Welcome to the Social Media
Shopping Mall
The future of
e-commerce belongs to social apps like China’s WeChat. Here’s how brands can
start preparing.
Social
media and e-commerce have converged on China’s smartphones, thanks to one
groundbreaking app. Since its release in 2011, WeChat has grown from a
WhatsApp-style messaging client into a veritable one-stop shop for lifestyle
management. Without exiting the app, WeChat’s loyal users – whose number is
rapidly approaching one billion – can book a doctor’s appointment, hail a taxi,
and purchase products directly from brands. At least one in five users has
linked WeChat to their debit or credit card, a potential cash bonanza of which
Mark Zuckerberg can only dream.
It
is only a matter of time before this functionality, or something like it, is
the norm worldwide. Now is the time for brands to start preparing for a future
in which social media will be not just a place to market, but also a major
marketplace in itself. Our recent working paper, “The Use and Value of Social Network
Information in Selective Selling”, describes how,
unlike the current e-commerce paradigm, social media selling will thrive not on
transparency and accessibility but on strategic exclusivity.
Selective
selling
Social
media’s most avid users include those who derive pleasure from the envy of
their peers. Facebook, Instagram and others offer myriad ways to show off, from
flaunting the latest designer handbag to advertising social concern through a
publicly announced charitable donation.
That’s
why luxury companies such as LVMH have seen a huge rise in social media use
among purchasers of exclusive, limited-edition products, especially in the key
growth markets of India and China. Naturally, LVMH has begun to use social
media to identify and market to customers who most enjoy one-upping their
friends. Theoretically, this select group of customers – if they could be
identified – would jump at the chance to buy a product intended just for them.
So far, however, LVMH’s efforts at what we call “selective selling” have been
hindered by haphazard information gathering and the sheer volume of data
available.
The
seamless integration of e-commerce and social media represented by WeChat could
hold the solution. A few companies are already starting to exploit the
possibilities – for example, Tiffany & Co. uses its official WeChat account
to refine customer segmentation. Hitting the bull’s-eye will depend on a
brand’s ability to pinpoint which customers, out of all their social media
connections, are the highest-value targets for selective selling. That’s where
our research comes in.
Knowing
your customers
In
our study, we used mathematical models to replicate the typical behaviour of
social media followers who like to show off. We also took into account the fact
that firms differ in how much they know about their customers on social media.
Some know nothing or next to nothing. But there are two types of information
that are helpful: the degree of connectedness (i.e. how many friends each
customer has) and the degree to which each customer partakes in consumerist
one-upmanship (researchers call this “conspicuity”). Totally uninformed firms
obviously cannot engage in any segmentation; firms who have one or both types
of customer information can use all available data to curate their target set
of customers.
Trying
out the various combinations yielded a couple of interesting general
principles. Firstly, the most popular customers were not the most high-value.
Fully informed firms did best when they targeted customers with a high level of
conspicuity and an intermediate number of followers: high
enough for the purchase to touch off the desired envious effect, but not so
high as to reduce the product’s novelty – and, by extension, its value in
the game of competitive consumption – by too much.
Secondly,
not all customer information is created equal. We found that knowing how many
friends each customer has is far more valuable than knowing their propensity to
show off on social media. Both types of information are better than no
information, but conspicuity information added no value for firms that already
knew the extent of their customers’ social network connections. In the
aggregate, conspicuity information’s value-add amounted to between two and six
percent in profit gains, while connectedness information brought profit gains
ranging from five to 30 percent.
What
customers want
The
difference in value between the two kinds of information highlights another
general principle of social media information gathering. Information is always
less valuable when it describes aspects of customer behaviour that directly
align with company objectives. In this case, the customers’ own actions can
compensate for the missing knowledge – the most prolific show-offs aren’t shy
about showing you who they are. They would happily opt into a selective selling
programme, assuming the marketing campaign were strong in most other respects.
In fact, the company can then design appropriate schemes that have customers
self-select into the relevant segments.
Privacy
concerns
Employing a
discerning information-gathering process, rather than a data dump, helps firms
avoid running afoul of privacy concerns, which are sure to continue increasing
as e-commerce and social media become more intertwined. The advent of WeChat
heralds the transformation of social networks into digital High Streets, where
products can be found and flaunted in an unbroken clickstream. Going
forward, brands will need to cultivate a neighbourly intimacy and trust
with their customer base. That means e-commerce will become more reliant on
tailored tactics like selective selling, and less on off-the-rack approaches.
Karan
Girotra, INSEAD Associate Professor of Technology
and Operations Management, Ruslan Momot, PhD Candidate at INSEAD, and Elena
Belavina, Assistant Professor of Operations Management, University of Chicago
Booth School of Business
Read more at
http://knowledge.insead.edu/marketing/welcome-to-the-social-media-shopping-mall-4839?utm_source=INSEAD+Knowledge&utm_campaign=3b8a4811c5-4_August_mailer8_4_2016&utm_medium=email&utm_term=0_e079141ebb-3b8a4811c5-249840429#5lGB0I7rypEO5Sck.99
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