Facebook Gets Physical

CEO, Market Platform Dynamics
5:27 PM EDT February 5th, 2013
NFC At MIT: Which Wallets Will Win? Neiman’s Loyalty Lessons

The “Facebook goes offline” development of last week got me to thinking about a couple of things.

First, it only reinforced the notion that Discover is dead serious about its ambition to be the innovation catalyst in this space. Licensing its network and the set of assets that its network offers has the potential to help innovators with scale on one side of the platform – whether it be hundreds of millions of digital wallets in the case of PayPal or the billion human beings with Facebook accounts in the case of Facebook – and achieve scale in the other – merchant acceptance. Discover has the potential to help solve the critical chicken and egg problems that have kept the industry from reaching its innovation potential, at least to this point. It is proving to be a most interesting industry development.

But, Discover is simply an enabling infrastructure that will help Facebook (in this case) crack the merchant acceptance aspect of commerce at the physical point of sale. But, the strategy that appears to underpin its commerce ambitions has me a scratching my head.

As I was reading the many news stories on this, I couldn’t help but be reminded of the Charles Duhigg book, The Power of Habit, that I read a while back and wrote about when it first came out. Duhigg’s thesis is that people are by and large hard-wired to do what they do, and changing those behaviors requires that the cue-routine-reward feedback loop that forms our habits be altered, and altered in a way that basically, forms a new habit.

One of the more interesting vignettes in the book is the case study about P&G’s Febreze – a product that today drives more than $1 billion in sales but that was on life support only a few years ago. Febreze, as some of you probably know, is an odor neutralizer. But it turns out that the “smells bad” cue — which everyone thought was the buying trigger and thus the focus of the advertising campaigns — wasn’t the right place to focus. After watching thousands of hours of recorded tapes of women cleaning their houses, it turned out that the right trigger was actually the reward of a fresh scent once a room had been cleaned. No one either wanted to admit that their house smelled bad or in many cases, had lived with bad smells so long that they couldn’t smell them anymore. Those were ineffective triggers and thus couldn’t create the “habit” of using Febreze. But, more to the point, the “cue” that represented a clean house was the “reward” of a fresh scent — and not the absence of bad smells. In this case, getting consumers to develop their Febreze habit was to play into the reward of a fresh smelling home, not reminding them of a cue that they either didn’t think they had or didn’t want to recognize.

Okay, interesting story, you’re saying, but what does this have to with Facebook and offline commerce?

Well, I would posit that the habit that Facebook is looking to create isn’t gifting; it’s using a Facebook payment method at the physical point of sale. Gifting is merely the means to that end, since Facebook has a bunch of built-in tools on its platform to easily trigger that behavior. So, if that is the habit it is hoping to develop, let’s examine the cue/routine/reward feedback loop that this latest product launch is hoping becomes a Facebook at the physical point of sale habit.

The routine part is sending a gift to a friend. The reward is a gift card that can be used at multiple merchants and the cue is the familiar form factor of a plastic card with a mag stripe plastic with a Facebook logo on it. That familiar cue – plastic mag stripe card – that powers the pay at the point of sale habit today — is something they seem to be banking on as a way to get consumers comfortable with the product.

But is that really the right cue for Facebook to focus on?

What about the cue that consumers may interpret when they see the Facebook logo on the plastic card – which is the only logo on the card? Instead of reminding consumers of the familiarity of a plastic mag stripe card, could it instead remind the recipient of the online social network that doesn’t necessarily keep their activities private? Is that cue a trigger, instead, of the possibility that what they buy might be broadcast on their status feed? (We’ve seen that story play out before on the commerce side with both Blippy and Beacon, and end with disastrous results, and with Social Reader and Spotify where people really do object to having what they thought were private selections become public.)

Then, there’s the routine. People generally like to have gifts arrive at or before the day of the celebrated occasion. For a plastic gift card to get to a person on her birthday, the giver has to take an action well enough in advance of the actual day. Facebook does send email notifications the week of a friend’s birthday, but most would-be givers are in the habit of wishing a “happy birthday” to someone on their birthday by posting on their wall. If on that day they then take the action of giving a gift of a Facebook physical card, that card will arrive well after the fact. That’s certainly not the end of the world, but probably not the desired outcome if the friend is really a good friend. It also assumes that the giver knows the recipient’s mailing address. (Maybe I’m unusual, but I probably know the mailing addresses of only about 2 percent of my Facebook friends. Who uses physical mail anymore?) And, if someone wants to give a physical gift to a friend and is doing their planning in advance, how likely are they to break their own gift buying/giving routine — which is probably buying a gift and giving it to that person, in person — and turn to Facebook as their option?

Now, what about the reward? As described, the Facebook gift card is sort of an all-in-one gift card that can be used at multiple retailers, and friends can add to it once a person has one. The Facebook app provides a dashboard for the recipient to monitor balances. But, is getting that kind of physical card really a reward – or does it create a hassle and stress for the recipient to remember how much is available where in order for the reward to be consummated? Let’s not forget that the raison d’etre that the Starbucks mobile app exists is that it discovered that most consumers didn’t know how much was on their card and didn’t want to be embarrassed in line by not having enough on the card to pay for their mocha double whipped Frappuccino so didn’t use it (and these were consumers who had a love affair with the Starbucks gift card). Only when they combined mobile app plus stored value did they see their sales of stored value cards explode. It seems sort of clunky for consumers to log onto Facebook in the store (and more likely in lane) to find out how much they have on their card – or maybe to even to remember to bring it to the store.

Wouldn’t this whole Facebook gift card thing be a whole lot easier as a mobile app?

If Facebook is asking consumers to develop a whole new habit that is using Facebook at the physical point of sale, it isn’t leveraging any of the existing “habit loop” that consumers have today when either shopping in a physical store, using a gift card or giving a gift card for someone else to use. If anything, it may even be reinforcing existing cues (regardless of how irrational) that could blunt trial and use.

Facebook is making a huge leap of faith that by simply leveraging the powerful technology capabilities available to them packaged around a familiar plastic card that consumers will adopt. Except that it has the unfamiliar payment brand of Facebook on it and not the more familiar merchant or network logos on it that consumers associate with gift cards and payment. Not to mention that the biggest cue that is being overlooked is that consumers don’t equate Facebook with commerce – yet. Facebook Gifting drove all of $5 million in sales last year, according to Facebook – not exactly breaking online land speed commerce records. And, Pavyment, the pioneer in Facebook commerce that closed down last week, and its investors, could certainly testify to the challenges of getting consumers to shop there.

Clearly, these are the early days. The program was launched several days ago — so it will be an interesting experiment to watch. It certainly does suggest, if anything, that Facebook’s interest in commerce – and offline commerce – is a whole lot more than a passing fancy. But, I don’t think this is the way to nail (or redefine) Facebook commerce. Could Facebook drive commerce and monetize it? I actually think that it could. Could it as its own network? I don’t see it. To prosper in the commerce arena, Facebook might want to think about leveraging the cues and rewards from those who know how to drive consumers’ habits around commerce and develop a business model to create the incentives for them to play along.

By the way, this whole topic of cues and routines and rewards is a thread that we will explore at The Innovation Project 2013 at Harvard on March 20-21. Steve Levitt, author of Freakonomics, has a whole session devoted to it — with PayPal, NetSpend, TrialPay, Kohl’s and MasterCard — who are searching for the hidden clues for why consumers buy and pay. The understatement of the century is that technology makes just about anything we want to do around commerce possible. It’s getting inside of why consumers or merchants want to innovate — and how innovators need to respond — that will bring innovation to life for all of us. To join in this and the other rich discussions like this over those two days, click here to request an invite.

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