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Defining the Future of Social Commerce in Retail

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This article provides a look at social commerce - the intersection of social networks and consumers' shopping processes - covering the pain points driving retail interest in social commerce and where it's headed in the not-so-distant future.

Retail Disruptions Keep Coming and Coming

The first decade of this millennium has been a rough ride for retailers. It kicked off with the twin disruptions of online commerce and Y2K, continuing through one economic downturn. This was followed by the rapid growth of social and mobile commerce to add more complexity to retailers' businesses. Meanwhile, a second economic downturn not only nearly stopped consumer spending in its tracks but accelerated several cross-channel shopping behavior trends that were already in play.

Retailers today find themselves operating a business model that was designed with the store at the center of their universe in a world where the store is now almost the least relevant part of a consumer's shopping process. The store used to be the place where - with the exception of "awareness"- the complete shopping process began and ended.

Front-line store employees knew the most about consumers - what they liked and didn't like, how best to serve them, who the best shoppers are - and were most often the product experts, certainly the primary source of information for customers in the retail setting.

Contrast that with today. Today, the shopping process may begin well before a consumer walks into a store, and in fact, can be completely transacted without ever setting foot into a retailer's location (including taking delivery of the product). Consumer smartphones equipped with apps - like RedLaser - turn retailers' stores into fancy showrooms for Amazon.

Store employees now know the least about customers. Corporate now holds all that pre-store information about shoppers, such as when customers last visited the eCommerce site, and what they looked at. Store employees also know the least about products because consumers have access to much more information online than store employees are trained on, and because consumers only have to research the one or few products they are interested in, while store employees have to keep up with a vast and often rapidly changing product assortment.

Cross-Channel Opportunities

Almost since the first store-based retailer opened an eCommerce site, retailers have had to deal with consumers shopping across channels. While it has fundamentally challenged the traditional retail model, it has also posed new opportunities. Over the last four years, it can be argued the notion that cross-channel customers are more profitable than single-channel customers is slowly moving from myth to reality (Figure 1).

Considering this trend in light of the current environment, where store sales are flat or down, retailers have little choice but to go where their customers want to go. The trend is expected to continue. Online sales remain a bright spot for most retailers. New technologies, like social channels, threaten to further disrupt the traditional shopping process. This holds even if that path meanders across channels, methods of engagement or steps in the shopping process. If retailers are not cross-channel, they are not only leaving a lot of value on the table, but they are actively encouraging customers to buy from other retailers that better accommodate how they want to engage in the shopping process.

The Role of Social Media

In particular, social media has driven enormous change for retailers. Consumers now have more ways to engage with retailers than ever before. At the same time, retailers have less control over that engagement. If you search on Facebook for Wal-Mart, while the actual corporate Wal-Mart page is the top result, it is presented along with a long list of non-sanctioned Wal-Mart results, including "I'd Rather Spend More Than Shop at Wal-mart," "333 Ways to Get Kicked Out of Walmart" and "Why does wal-mart (sic) have 20 registers and only 5 are open?!?!" (which has over 250,000 fans, by the way).

There are entire books devoted to social media faux pas made by all kinds of brands, from the YouTube video of the Comcast repairman who was on hold so long he fell asleep in a customer's home, to the infamous "United Hates Guitars" song and video, to the bike lock manufacturer Kryptonite. Kryptonite unfortunately served as a critical wake-up call to brands about the importance of social media. The company almost went out of business when consumers discovered via social media sites that Kryptonite's marquis bike lock could be defeated with a BIC pen - and Kryptonite was not paying attention.

At this point, retailers will generally tell you that they need to participate in social media - they need to be where their shoppers are - but that's about as far as the general thought process goes (Figure 2).

Defining Social Commerce


However, just because new channels for engagement exist does not mean that they necessarily lead to new channels for commerce, which has been social media's biggest dilemma for retailers. If you achieve 1 million fans on Facebook, does it mean you'll sell more products as a result? What does it mean if your most active fan on social media sites isn't a customer but aspires to be one? Can social media be reliable predictors of purchase intent? Does mindshare translate into more products sold?

No retailers have answers to these questions. In fact, any discussion about social media vs. social commerce is likely to draw blank stares. The topic draws a distinction at a level of sophistication that most retailers have not achieved. However, they are aware that the information and intentions shared by consumers via social media should have value, and they become more convinced of this over time (Figure 3).

To add confusion to the mix, many technology vendors throw around the term social commerce without really defining what it means. Is it being able to automate a Tweet about a purchase you just made? Is it being able to purchase on Facebook? One view is that social commerce can be perceived as all aspects of social media that move consumers through the purchase process (the view held by Retail Systems Research). That's a big scope, and it's still evolving.

Examples of Social Commerce


There is no real standard for defining the consumer purchase process, and it can vary significantly by product category. For example, high-consideration items that are also large purchases tend to generate a lot more consumer research. Flat-screen TVs are a prime example. At the other end of the spectrum, odds are that you are not going to comparison-shop the can of peas you pick up at your local grocery store. From the perspective of the retailer, there are four main areas of engagement that social media can provide along the consumer shopping process: listening, engagement, transaction and post-sales service. Below are examples of each:


Retailers initially approached social media sites the same way as other brands. They tried to control the conversation, sometimes with disastrous effects. They soon realized they had a much more fundamental problem - just keeping up with what consumers were saying about them. Social media analytics have emerged as a way for retailers to address the issue. Startup vendors, like Buzzient, have developed tools for analyzing sentiment and tag clouds across diverse social media sources, including blogs or comments in reviews. Larger analytics vendors are getting in the game, including IBM and SAS. All of these vendors and more provide at a minimum a way for retailers to monitor topics, along with the trending sentiment around topics - something that would have been critical for Kryptonite as the BIC pen news broke.


However, listening is the bare minimum that any brand should be doing today around social media. While listening can prevent public relations nightmares, it won't build sales. In order to achieve that, retailers have to engage with consumers through social media channels.

Zappos was an early retailer to fully embrace Twitter. Multiple employees established Twitter feeds, including the CEO. Some of those have been roped in, but the wide accessibility of Zappos via social media channels has been embraced by its customers.

Sephora has had some consumers become so actively engaged with their brand that these unpaid volunteers serve as brand ambassadors for shoppers visiting their Facebook page. In fact, a perusal of Sephora's wall on Facebook shows that consumers answer each others' beauty questions faster and more often than Sephora itself, making Sephora's page more a place where consumers can talk to each other within the context of the brand and less about engaging directly with the brand. Sephora's engagement consists of facilitating and moderating, not so much "talking."


Engagement around transaction is probably the closest to true "social commerce." It is also the area that has seen the most recent innovations. JCPenney has become the first retailer to offer their eCommerce site on their Facebook page not as an outside link but fully integrated, including the ability share products and comments about products directly on your own Facebook page.

However, there are other ways to bring together "social" and "commerce." TurnTo is a startup vendor that facilitates a conversation between consumers who are interested in a product and consumers who have already purchased the product. For example, if reviews don't address a specific question, a shopper can send the question out to past purchasers who have agreed to be contacted and tap into their experiences with the product.

Groupon is a more famous example, especially after a brush with a $6 billion offer from Google (which fell through). Retailers sign up to make offers to a community of shoppers, with thresholds required before the offer kicks in. Consumers are incented to share the offer with friends in order to achieve the minimum level of participation needed to activate the deal.

is another example that gets closer to social commerce in the realm of transaction. Similar to Foursquare, a location-based check-in app most often used on mobile phones, shopkick turns in-store shopping into a game, awarding points for showing up and for scanning items in the store. American Eagle was shopkick's premier customer, with the vendor's first installation in Times Square. Shoppers accumulate "kickbucks" that can then be redeemed for gift cards or merchandise across a variety of retailers.

Retailers increasingly leverage both Facebook and Twitter to offer exclusive deals to its fans.
Wal-Mart provides a Groupon-like capability on its Facebook page, where a deal becomes available for purchase only after a minimum number of fans "like" the deal. Amazon publishes its Gold Box deals via Twitter. The company is one of many retailers taking advantage of this type of engagement.

Post-Sale Service

Many retailers miss the mark with customers by viewing the transaction as the end of the sale. In reality, especially for high-consideration products, the transaction can often be the beginning - not the end - of the relationship. Best Buy set the bar for post-sales accessibility when it announced the launch of Twelpforce, its Twitter-based customer service, in July 2009.

has achieved a level of redemption in its customer service with its Twitter feed. The company has also been known to very actively monitor consumers' random Twitter posts for negative comments about Comcast in order to reach out to them to "Make It Right," demonstrating both listening and engagement.

Driving Value


All of this activity is wonderful, but what does it really mean to the business of retail? If you follow the strict interpretation of metrics in retail, you might argue that the only thing that matters is sales. In the social media context, that translates very simply: Does engagement via social channels lead to sales? Given retailers' current state of customer insight, there is no easy answer. In RSR's travels, we have found that the answer to the question "How many people who have shopped on my website also visited a store within a week of their online visit?" takes retailers on average 6-8 weeks to get, because this information does not exist in a single customer database. Even when it does, many shoppers are easily identifiable online but not in stores, making the question that much more difficult to answer.

On the other end of the spectrum, there is a concerted effort to develop metrics about influence and engagement. Net Promoter Score is an example of an influence-related metric: It measures the percent of your customers who are positive promoters against the percent of customers who are detractors. Influence can also be measured in terms of the reach of a particular customer: How many "friends" does a person have, and how influential is that person on their group of friends?

Social media definitely creates new opportunities to look at customer metrics. Right now, it requires a certain leap of faith to assert that high levels of engagement yield high customer lifetime value. Many people believe that intuitively this must be true. However, there is yet to be a large quantity of proof points that support this contention. In the meantime, retailers rely on a hodge-podge mix of "old-school" metrics that come out of what retailers could historically "get" out of their financial systems - sales trends - and "new-school" metrics straight out of the glory days of the Internet boom - traffic, "influence" (however that may be defined), engagement.
At the moment, most retailers tend to view these two types of measures - performance vs. influence - as mutually exclusive. However, this need not be the case at all. If you want to move the levers of performance, you must understand the "why" behind the "buy." Some kind of link between influence and performance must be made.



What can you take away from this review of the state of social commerce? Hopefully three things:

1) Social commerce is still very much in the early days. Yet in order to meet it head-on, retailers must be able to take a transaction no matter where it comes from. Will consumers be able to buy via Twitter in the not-so-distant future? Quite possibly. But the retailers who are locked into payment systems and transaction capture that limits their flexibility will find themselves stuck and very unhappy when that moment comes.

2) There are many opportunities out there that cross all aspects of the customer shopping process. No retailer is addressing the end-to-end spectrum of engagement opportunities via social media, but several retailers are achieving significant differentiation by focusing on one piece of the process and managing it very well. However, that window of opportunity is closing daily. Retailers, like JCPenney, Best Buy and Sephora, are leading the way in closing the gaps, and at the same time, raising the bar for everyone else.

3) Measurement lags significantly. Retailers don't have the right data, don't know what data they ought to be collecting, and even if they do, they're not sure what questions to ask to generate customer insights. Convergence may well be coming to metrics, though, with a focus on bringing together "hard" metrics based on measurable performance changes (like sales) and "soft" metrics (like influence, intention and engagement).

Click here to download this article as a PDF.

Nikki Baird is a managing partner at Retail Systems Research. Retail Systems Research provides market intelligence on the adoption of business processes and technologies in retail, including through benchmark surveys to our audience of retailers. For more information, visit



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