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What does it take to successfully rent customers on social commerce platforms?
Through a special arrangement, presented here for discussion is a summary of a current article from the blog of Jason Goldberg, chief commerce strategy Officer, Publicis. The article first appeared on Forbes.com.
The key to successful social commerce is to understand that, in most cases, you are renting rather than buying customers that you own. For any product sold directly on a social platform, you very likely don’t own the resulting customer data. Rather, you are gaining access to those customers from a social platform who has a financial incentive to rent them to the highest bidder.
While renting customers is not inherently a bad practice, the key is to do so profitably.
To avoid overpaying, you need to know how successful you will be converting that rented customer to an owned one, what the cost will be to do so and what the present value of the projected future cash flows from that customer relationship are likely to be. In short, you need to understand customer lifetime value (CLV).
There are so many different experiences in the broad category of “social commerce” so it is imperative to pick the right tactics for the business outcome you hope to achieve.
- Social discovery: Creating awareness and desire for products, even when the transaction happens elsewhere
- Social commerce: Conducting the transaction natively on the social platform
- Video commerce: Conducting the transaction natively in video content on a social platform
- 1-to-many live-streaming: Conducting the transaction natively in live video content on a social platform
- 1-to-1 live-streaming: Providing real time clienteling and one-to-one shopping experiences over a video stream
Some brands may find they are best served by focusing on social discovery with a goal of moving consumers to their owned platforms to make purchases. Other brands with a firm understanding of their particular CLVs may well be able to lean into video commerce, or even one-to-many live-streaming using the native checkout experiences on the platforms. Retailers may find one-to-one live-streaming leveraging their existing sales associates delivers a higher ROI than any other flavor of social commerce. The answer is likely very different for a retailer, a luxury brand or a CPG, for example.
One thing is certain, COVID-19 has rapidly accelerated the potential of social commerce, creating an opportunity for fast movers to yield outsized results.
Discussion Questions
DISCUSSION QUESTIONS: What’s the key to driving profitable sales across social platforms? What advice would you have for brands and retailers about determining the right approach?
Poll
Loading …BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Ian Leslie
Sr. Dir., Retail Advocacy @ BOLT
I don’t think any retailer “owns” a customer anymore. I don’t even think it’s a good idea to think it’s possible. Customer trust and loyalty has to be earned every day, and there are many things that can break it — politics, worker treatment, perceived exclusion of various types of people, environmental sloppiness, and yes, social media.
My own view is that social media is a great place for product discovery. From then on, it’s up to you, retailer — to keep customers coming back.
Don’t pull your punches, Paula!
Consumers “own” the retailer relationships and they always have. Affective and behavioral loyalty are indeed as ephemeral as butterflies, which means adept use of social discovery and social commerce can be effective ways to pry shoppers loose.
With that in mind, Jason is correct that the CLV equation may vary greatly depending upon the type of purchase. Many products don’t naturally lend themselves to frequent repeat buys, so preference must be earned again at each occasion. Staying top-of-mind between those moments of truth requires creation of continuous opportunities to see. Social media can be a cost-effective way for brands to accomplish that.
Social commerce is going to become a big, big winning proposition over the coming years and eventually table stakes for e-commerce brands. The ability to connect your site with Pinterest, Instagram, etc. and enable one-step checkout across those social platforms. At the end of the day so much of e-commerce is rented land. Even while we consider email owned it’s largely rented as it’s only as strong as the email service provider we’re using.
“Renting” is not new. Any brand selling on Amazon is renting Amazon’s customers. Brands don’t own the customer relationship on Amazon. And they don’t own when they sell through any intermediary platforms or app stores.
For some, this is the operating model – like many FBA sellers. For others, social commerce and marketplaces are strategic avenues to introduce brand new products but with an eye on building their own customer base. Brands line up their marketing and sales channels to meet their overall strategic goals.
Brands don’t own the customer relationship when selling through other merchants’ brick-and-mortar stores, either – we’re talking about a situation that is many hundreds of years old.
True, Amazon and Social media are distribution channels, in one sense, like brick & mortar. But I think the key difference is that many brands selling through B&M did not have serious Direct to Consumer model, at least until now. But for brands that sell direct to consumer already, they need to understand the tradeoffs of going through intermediaries.
A lot of retailers (at least in the Americas and Europe) are adding social platform discovery and commerce on to existing sales channels and stores. There isn’t a blanket answer for all retailers as the margins and touchpoints of discovery are different by sector. We tend to work with CPG retailers who manage large product catalogs. In this instance, social discovery is one of many sales channels and stock availability/proximity are key to conversion. That being said, my tendency is to encourage social discovery integrated to owned platforms as customer data is too important for remarketing, product research and analysis to forego for long-term loyalty. By all means, rent those eyeballs but make sure you know who they are.
There is so much fluctuation in the marketplace today – from shifts in consumer behavior to how they purchase products – that the best approach for brands and retailers would be to continue experimenting in small ways with different models, fail fast and if successful, scale fast.
This whole ideal of owning a customer has been flawed for decades. The customer may be direct or indirect, but they are not owned by a brand. The amount of data about direct and indirect customers can vary widely and can usually be kept by a brand, but I still think the concept of owning the data is flawed. GDPR and other data privacy laws are clearly shifting ownership to the customer and in five years, the customer may rent their data to a brand for a limited or extended period of time.
The key in all this is that we are using the example of renting a customer on social media, but in reality the entire commerce environment is migrating toward marketplaces and other types of ecosystems where customers now spend most of their time. Brands must learn how to engage with customers in environments not owned by them. This involves loyalty and marketing tactics that keeps the brand visible and top of mind in channels not under direct control. This will be a steep learning curve for many traditional marketing organizations.
Brands may own only the channels rather than customers. Social Media is clearly not an owned channel, but it isn’t new.
The situation is not dissimilar with renting retail space at a shopping mall: you try to plug your brand in some place that provides you with flows of prospects in the hope to convert them to customers. Then you may make them repeat customers and at some extent loyal to your brand. If you managed to do it, at some point they may visit a mall just because you have a store there rather than other way around.
The last part is different in the ecommerce world, as a brand you usually don’t want your loyal customers to buy though say Instagram again, you would prefer them to purchase from your store directly (higher margin).
So the challenge of retainers using rented social commerce is to convert that rented customers to those who will shop directly. How to do it depends on the platform. In a very restrictive case you at least can include incentives to shop directly in your shipment.