7 April 2011]. One cannot discuss social media and not mention Facebook; so it seems natural that Facebook would also enter the conversation when talking about social commerce. In my previous post, I quoted supply chain analyst Lora Cecere who wrote, “Now we have channel proliferation with M-commerce through mobile [phones] and social commerce through Facebook.” So why would Forrester Research analyst Sucharita Mulpuru, the subject of Woo’s article, insist that Facebook isn’t going to be a major e-commerce player? Woo reports:

“Mulpuru lays out her case in a report … titled, ‘Will Facebook Ever Drive eCommerce?’ Her firm interviewed nearly two dozen technology vendors, retailers and marketers and found that they received little benefits from Facebook and other social networks. A social-network presence, she found, was less effective at customer acquisition and retention than e-mail and paid search. The study found that the average Facebook metrics are a 1% click-through rate and a 2% conversion rate. E-mail marketing, by comparison, has an 11% click-through rate and a 4% average conversion rate. Facebook’s problem, she said, is that few people go there for shopping-related activities. ‘You go to Facebook to find other people, not to find a product,’ Mulpuru said in an interview.”

I will grant that “today” few people think about Facebook when they think of online shopping, but the same could have been written about Amazon when it first started as an online bookseller. You went to Amazon looking for books — today you go to Amazon looking for everything. Mulpuru, however, isn’t alone in her assessment. “Brands are still flocking to Facebook and its share of display advertising spending is rising fast,” writes Tim Bradshaw, “but finance directors are questioning the value of accruing thousands of fans and followers. Unlike search-engine advertising, where calculating the net gain or loss from each click is relatively straightforward, demonstrating the return on investment of many social media campaigns is proving a challenge.” [“The fickle value of friendship,” Financial Times, 30 March 2011] Despite questionable results, Bradshaw reports:

“A survey of members of the World Federation of Advertisers, a grouping of multinational brands, by Millward Brown found that 96 per cent were spending more of their budgets managing Facebook pages, Twitter accounts and other social media, racing to accrue fans, retweets and that elusive but ubiquitous quality: engagement. ‘The hype vessel is at full throttle, and largely without a rudder,’ says Michael Maoz, an analyst at Gartner, the research company. ‘Social media is like the surgeon’s scalpel – a valuable tool in the right hands but potentially dangerous.’ … It is not hard to find examples of social media having a positive impact on a brand. Starbucks, the coffee chain, says it boosted UK sales of Christmas drinks by 15 per cent last year by inviting its Facebook fans to choose seasonal flavors. But the Starbucks example also reveals that it is not having lots of Facebook friends that counts – it is what companies do with them and how they engage them that can translate into increased sales. ‘To be completely up front about it: there is no ROI for any social media program,’ says James Whatley, marketing director at 1000heads, the social media agency. ‘However, there is definitely provable ROI for social media programs that are set up to do something. It’s all about setting a clear objective.’ Attempts to pin a dollar value on a Facebook fan have largely been abandoned because it varies depending on whether the brand’s page is trying to sell coffee, cars or simply create a community to monitor for complaints and feedback. Estimates suggest 10-15 per cent of Facebook posts are seen by their intended recipients and click-through rates are little better than for traditional banner advertisements – fractions of a percentage point.”

Whatley makes a profound point when he states that social media sites must be “set up to do something.” Unless you offer specific and tangible benefits for someone to “like” your company, social media sites do appear to be a waste of time and money — that is, unless they are established specifically as an honest effort to gain customer feedback and to respond to complaints. As Whatley says, a company must have a clear objective. Take, for example, a company called Bill.com. Inc., a provider of bill-payment services. The company “is trying to market itself on Facebook. But even though the venture-backed company has more than 10,000 clients, it has so far managed to secure only 67 ‘friends’ on the social-networking site.” [“For ‘B-to-B’ Companies, Finding Facebook ‘Friends’ Can Be a Struggle,” by Sarah E. Needleman, The Wall Street Journal, 20 October 2010]. Needleman continues:

“These days, even small ‘business-to-business’ concerns like Bill.com are experimenting with social media, perceiving the popular online hangouts as low-cost, easy-to-use venues for attracting new customers and retaining existing ones. But unlike their consumer-focused counterparts—retailers that sell smartphones, jeans, games and other personal products—so-called B-to-B businesses seem to be having a harder time connecting with their target audience. Facebook ‘is so consumer dominated that it takes time to find a voice that cuts through what’s already out there,’ says René Lacerte, founder and chief executive of Bill.com, which is based in Palo Alto, Calif. A survey released last month of 230 B-to-B companies shows that 24% are using Facebook Inc., Twitter Inc. and others for marketing, and another 36% plan to try them in the coming year. ‘It’s certainly something that has taken off in the last six months,’ says Michael Greene, an analyst at Forrester Research Inc., which conducted the study. In general, he says B-to-Bs tend to be slower to adopt new marketing technologies than business-to-consumer companies. But now that they’re catching up, it appears that many are having a tough time gaining followers. ‘B-2-B isn’t sexy,’ says Mr. Greene. ‘It doesn’t have that same immediate attraction that consumer brands do.’ Bill.com so far has only about half the number of Facebook ‘friends’ as the average user, and far fewer than many of its consumer-focused counterparts. For example, LegalZoom.com Inc., a small business that helps consumers file legal documents such as wills and divorce papers, has more than 10,000 Facebook friends.”

Needleman goes on to write that “making fans of other businesses, as opposed to consumers (or actual friends), may seem counterintuitive to social networking.” She reports that is why they are looking “to interact with workers who make buying decisions on behalf of the companies they target.” Frankly, that sounds more like what LinkedIn was set up to do than Facebook. In fact, Needleman reports, “Some small B-to-Bs say they prefer to market themselves on networking sites specifically designed for businesses and professionals such as LinkedIn.com.” She goes on to note that some B2B firms use as many social media outlets as they can. She continues:

“For example, Eloqua Ltd., a marketing-software company in Vienna, Va., charges between $15,000 and $800,000 a year for its technology. Regularly posting status updates about industry trends and related topics to its Twitter, Facebook and LinkedIn Corp. profiles helps it stay ‘top of mind’ among clients, says Joe Payne, chief executive. ‘There’s no question what we do in the social world generates leads because it drives people to our website,’ he says. ‘We can see where they’re coming from.’ Sharing information or advice on social-networking sites is also a way for B-to-Bs to show off their expertise, says John Lopez-Ona, president of Six Sigma Qualtec Inc., a business-consulting firm in Princeton, N.J., that uses Twitter and has its own blog. ‘It’s about building relationships,’ he says.”

“Posting status updates about industry trends and related topics” for established customers or potential clients is probably a good use of such sites, but still less effective for securing business than face-to-face contacts or more traditional advertising. That may change as people’s habits change; but, analysts appear to be skeptical.

 

Sometimes social media sites are monitored, Needleman reports, “to find out what’s being said about them online, as well as gather competitive intelligence and keep up with industry trends.” In fact, Eric Bradlow, a professor at the University of Pennsylvania’s Wharton School, told her that “listening” was the principal value of social media sites. Companies like PepsiCo appear to believe that is the case. The article by Tim Bradshaw cited above, begins this way:

“In a glass box in the middle of a PepsiCo marketing department, five people are staring at a huge bank of screens showing a constantly updated river of tweets, ‘likes’, praise and damnation from consumers of Gatorade, the company’s sports drink. ‘Doing it in a glass room means every single person in the marketing organization is seeing the insights brought to life in real time. It reminds them how important it is to know the heartbeat of the consumer,’ says Bonin Bough, global director of digital and social media at PepsiCo. ‘I really feel like it is the future of marketing.’ A similar scenario is playing out in marketing departments around the world.”

Because “listening” has become such an important part of the supply chain — analysts often refer to it as making the supply more visible or transparent — social media sifters have become a hot commodity [“Wanted: Social Media Sifters,” by Ryan Flinn, Bloomberg BusinessWeek, 21 October 2010] Flinn reports:

“Companies are expected to more than double the amount they’re spending for online data, to $840 million in 2012 from last year, according to marketing consultant Winterberry Group. The prospect of such fast-growing revenue is one reason social media monitoring outfits are being snapped up by larger software and market-research firms intent on improving their ability to use Twitter, Facebook, and blog postings as windows into the thinking of consumers.”

Sifting through terabytes of data may sound cold and impersonal, but Philip Delves Broughton reports that many data sifters see themselves as helping customers and retailers get to know each other better [“The added value of good information,” Financial Times, 7 March 2011]. He writes:

“Long before focus groups or marketing surveys or loyalty programs, businesses knew their customers because they saw them face to face. The corner shop owner knew who liked a particular brand of jam and kept it in stock for them. He knew when people tended to come in and kept his shop open to accommodate them. Stuart Aitken, the chief executive of Dunnhumby USA, a leading force in the growing field of data analytics, says he keeps this vision in mind as he uses the latest technology to provide companies with insights about their customers. ‘This is back to basics,’ he says. ‘What we’re seeing is that businesses have driven out costs, they’ve got the scale in their operations, but they’ve forgotten who their customer is. What we do is allow businesses to reconnect with their customers, to become the corner store on a large scale.’ Data management might sound like a dry field, where statisticians and computer programmers haggle over terabytes and p-values. But as it becomes more sophisticated and yields ever richer portraits of customers and their behaviors, helped by social networking, it is increasingly becoming central to executive decision-making.”

That brings us back to first blog I posted on this subject and the primary conclusion about social commerce offered by supply chain analyst Lora Cecere. She believes that social commerce has “the power to redefine the shopping experience allowing companies to anticipate, personalize and energize the shopping experience in new ways. Untapping the potential of this technology shift will make the vision of customer-centric value chains today’s a new reality. [“The Rise of Social Commerce,” Supply Chain Shaman, 15 October 2010] In the information age, data is power and social networks provide access to mountains of data. That is why I’m not writing off social commerce as phenomenon to watch in the coming years.