rise of social commerce

Report Publication: Rise of Social Commerce

by Lora Cecere on November 1, 2010 · 1 comment

Meet the new shopper.  Underneath the keys of the keyboard, they are shopping in a new way.  They could be beside you on the train tonight, it could be your teenager behind the closed door, or your spouse smiling as she clicks on the accept button for the PERFECT holiday gift.  Each is unleashing the power of the social network.

Meet the Digital Consumer

The digital consumer is shopping with friends, sharing recommendations, and actively engaging in dialogue with brand owners on how they want to be served.  But, can you listen?  Can you serve the new shopper?  Or are you so busy YELLING your brand message, that you will miss this opportunity to listen, engage and serve the consumer in new ways?  With the rise of social commerce, you have new opportunities to anticipate, personalize and energize the shopping experience; but our finished research report documents that convention is the biggest barrier. Enterprise processes that are designed to broad-brush markets, push big-brand messages, and serve markets through conventional channels.(To access the report follow this link. rise_of_social_commerce_final)

The Four Phases

The “Great Recession” set the stage for this new era, and emerging technologies accelerated the transformation.  The shopper has fundamentally changed and wants a new buying experience.  Trust in big brands is low.  Consumers want confidence in what they buy from their friends, and insight from their community.  Pioneers are driving this change.  In our qualitative interviews, on average this change consists of five people in interactive marketing, armed with an array of technologies.  In 2011, this will spread into an enterprise initiative to know the digital consumer.  The change will enable new ways to sense and shape demand, and build a more powerful relationship with the buyer.  As a result, in 2011, 90% of companies surveyed will increase funding for social commerce initiatives by 8%.  This represents net new spending by the line-of-business leader in brand marketing for a manufacturer or retailer. 

This evolution of social commerce (s-commerce) harkens us back to the birth of e-commerce 10 years ago.  At that time, e-commerce represented both a new channel and a new way of communicating brand promise to a shopper.  The change was pervasive, and it rewrote the relationship between company and consumer. Social commerce is analogous. It is both a new channel and a new way of doing business.  It is reshaping how consumers shop.  It is changing customer expectations about their interactions with brands. 

Three years ago, the action shifted to mobile.  Again, it was both a new channel, and a new way to promote brands and redefine the customer experience.  The handheld device has fundamentally changed shopping patterns; it has enabled consumers to shop anytime and anywhere.  The rise in smartphone use has accelerated the pace of change.  According to Nielsen, 30% of shoppers have smartphones, with predictions of 50% adoption in 2011.  Of the companies interviewed in our qualitative survey, 40% were actively involved in m-commerce strategies today. 

 We see this evolution happening in four phases.   Today, most brands are getting engaged in the first phase of social commerce, which we call Let’s Be Social, where it’s all about getting social at a minimal level.  Dissatisfaction with superficial interactions will drive people to the second phase of social commerce to drive a dialogue.  We call this second phase Enlightened Engagement. In the third phase, Store of the Community, shoppers give input and have the opportunity to shape products, promotions, and offers. This outside-in value chain empowers the digital shopper to own the experience and enables brand owners to better serve micro-markets. The  fourth and most mature phase of the social commerce framework – where convergence will catalyze a complete redesign of the shopping experience – is a phenomenon that we call Frictionless Commerce.  For more details, see the nineteen case studies that we outline in the report.

 

Why it Matters

We can see industry sub-segments (e.g. apparel retail, consumer packaged goods, financial services, travel and entertainment, etc.) moving at different rates and on different paths: each is using industry-specific social technologies and processes.  However, while each industry has different tactics, they are all moving forward through these four distinct phases to build a closer relationship and increase brand presence with shoppers through the use of new technologies.  It is a journey, not a destination; but one that we think is worth taking.  Consider these facts that we uncovered in the research:

  • More effective couponing.  Companies deploying social couponing methods got a 5% lift on paper coupons, a 25% lift on electronic coupons and a 100% lift on social coupons.  The story is higher conversion with less cost.
  • Larger market baskets.  A social commerce technology company powers both ecommerce and social commerce fan pages on Facebook.  The market basket is 15% greater for the social commerce shopping experience.
  • Direct diagloue on new product launch.  The Facebook Like button is now used by 50,000 Facebook sites.  This feature enables feedback and quick assessement for new product launch, new positioning and promotions.
  • Improved customer service.  62% of the companies surveyed for the report have active Twitter and Facebook customer service agents engaging in direct dialogue with the shopper.  For the 70% of these companies with more mature processes, this feedback is shared weekly with research and development teams.

 Yes, for many social will be defined as social media: an arm of marketing with a new way of communicating a message to a community.  The focus will be on message refinement and public relations.  They will miss the greater opportunity.  The curtain is raising for YOU to meet and better serve the digital consumer.  Join me in ushering in this new era.  Read the report and sign up in the ranks of the Social Commerce pioneers.

This is my first report at Altimeter Group.  Two new ones will follow within two months (An Update on S&OP Technologies and the Evolution of Downstream Data.) So, let me know what you think.  How did you like this report?  What helped you?  What would you like to see me change?

Rise of Social Commerce

by Lora Cecere on October 15, 2010 · 4 comments

“We have the most powerful distribution mechanism that has been created in a generation,” Mark Zuckerberg, Founder Facebook at the launch of the 2006 Connect Platform

It is called the socialgraph: the complex interconnection of social relationships. It is a new type of network.  One that has the power to redefine the shopping experience allowing companies to anticipate, personalize and energize the shopping experience in new ways.  Tapping the potential of this technology shift will make the vision of customer-centric value chains today’s new reality.

The Wild, Wild West

Many new technologies are converging simultaneously.  It resembles the wild, wild west.  For many companies, so many things are happening simultaneously, that it is hard to chose how to get started.  In the words of one respondent, “I feel like a hamster on a treadmill.  It is hard to get off the treadmill to stop to think what combination of tactics will add the MOST value.”  It includes:

  • Geospatial.  Geospatial data combined with point of sale data to deliver a tailored response to the shopper when they are in the store.  The data enables insight on not only what you bought, but where you were when you bought the item.  And, what your shopping behavior was prior to the purchase.  This is redefining couponing.  Examples include Groupon a new social couponing company, Get Satisfaction a new rewards program for purchases, Shopkick that rewards you for going into a store, coupons tendered through your Garmin device in your car, and specialized shopping baskets in the stores to tender special offers.
  • Gaming.  Social gaming to enhance the shopping experience, but also unleashing a new opportunity to learn more about a consumer through their gaming behavior.
  • Mobile Applications. In 2011, 50% of the populations in modern trade countries will have smart phones.  Mobile applications in combination with 2-D bar codes can personalize the shopping experience in new ways.
  • 2-D Bar Codes.  Direct personalization of the shopping experience through 2-D barcodes to the shelf to either differentiate the product, communicate how to better use the product or connect with gaming to energize the shopping experience.
  • Virtual Currency.  Virtual currency linking the socialgraph, the gaming experiences and the new social commerce sites together. It is a new way of seeing what shoppers really value.  Check out the selling of Facebook credits at your Target or 7/11 stores.
  • Shopping with Friends. Consumers trust their friends.  They want to shop with their friends.  The Socialgraph enables this new type of shopping experience on Facebook or in a bricks and mortar experience.
  • Facebook as a Channel.  As the conversation is enhanced by commerce, companeis are adding storefronts to their Facebook pages.  Community recommendations by friends turns into shopping with friends for enthusiast purchases–hobbies,  cosmetics, toys–enhancing the customer experience.

Results from the Research

It has been fun to study.  Five months of research culminated last week at Altimeter Group’s sold out event: The Rise of Social Commerce.  In an attempt to understand the dawning of this new channel, I drove the research, developed the agenda and delivered the keynote (check it out at http://www.riseofsocialcommerce.com/community/expo-the-rise-of-social-commerce/).  I will publish the final report next week.

So you might ask, why is a supply chain gal like Lora Cecere interested in understanding the early days of Social Commerce?  The reason is simple. It is a exciting new world of possibilities. It is a both a new channel and a new way of doing business. It is reshaping value chains.  More than ever, retailers are now manufacturers and consumer products manufacturers can now sell directly to loyal shoppers.  The power is shifting to the shopper.  The digital consumer now has the power of the value chain in the palm of their hand, but more importantly, it allows a company to have a direct dialogue with a consumer in a more meaningful way.

I interviewed 53 companies, and as I did the interviews, I could see that they were at very different stages of development.  The progression of understanding follows four stages:

  • Let’s be Social.  In this stage, the organization is social for social’s sake.  The deployment of the technologies are primarily in marketing and the strategies are very brand-centered; and consequently, not very effective.
  • Enlightened Engagement.  As social maturity evolves, companies have new opportunities for direct dialogue.  It enables dialogue and customer service, new product launch, and community development.
  • Store of the Community.  Direct involvement of the community in product assortment, category definition, and demand shaping activities.
  • Frictionless Commerce. The redefinition of the shopping experience based on mobile, social and ecommerce capabilities that culminate in a TRUE cross-channel experience.

In the interviews, 20% of companies were actively working on social commerce strategies in 2010, but 83% have it on their agenda for 2011.  It is NET new spending driven by the line of business leaders.  Only 22% of companies have IT leading the charge.  However, only 5% of companies have active involvement by the supply chain leaders.  My goal is to help supply chain leaders capitalize on this opportunity.

Why should the Supply Chain Leader care?

While marketing colleagues are optimizing the tactics above, and defining new ways to use social to shape demand, promote awareness and energize the shopping experience, it unveils new opportunities for the supply chain team that I find that they are largely unaware of.

  •  Redefinition of customer service.  Organizations really don’t have customer service.  If you ask what does your customer service department do, you will find that most take orders.  There may be another department that receives customer complaints.  But, the ability to listen and learn from shoppers and enhance the shopping experience through the integration of social technologies–twitter feeds, Facebook fan comments, private networks, syndication of review data–allows a 360 degree view of the digital consumer for the first time.  The ability of the organization to think outside in and engage the shopper in a meaningful dialogue.  it unveils the opportunity to listen, to have a meaningful response and to learn.  For me, this is exciting.
  • New ways to sell to loyal shoppers.  The concept of anticipation of needs through the social graph is also fascinating to me.  Let me give you a personal example.  I am going to be a grandmother.  I am so excited to be a grandmother, but only my social connections know the full extent of my excitement.  For the first time in 20 years, I am a shopper for all things baby. I am also a quilter, a knitter, and an avid crafter.  Imagine how a smart company could use this information to anticipate and deliver some exciting offers to me to shape demand.  The socialgraph enables unique insight on changes in lifestyle, community sharing, and tailored offers.
  • Channel proliferation.  We have talked cross-channel for years; however, in my shopping experience, Nordstrom comes the closest to having a true cross-channel experience.  For most companies, the e-commerce and bricks and mortar channels are separate and distinct.  But now we have channel proliferation with M-commerce through mobile and social commerce through Facebook.  This channel proliferation will force companies to rethink their supply chains.  It will give rise to a new wave of  supply chain execution applications.  A new bar will need to be reached for inventory accuracy the need for a more real-time signal of inventory in the extended supply chain.  Removing data latency on inventory movement will become a new corporate focus.
  • A new need for new type of supply chain transparency.  When we communicate all the way to the shelf with the shopper, a new level of supply chain transparency is needed–especially on manufacturing and quality data– to convey the brand promise for health and wellness, food safety, organic, etc.  This driver will redefine manufacturing execution systems and force the integration of bill of material, process quality data, and specification information in a new way.  It will also tie manufacturing execution systems to supply visibility.  Supply chain execution will no longer JUST be about order fulfillment.

Summary

It is happening.  It is exciting, and can redefine value chains.  Unfortunately, for 95% of companies that I interviewed, it is ONLY happening in marketing.  Here is my plea.  Please rethink your supply chain strategies for 2011 to welcome the digital consumer.  We have talked about the need for shopper-centric supply chains for a decade.  Don’t pass up the opportunity to be a pioneer in making the dream a new reality.