Social Commerce: How and why its a big deal!

groupon2 Driving traffic to a site is much easier than converting that traffic into sales.  Average e-commerce conversion rates are pitifully low, ranging from 2-4%.  For an etailer who purchases media (e.g., keywords for paid search, banners on other sites),  96%-98% of their budget is wasted by driving traffic to their site without making a sale, resulting in horrifically negative ROIs (aka, spending much more than you make!).  We have already discussed the importance of multivariate testing of landing pages and better online merchandising to improving e-commerce conversion rates.  Two trends have emerged that are dramatically improving conversion rates: Social Commerce and Mobile Commerce.  Today, I will discuss the impact of social commerce and reserve my thoughts regarding mobile commerce for my next post.

Yahoo! first coined the term Social Commerce in 2005, to describe a set of online collaborative shopping tools such as shared pick lists, user ratings and other user-generated content.  Today, the area of social commerce has been expanded to include a full range of social media tools and content used in the context of e-commerce, including live support, customer ratings and reviews, user recommendations and referrals, celebrity endorsements, group purchasing and the ability to virtually shop with friends online.

Live Help

In-store experience. When you walk into a retail store, a salesperson might approach you to inquire as to whether you would like some assistance.  Before doing so, this individual typically looks for clues that will help size you up.  What is your body language saying about your approachability? Are you wearing a Rolex or a Timex? Are you dressed for formal business, business casual, very casually or like you just arrived from a homeless shelter?  Here they are trying to evaluate your tastes and budget.  If you are in a clothing store, they want to get an idea of your size, your coloring and the colors you are wearing.  If and when you are approached, you can of course say yes or no to the salesperson’s offer to assist you.  At any time, of course, you can proactively obtain assistance from a salesperson.

Online Experience: Click to Chat & Click to Call.  Simple two-way chat, between an e-commerce site and the customer, has been around since the early days of e-commerce.  In 1998 Live Person introduced a popular version of web-chat functionality, offering it as a hosted solution that could be used on any website. Of course they, along with many competitors have since added a great deal of intelligence to an online store’s interaction with the customer.  Click to Call functionality on the site enables those with VoIP applications on either their computer or smartphone to click on a button on the site to intiate a voice call with a store representative.  For those who not have this functionality, when you click the “click to call button” you are served with a short form that simply asks for your phone number and a rep typically calls you within one minute.  Of course phone calls pose a higher cost to merchants, because agents must dedicate themselves to a single customer and may require per-minute fees from voice carriers. Because web chat agents can address the needs of multiple customers at once, without incurring telecom costs, it is generally more ubiquitous and generally better “advertised” on all pages of a website.

Regardless of the communication channel, this type of functionality enables a website visitor to engage a store representative at any time.  The store rep can also initiate a chat, if you appear to be having difficulty finding what you are looking for or have abandoned the shopping cart (this is where much of the drop-off occurs within the purchase funnel).  Once engaged in chat, the rep can push specific pages to you and highlight sections of the page in order to help you find what you are looking for.

What they know about you. Even if you have never had any experience with the brand, they will know a few things about you anyway.  They will know the site that you visited before arriving at their site.  If you last visited Nordstrom’s you are likely to be treated differently than if you came from Wal-Mart. Where you have been also provides an indication of the type of merchandising you may be interested in exploring.  They also have information about your general location. They may treat you differently if you live in a cold climate rather than a warm climate or if you live/work in a city, the suburbs or in a rural area.  Again, the idea is have some sense of the type of merchandise for which you may show interest.

Big Brother or better personalization? Many web chat providers, and the clients who use them, integrate with a merchant’s CRM system.  This enables them to leverage the information they have from previous interactions with their brand, through multiple channels (calls into your call center, emails to/from brand), previous interactions on your website or social media presence.  They may have left cookies in your browser that show your interests or leverage your transaction history to suggest complementary or upgraded products to purchase.  This may bring up visions of the futuristic movie Minority Report, where as soon as he enters the Gap, Tom Cruise’s retinas are scanned to identify him so they can serve personalized offers based upon past purchases and other behaviors.  From all directions he is offered a wide array of opportunities with personalized digital signs and simulated voices asking him what he thought about some previous purchase and/or recommend new items based upon those preferences hears digitized voices and see’s digital signs that may say “How is that new blazer working out for you?  We now sell suit separates for that design so that you can buy a pair of slacks and use them on their own or together as suit. Check them out on the second floor in aisle five.”  Or “you look like you lost some weight.” Go see our professional tailor in our alterations department at the back of the third floor.” However at this point, unless you shop with a local merchant who knows you well, this type of personalization is much more advanced on e-commerce sites than in actual brick-and-mortar stores.  If you are on an art site, or clothing site, the person you chat with may represent themselves as a personal or professional shopper, who is an expert on the topic at hand and may carry more weight in influencing your decisions.  Of course it works both ways. The shopper can proactively tap the expertise of such individuals and ask specific questions that will help them find and purchase products of personal interest.

Impact of Live Help. A study by Forrester,  found that while only  o1% of customers who utilized Click to Call on sites that offered it,  30% accept proactive call invitations, and 70% click on Click to Call buttons located throughout the site to initiate a call. The conversion rates for proactive and reactive calls are estimated at 27% and 19%, respectively.    Their research indicates that the average order value of such purchases was $141, a 23% increase over the average order value of $115. This is primarily due to the call center agents’ ability to up-sell and cross-sell more merchandise to customers who use Click to Call before checking out.

Forrester’s Click to Chat data is even more compelling.  Again, only1% of site visitors participated in chat sessions when it is available.  Of these, 20% are invited to a chat session, while 80% initiate a chat session.  They also reported that only 4% abandoned these chat sessions mid-stream., (which is certainly lower than the bounce rates of average home or landing pages) The reason for the higher percentage of reactive Click to Chat sessions versus Click to Call sessions is that interviewed customers view chat as a more cost-effective channel and place it more prominently throughout the site and on customer service pages.  Forrester also reported that customers who use Click to Chat had an average order value of $137, a 19% increase over the site average order value of $115.

Customer Reviews and Recommendations

With Amazon.com leading the way, customer reviews and recommendations became the next area of social commerce to lift conversion rates on e-commerce sites. Amazon compiles two sets of statistics that not only improve conversion rates but also yield up-sells and cross-sells to increase the average order size bon their site.   First they leverage other people’s behavior to recommend products (people who bought X also bought Y). Amazon also leverages other’s opinions (customer reviews) to trust their products and purchase them. Once a product is in a visitor’s shopping cart, moreover, they continue to recommend additional products based upon like-minded people’s propensity to purchase them, further driving the dollar value of the sale.  According to eMarketer, Consumer reviews are trusted 12 times more than descriptions that come from manufacturers.  While Nielsen Online found that a whopping 92% of people trusted the opinions of people that they know, 70% still trusted the customer reviews of strangers.

Referrals and Recommendations of Friends

Refer a Friend Programs. Businesses have been rewarding their customers for referring their friends well before the Internet came into being.  Acquiring a new customer can cost 6 to 7 times more than retaining an existing customer. Given this fact and the lifetime value of customers, it is quite worthwhile for businesses to reward customers that refer new business to them. The Internet has only made this easier to administer, providing a better accounting of which customers should be rewarded for specific referrals.  This, of course, is the basis of affiliate marketing, where bloggers and other website owners receive commissions for putting ads on their sites that convert their own visitors to become customers of larger businesses.  But getting a customer to refer a friend is a much more “social” way to acquire new customers.  For example, KeKu, astart-up that enables customers to pay only pennies a minute to make international calls, has such a program.  KeKu rewards BOTH the existing customer AND their friends who sign up, each with $10 worth of free calls. This enables both parties to speak with friends and relatives internationally for several hours.  Such programs are highly viral and provide marketers with known customer acquisition costs. They are especially good for start-ups who need to quickly build economies of scale to become profitable.

Facebook Likes.  The “likes” feature of Facebook started with the ability to like a fan page, which shared the fact that you liked this page with your Facebook friends.  This resulted in friends of friends liking the page and became an important viral marketing tool.  It later was extended to include any content, posted by anyone, everywhere on Facebook.  Ultimately, when Facebook offered its social plugins to third party websites, the “likes” feature became available on any website that utilized it.  Today, when you go to a site that has the plugin, you will see how many people on Facebook like the site, page or product, as well as the photos or avatars of your personal Facebook friends who like it.  This has enabled Facebook to become a trusted recommendation engine for e-commerce throughout the Internet. In a complementary fashion, Facebook now also offers the ability for consumers to purchase directly on a brand’s Facebook Page.  This is great for consumers, merchants and Facebook alike, as users can see the recommendations of their friends, and act on them with a purchase, without ever leaving the site.

Twitter Tweets. In a slightly different way, Twitter has become a major channel for people to recommend brands and products to their friends.  According to the June, 2010 issue of ROI Research for Performance, 53% of people on Twitter recommend companies and/or products in their Tweets, with 48% of them delivering on their intention to buy the product, while Performics found that 32% of Twitter users re-tweet content provided by a company or product. The viral impact that such likes and re-tweets have on e-commerce is absolutely astounding.

Buy What Your Fave Celebrities Buy

Posts and Tweets. Why do celebrities get the big bucks for their TV endorsements?  Because consumers want to emulate their heroes and climb the social ladder by showing off products that are associated with their favorite celebrities.  In the age of social media, celebrities have the largest number of Facebook friends and Twitter followers.   Sometimes celebrities spontaneously refer to their favorite brands and products free of charge.   Of course online celebrity endorsements have more of a direct impact on their fans’ behavior, because they provide a link directly to branded e-commerce sites.  Ad.ly provides a service that enables companies to pay celebrities to endorse the products in their posts and tweets.  Pricing depends upon the number of Facebook Fans and Twitter Followers a celebrity has, how many times their posts are “liked” and tweets “re-tweeted” as well as the relevance of the celebrity’s persona to the target market.  Kim Kardashian, with 6M Twitter Followers, apparently receives as much as $10,000 per tweet! Ad.ly’s reports that the average post or tweet from influential celebrities drives 49,000 visits to the branded websites and 500 comments or “likes” on those sites.

Presence on E-Commerce Sites. It is now fairly standard practice for many jewelry and fashion e-commerce sites to show photos or videos of trend-setting celebrities wearing things that look like the merchandise available for purchase on the site.   It must feel great to buy something on the cheap that is perceived to be the same as what glamorous celelbrities pay fortunes to purchase.  And yes, the ability to wear a badge of what the “it” girl of the month is wearing raises one’s social status and dramatically increases conversion rates.

What about the legality of this practice?  Laws require companies to get the celebrity’s written consent prior using their photo or likeness in a commercial context and to pay royalties to the professional photographers that take them  (e.g., photos of celebs on red carpet at Oscars). Others photos are taken by the paparazzi and amateurs, often without the knowledge of the subject.  These are often unflattering photos that get celebrities’ professional handlers (talent agents, PR and legal personnel) in a tizzy.   Check out some of these sites out and let me know which ones YOU believe are true endorsements?   BoutiqueToYou Eve’s Addiction Emitations Jewelry Impressions Eternal Sparkles. There is even a CelebSauce Toolbar that, regardless of where you are hanging out on the web, enable you to click to be cool, and purchase what the top pop social media celebs seem to be wearing.

Group Purchasing

Groupon came up with a clever idea to make the product itself viral.  Groupon’s merchant’s offer discounts as high as 75% if a minimum number of people take them up on a “deal of the day.” But to receive these terrific discounts, you must get your friends, families and followers to get in on the offer too. If the merchant does not acquire the minimum number of customers for a deal to go through, then your money is returned and no-one gets the deal. This provides the motivation to spread the news of the deal virally to virtually everyone you know is eligible, in order to take advantage of the deal yourself.  While many others have attempted to duplicate Groupon’s business model (e.g., Living Social, Facebook Deals, Buy With Me),  Groupon has plenty of wiggle room on its margins if it needs to compete more aggressively, as it currently pockets 50% of each deal.  In the last year, Groupon has been called “the fastest growing company ever” by Forbes Magazine. In 2010, As Read Write Web reports, Groupon: expanded from 1 to 35 countries; launched in almost 500 new markets (from 30 markets in 2009), grew subscribers by 2,500% from 2 million to over 50 million, saved consumers over $1.5 billion and worked with 58,000 local businesses, serving over 100,000 deals worldwide.  People were shocked when Groupon turned an offer from Google to be bought for $6B, but it appears that the company is doing quite well on its own.  The latest round of financing last year already values the company at $4.5B and people are anticipating a $15B IPO later this year. While, Groupon and other group purchasing sites collect their money and pay their merchant’s online (via e-commerce  transactions) they have provided a needed breath of fresh air to local brick-and-mortar merchants who they have help to acquire new customers during a slowly recovering economy.

The latest to enter the fray is Microsoft with its recent announcement (two days prior to this post).  Microsoft announced Bing Deals on Thursday.  Instead of trying to reinvent the wheel and compete with Groupon or its imitators, Bing has partnered with The Deal Map to aggregate the deals offered by Groupon, Living Social, Kayak, Restuarant.com and others.  Bing Deals can be accessed from your computer and/or your smartphone.  Users can search for deals by location,  product/service of interest and/or the discount provided by a deal.  Although this sounds like a dynamite service, Microsoft made one of their typical blunders, by offering support for only iPhone/iPad and Android phones/tablets.  Aren’t these the guys who are trying to grow the penetration of their own Windows 7 based mobile devices? It turns out that Microsoft’s smartphone OS does not yet support HTML 5, which the application depends upon to run.  According to the company, a future release of Windows 7 Mobile will support this emerging standard.  But meanwhile, I am guessing that Microsoft’s PR folks and shareholders are once again pulling their hair out, if they still have any left!

Today Groupon offered a very interesting deal to those of us experiencing a mid-life crisis in northern New Jersey: 51% off for plastic surgery!  What could possibly be next?

Shopping With Friends Online

How many of you like to go shopping with your friends?  Statistically, women are more likely to engage in this behavior than men.  (Personally, I like to grab a few styles and sizes of merchandise off of a rack, flea to the dressing room, and buy what I like and what I think looks best on me without the input of others).  For many women, and I’m sure some men, shopping with friends adds to the “fun factor” and enables people to get the opinions of friends that they trust and respect.  This helps to expand the selection (“how about this one?”) and helps close the deal (“that looks great on you!”). So how can this experiences be virtualized online?

Virtual Malls and Tools. Many social shopping malls and tools have been popping up to try to capitalize on this important offline component of shopping.  Some simply enable you to place images of products in a space that can be shared with friends with whom you can chat about the products ( FriendShopper) while Payvment uses your Facebook profile and friends so that you can shop together in a virtual mall; although not much seems to be happening there yet (i.e., they are giving shops to merchants for free and not charging transactions fees ;)     Other virtual malls range from 3D shopping environments that are relatively  lifeless and static as you walk through the 3D space with no one else around (e.g.,  The Mall Plus) to chatting with the avatars of  strangers throughout the world (ActiveWorlds).  These experiences do not seem to be much fun and hardly replicate the experience of shopping with actual friends in actual stores.

A far more socially conscious approach comes from  Plurchase.  The program appears as a sidebar down the side of an e-commerce site allowing friends to chat while looking at the same piece of merchandise. Friends can ask questions like “What do think of this house?” without having to jump between Web pages or send links by e-mail.  This approach has legs since it appears simply as a sidebar on existing  e-commerce sites, where people already shop (top etailers  Amazon and Zappos have already signed on).  Plucharse is great for sharing static images, but doesn’t address the question that clothing merchandisers need to address, namely “How do these jeans look on me?”

Try On Before You Buy.  An application from Cover girl, Makeup Mirror, gets us closer to a solution, at least for makeup.  Makeup Mirror enables women to either select a model that sort of looks like them or upload an actual photo of their selves,  and virtually apply different make-up that is available on the site to get an idea of how it would look on them.  Women can share snapshot of these looks with others who have registered on the site and even vote on the looks they like best.  I can see how this might be intimidating to women who do not have “above average” looks.  While there were a few duds on the site, most of the 77 members in the gallery were well above average in looks.  Others are clearly avatars.

It gets a lot more complicated for clothing sites because everyone’s face, height, shape, coloring and features are different.  So how do you how an article or outfit will look on you?  MimicMe describes itself as a virtual dressing room, where you can choose a model (or upload your own headshot), enter your dimensions and see a simulation of what the clothing would look like on you.  The problem for people who are looking for a social experience is that you can never leave the dressing room to show your friends and get their opinions before you make the purchase!

A more socially conscious clothing commerce site,  Closet Couture, enables members to select products in digital dressing rooms, see how they look with clothes they may already be wearing, share photos with fiends or paid stylists and obtain feedback. Women can shop, browse, pair, share and buy clothing in a truly social context.  From a technical perspective, one of the best social shopping demos I have seen for clothing manufacturers or etailers is an application by Zugara, that visitors to you to use the webcam on their computer while shopping so that you can get a better idea of how you look in different clothes/sizes/styles/colors and snap a photo that can be shared with friends on Facebook and Twitter.  It seems a bit difficult to get the right size of the clothes in the store aligned with one’s body, but once you put it is on, the individual can move around a bit to simulate how  the clothing would look in action.

Conclusion

While most of these social commerce strategies offer a proven ROI, more progress is needed to stimulate shopping in the real world with friends, especially when it comes to clothing.   What ideas do YOU have to make e-commerce more social?

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