02 Jun 2014  Research & Ideas

Excerpt: ‘A Social Strategy’

An excerpt from A Social Strategy: How We Profit From Social Media by Mikolaj Jan Piskorski

 

A Social Strategy: How We Profit From Social Mediabook excerpt

What My Research Revealed, in Broad Strokes

From A Social Strategy: How We Profit From Social Media

By Mikolaj Jan Piskorski

As I began my research, it quickly became clear that there are two major ways in which companies have tried to leverage social platforms for their own strategic benefit. In the first instance, observing that millions of people connect to friends and strangers on social platforms, some companies have chosen to enter the fray in a similar way, by trying to build relationships with people online as if those people were their friends. That approach has often entailed setting up a corporate page on Facebook, getting people to "Like" it, and then broadcasting messages to those fans with the expectation of receiving a response (in the form of either feedback or increased sales). Companies have also undertaken the same set of activities on Twitter—establishing an account, getting people to follow the firm, and hoping that those people will respond in kind.

Such strategies have allowed firms to engage in an activity that's very familiar to them: broadcasting content to customers. And for many, the approach has generated incredible engagement in terms of the number of likes or followers, the number of responses, or the number of times corporate messages are forwarded to others. For example, by mid-2013 Target had slightly less than 22 million fans on Facebook, Wal-Mart had 30 million, while Converse and Starbucks had about 35 million each. Disney had more than 44 million, and Coca-Cola had gathered more than 69 million fans, 800 thousand of whom reportedly liked the Coca-Cola page or posted a status update on that page; liked, shared, or commented on a Coca-Cola post; mentioned Coca-Cola or its page in their own post; tagged Coca-Cola in a photo; shared or liked a Coca-Cola-related deal; or wrote a product recommendation.

 

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Indeed, many firms began to compete with each other over who can have most Facebook fans or Twitter followers. Fueled by the desire to increase these numbers, many of those responsible for social engagement online reached out to key decision makers in the company to try to obtain an ever-larger budget for such efforts. Invariably, however, they are met with the same question: "How much do all of these social efforts contribute to our bottom line?"

And that's where, for many companies, the frenzy grinds to a halt. In rare cases, it is possible to answer that question with specifics and document some connection to profits. More often than not, however, the answer is something along the lines of: "Well, we cannot really demonstrate that any of these actions actually translate into dollars and cents." That answer usually stops budget increases in their tracks; soon after, social efforts become just another box to check in the company's marketing manual.

In the second instance, companies have behaved very differently. These organizations have eschewed broadcasting messages to customers, instead focusing on connecting customers to each other, subsequently linking those customers' actions to increased profitability.

To see this approach in action, consider eBay's Group Gifts app, launched in late 2010 and designed to help people pool funds to buy gifts for friends. To buy a group gift, a person goes on eBay's Group Gifts site, and names a recipient, either by typing the name in directly or by picking the name from the list of his or her Facebook friends. eBay then offers a set of general gifts, or allows the organizer to give the application the right to collect the recipient's Facebook "likes," which are then used to recommend a gift. Thus, if the intended recipient has indicated on Facebook that he likes the Beatles or Apple, Group Gifts then recommends Apple brand gifts, or items related to the Beatles. The organizer then decides on a gift, determines her own monetary contribution, and issues invitations to other contributors by posting an "invitation to contribute" on her Facebook profile. This invitation contains a link taking users directly to the appropriate gift page to contribute additional money. Once enough money has been collected, eBay sends the gift, along with the list of all contributors and short notes from them, to the recipient.

This application generated three types of immediate benefits for eBay. First, the average price of Group Gift goods was reportedly five times higher than the average eBay sale. Second, a third of those who participated in a group gift sign up for a PayPal account. Finally, an- other third returned to visit eBay within a month with the intent to purchase other items. Importantly, eBay obtained all of these benefits without having to pay additional customer acquisition costs. These results suggest that eBay's foray into leveraging the social Internet for profit reveals a replicable strategy that benefits both the company and the consumer and can be succinctly summarized as:

eBay increases its profitability by allowing people to strengthen their friendships through gifts when they ask their friends to buy from eBay

Consider the key features of this strategy. First, the social engagement eBay facilitates is directly related to strategic goals of the company—increased sales or lower cost. The direct connection to strategic goals allows the company to realize immediate benefits that made it easy to justify future investments into using social channels to power the company's strategy. It also stands in marked contrast to the firms pursuing the first approach, which sought to engage with customers in the hope that the "likes" they received on Facebook or retweets they got on Twitter would translate into sales or lower costs (which they rarely did).

Second, with this approach, eBay is not trying to become friends with its customers with the intent of broadcasting messages to them. Instead, it seeks to help people establish interactions with each other that they would otherwise have a hard time entering into. As one participant in a Group Gift transaction said in an interview: "If it wasn't for the eBay update from my friend that I saw on Facebook, I don't think I would ever know that we were buying a gift for [name of the person], and I don't think anyone would think to ask me for money to chip in, but I saw this and chipped in, and just the other day I got a thank you note. . . . I think it will make it easier for us to stay in touch." Viewed this way, eBay actually offers a "friend" solution, which allows people to overcome interaction costs related to the awkwardness of asking acquaintances for money.

Third, and perhaps most important, the two benefits co-occur and are tightly integrated. This is critical to the broad acceptance and long-term success of any such efforts. Take the co-occurrence of benefits. It is fairly easy to imagine a scenario in which a firm asks its customers to tell their friends about a particular product in exchange for giving these people monetary benefits. Although such a scheme will probably benefit the company, it will also probably undermine many of the social relationships that people have, thereby limiting the scope of people willing to engage in such behaviors.

The tight integration of social and economic benefits is equally important—users can obtain the social benefits only if they undertake actions that clearly benefit the firm. Specifically, to be able to overcome social failures, users need to post a status update on Facebook, which then also advertises eBay to their friends, which then allows the company to acquire new customers without having to pay for it. It is fairly easy to imagine scenarios in which the firm provides a social solution for users, but the users do not need to create benefits for the firm to obtain the social solution. When that happens, users will gain social benefits but the economic returns to the firm will be mediocre.

Excerpted from A Social Strategy: How We Profit from Social Media by Mikolaj Jan Piskorski. 2014 by Mikolaj Jan Piskorski. Published by Princeton University Press. Reprinted by permission.

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Comments

    • meghana ahuja
    • researcher

    It is one thing to 'chip in' for a group-gift. It is another to invest time money and emotion in purchasing one. The very fact that the author wrote on the easy availability of friends on the social network and their magnanimity in contributing even to purchase several times more expensive gifts than they could go for in brick-and-mortar stores also shows the paucity of real world friends. We are not exactly intelligent for not knowing the person working in the next cubicle and perhaps connecting with just him / her on the internet for major parts of our lives! Still this very thing has given great business opportunities to all.