Practical Ecommerce

A Social Media Marketing Paradox?

A new study finds that social media influences just one percent of ecommerce transactions, meaning that thousands of merchants could be, potentially, wasting valuable marketing dollars. But consumers and small and mid-sized retailers are claiming social success. Is there a social media marketing paradox?

A much reported study from Forrester seems to indicate that social media marketing is a bust for ecommerce. The study, which Forrester conducted in conjunction with GSI Commerce, an ecommerce platform owned by eBay, looked at 77,000 online transactions conducted from April 1 to April 14, 2012, presumably from GSI Commerce clients, which include large retailers like Roxy, Timberland, Toys”R”Us, Levi’s, and similar brands.

The study found that social media contributes to just one percent of those 77,000 transactions.

Now for the Paradox

An earlier Forrester consumer survey conducted in 2011 found that 48 percent of shoppers found retailers and products on social media sites and 17 percent said that they had made a purchase based specifically on a post seen on a site like Google+, Facebook, Twitter, or Pinterest. If 17 percent of consumers made a purchase based on a social media post, can social media truly be an ecommerce marketing failure?

Separately, Monetate — the personalization and testing platform — reported in January 2012 that Pinterest alone accounted for 3.38 percent of all same-store referral traffic to five specialty retailers, marking a 389 percent increase in just six months.

As further examples, Nielsen found in 2011 that 70 percent of social media users shop online; Ticketfly indicated in September that 23 percent of concert ticket sales for certain types of electronic dance concerts came from social media; PM Digital found in its study of luxury brands online that Pinterest and Instagram were important for customer engagement; and a comScore case study found that shoppers who were fans of retailer Target on Facebook were 97 percent more likely to make a purchase form Target than were consumers in general — likewise friends of Target fans were 51 percent more likely to make a purchase than were consumers in general.

Resolving the Paradox

Reconciling the recent Forrester study results — that seem to indicate that social media is overrated for ecommerce — with a myriad reports from consumer surveys and merchant accounts praising social comes down to an understanding of company size and a misunderstanding of what social media is supposed to be accomplishing.

Company Size and Marketing Power

First, the Forrester study that has been making headlines, could be biased toward large ecommerce sites.

Forrester itself pointed out that the study does not consider transactional data from small and mid-sized online retailers. Rather the findings are specific to large sellers with many millions of dollars in transactions and many millions of dollars in marketing investments that could be influencing the results.

For example, what if Adidas, which is a GSI Commerce customer, had been included in the Forrester study? Adidas markets directly to consumers across many channels and has its own ecommerce store. Adidas would almost certainly outperform a small shoe retailer selling its products in terms of total transactions, organic search results, and email list size.

But that small shoe retailer might be able to engage some customers directly via a platform like Facebook or Google+. Those personal engagements could lead to sales that represent a much more significant percentage of the small retailer’s total transactions. What is, perhaps, a drop in the bucket for Adidas, could be the key to success for a small merchant.

Marketing Expectations

The Forrester study’s media coverage would have one believing that social media can do nothing to market ecommerce businesses. Consider these headlines.

  • “Social Media Influences Less Than 1% on Online Purchases” — Mashable
  • “FORRESTER: Facebook And Twitter Do Almost Nothing To Drive Sales” — Business Insider
  • “In occupying the minds of online shoppers, social media is the 1%” — Direct Marketing News
  • “Social Networks Don’t Drive Sales, Study Finds” — Jeweler’s Circular Keystone Online
  • “Study: Posts on Facebook Almost Never Lead to Retail Sales” — Time

These headlines may be true if social media was expected to directly drive a large number of sales in a single click. But that may not be what social media is really supposed to do for online stores.

For example, what if social media is supposed to make a retailer top of mind?

Imagine a scenario wherein a shopper watches a video on YouTube showing how to use a new fishing rod. A fishing supply retailer had posted the video. Months later that same consumer searches for a popular fishing rod brand on Bing, sees several links, and clicks on the aforementioned fishing supply retailer because that consumer remembered the brand name from the video.

Forrester’s study would not have attributed any credit to YouTube, but without that video the hypothetical shopper might have clicked a different link.

What if social media was supposed to improve customer service?

Imagine a shopper having trouble finding a replacement part for an older vacuum cleaner. The shopper posts a question about the part on Google+, and a housewares retailer replies that the part can be ordered directly from the manufacturer and provides a link. Although that housewares retailer was not involved in the transaction for the part, that consumer might be disposed to shop for other household items. The social engagement could lead to sales that the Forrester study would not have considered all while genuinely helping a customer.

Even if social media marketing was only about driving immediate sales, one percent is not too bad. In the Forrester study this would have been some 770 transactions. If the average ticket value was $75.00 that would be $57,750.00 dollars in sales in two weeks or about $29,000.00 per week in sales.

If U.S. ecommerce spending reached $200 billion in 2012, which is within analyst estimates, one percent of sales would be $2 billion.

Summing Up

The Forrester study is probably very accurate for large online sellers, but there are still plenty of good reasons that small and mid-sized retailers should be using social media to market their products.

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Armando Roggio
Armando Roggio
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Comments ( 6 )

  1. Paul Chaney October 2, 2012 Reply

    I guess it’s within Forrester’s purview to dismiss smaller retailers out of hand, but I concur that its report is heavily weighted to larger brands.

    Smaller retailers have the nimbleness, flexibility and freedom to figure out how to make social commerce work in their favor, unlike large brands, which are hampered by layers of bureaucracy and red tape. Plus, smaller retailers are able to build authentic relationships with their customers on a more personal level, something big brands have a tougher time doing.

    To balance the Forrester report, I recommend reading the one from e-commerce platform provider Ecwid. Its 200K customer base consists largely of smaller retailers. The company reports that, of those retailers who use its platform, 22% of sales come through Facebook.

  2. inSparq October 3, 2012 Reply

    We did see this Forrester report all over the web the past few days. It’s unfortunate, and inaccurate because there is data to counter the report (hence the paradox).

    The key question is: What is the purpose of social media? Many brands (small and large) use it for connecting with customers, brand awareness, customer service, for example. And the result isn’t necessarily sells. Although, as the example of the ‘fishing rod’ points out, social media may not be counted as a direct line to sells, but it’s certainly in the pipeline, even if vaguely. The vagueness will be more fleshed out in the coming future.

    Here at inSparq we sell social commerce technology that actually increases revenue for online retailers. Social sharing is the cornerstone of our business.

  3. Joanna Duong October 4, 2012 Reply

    There is no doubt that a social media presence is necessary in today’s day and age. If anything, it is a way for people to gauge the legitimacy of your company, build trust and stay top of mind. They’re all more intangible benefits versus direct conversions though clicks so it’s really difficult and subjective in how the numbers are interpreted. According to our data, social media does not convert, but then there are a large percentage of people who arrive on our site directly from Henkaa.com and do purchase, so it’s hard to attribute if it had anything to do with Social Media at all.

  4. HeyYolo CEO October 4, 2012 Reply

    The survey’s findings are interesting in that they actually demonstrate how social media outreach by retailers has become more mainstream – and thus, declining levels of engagement.

    The opportunity for social media influence is between the individuals and their social network and not from the bullhorn from retailer’s FB, Twitter or Tumblr pages. In our studies, we have found that grassroot sharing of an individual’s product and services on social media (FB, Tumblr, Twitter, Instagram) is the single-most authentic and influential factor in both e-commerce discovery and conversion.

  5. Nicks October 8, 2012 Reply

    A very interesting article but I had heard that the influence was more 2 to 3% on average, especially in Europe and the Far-East. It does appear that the larger retailers are trying to put a square peg into a round hole in terms of their marketing, advertising and promotions. Social media was never designed to be a product awareness sales channel and seriously conflicts with the more personal “I am here in my life, how about you?” aspects of e-social interaction. And few want to be bombarded with product info during a leisure session when chatting with friends.

    Common sense alone would indicate that post-sales of products and their merits would normally be the trend on social media sites similar to the human grapevine talk, where someone simply says: "I bought some great trainers". The social cascade of inquisitiveness then follows and potentially leads to a similar purchase. Social media around my circles tend to review-and-park promotions for a later time or for helping someone out when they inquire. Interestingly, the awareness or experience of good customer service by a retailer seems to be more important for us than the products retailers sell, especially reliable delivery dates and no argument returns policies.

  6. Filip Galetic October 21, 2012 Reply

    Those numbers are modest at best. I agree, it sounds like a paradox to me. Actually, I disagree that small firms can make any meaningful impact on their sales using, say Facebook, unless they have a highly unique product with a lot of buzz built around it. There are tens of thousands of small business pages out there with no likes and no impact. Simply put, no one cares.

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