Social_Networking_in_Retailing

A REPORT ON THE STRATEGIES OF RETAILERS IN USING SOCIAL MEDIA TO INTERACT WITH CONSUMERS, 2011 Prepared for: B Hall Submitted: 15 April 2011 Prepared by: L Mangos 214980X Table of Contents Executive summary 3 1. Introduction 4 1.1 Purpose 4 1.2 Scope 4 1.3 Methodology 4 1.4 Limitations 4 2. Findings 5 2.1 Background to online social network growth 5 2.2 Rate of social network growth 5 2.3 Social network growth in etailing 6 2.4 Facebook 6 2.5 Twitter 7 2.6 YouTube 7 3. Discussion 8 3.1 Customer interaction 8 3.2 Luxury – an aspiration 8 3.3 Analysing the value 9 3.4 Today’s retail engagement 9 4. Conclusion 10 References 11 Executive summary This report provides an analysis the rate of social networking growth in etailing and presents an assessment of the advantages of investing in social media for etailing. Methods of analysis include an evaluation of the strategies of Starbucks, Wet Seal and Louis Vuitton and how the companies have utilised Facebook, Twitter and YouTube in actively interacting with their consumers. The results of evaluation show that the companies are successful in their approach and strategies in interacting and “engaging” with customers in particular, Starbucks with Facebook being the preferred social network channel. The report finds the success of the retailers in using social media, as being positive and highlights the need for other retailers to invest in social media. 1. Introduction 1.1 Purpose The main purpose of this report was to assess the use of social networking tools in etailing and present the cases for and against investing in social media. 1.2 Scope While investigating the use of social networking in etailing it was important to consider the background to the growth of social network and the rate growth. The report will pay particular attention to social media sites Facebook, Twitter and YouTube and will highlight how it has impacted on consumers interacting with retailers. The report will briefly outline the strategies of three retailers Starbucks, Wet Seal and luxury brand Louis Vuitton and comment on the major strengths and weaknesses in ocalized social networking and make recommendations that would assist other retailers in finding the formula to ocalizedng on the growth of social media. 1.3 Methodology The major source of information was secondary and was collected from examining a wide range of international academic journals and industry reports obtained using the internet and the university’s database. Company and market research websites were consulted to obtained quantitative information on growth and usage of social media. Academic textbooks were further consulted to obtained qualitative findings to support the cases for and against investing in social media in etailing. 1.4 Limitations The methodology undertaken yielded a great amount of information in relation to international practices but relatively little or limiting information in the local context. 2. Findings 2.1 Background to online social network growth Online social networking began with people wanting to reconnect with former school friends. (Facinelli 2009) This has since expanded to social media sites that allow people to ocalized and interact with others with similar interests. (Facinelli 2009; Dennis et al. 2010) 2.2 Rate of social network growth | Facebook | Twitter | YouTube | General growth | More than 500 million active users More than 120 million users log on to Facebook at least once each day | 572,000. Number of new accounts created on March 12, 2011460,000. Average number of new accounts per day over the last month. | Over 4 million people are connected and auto-sharing to at least one social network | User engagement | Average user has 130 friends on the siteOver 900 million objects that people interact with (pages, groups, events and community pages) | 1 week. The time it now takes for users to send a billion Tweets.140 million. The average number of Tweets people sent per day, in the last month. | More than 13 million hours of video uploaded videos during 201035 hours of video are uploaded every minute | International growth | More than 70 translations available on the siteAbout 70% of users are outside the United States | | YouTube is localized in 25 countries across 43 languages70% of traffic comes from outside the United States | | Source: facebook.com/press | Source: blog.twitter.com | Source: youtube.com/press | Facebook and Twitter posted gains of 69% and 45% respectively in the U.S. compared to user activity in 2009. (Nielsen 2010) Nielsen (2010) reports the biggest increases in social media usage were reading and posting on Twitter and engaging with brands and organizations via social media. “Facebook dominates the online social networking space, with three quarters of Australian internet users reporting to have visited Facebook”. (Nielsen 2010) 2.3 Social network growth in etailing A study conducted by Foresee Results concluded the following: * 56% of shoppers to top e-retail websites who interact with social media websites have elected to “friend” or “follow” or “subscribe” to a retailer on a social networking site like Facebook, Twitter, and YouTube. * Facebook is, by far, the best place to reach shoppers—both because it’s where they already are, and it’s where they want to hear from retail * Customers mainly interact with retailers on social media sites to learn about products and promotions (Ertel 2010) In the local context, ‘nearly nine in 10 (86%) of Australian’s online are looking to their fellow Internet users for opinions and information about products, services and brands.’(Nielsen, 2010) 2.4 Facebook Brennan et al. (2010) states that Starbucks is both the Number-One retailer and the Number-One brand on Facebook and seen in Figure 2.4.1. The company’s Facebook posts are about brand stories, community outreach and customer experience. Most compelling are the number friends joining almost as fast as the original fans. (Brennan et al. 2010) “Wet Seal is rapidly building its Facebook presence.” (Brennan et al. 2010, p. 105) Fans are also able to access Wet Seal’s Virtual Runway application, a fashion community specifically Figure 2.4.1 | Starbucks | Wet Seal | Louis Vuitton | Fans | 20 419 122 | 1 362 675 | 2 220 183 | Fan growth speed | 26 264 by day | 4 621 by day
 | 1 385 by day
 | | 89 869 by week | 42 900 by week
 | 5 280 by week
 | | 587 661 by month | 307 754 by month | 41 150 by month | Position in global brands | 2 | Not available | 65 | Source: socialbakers.com for its own users. The community allows customers to create, share and post outfits to their Facebook friends, creating viral marketing effort for Wet Seal across thousands of prospective customers. (Brennan et al. 2010; Deatsch 2008) Ouadi (2010, cited in McEleny 2010) digital media manager of Louis Vuitton had said ‘they are the top five luxury brand on Facebook’. Vuitton was the first brand to broadcast a fashion show via Facebook. (McEleny 2010) 2.5 Twitter Unlike many other businesses, Starbucks Twitter feeds does not originate from its PR department. A Twitter feed, which serves largely as a customer service channel is the voice of Brad Nelson, a former barista of Starbucks. (Quenqua 2010; York 2010) Nelson brings authenticity to Twitter with passion and personality and with over a million followers in Figure 2.5.1, it ‘reinforces the company’s position as being a curator of good things.’ (Brennan et al. 2010) Ninety percent of Wet Seals’ customers are aged between 15 to 19-year old demographics. (Unknown 2010b) Twitter is not as popular with this segment, however twitter feeds are still seen daily with teens soliciting others to vote for their outfits. (Brennan et al. 2010) Figure 2.5.1 | Starbucks | Wet Seal | Louis Vuitton | Followers | 1 374 070 | 1 3 026 | 43 775 | Following | 79 428 | 8 306 | 24 | Tweets | 6 845 | 353 | 277 | Source: twittercounter.com 2.6 YouTube Starbucks has the most popular channels on YouTube with the company being the top 63 “Most Subscribed” channels of all time in Figure 2.6.1. (Brennan et al 2010) ‘A YouTube channel, where the company posts videos ranging from branded content to short documentaries of its charitable work (Quenqua 2010) is both educational and entertaining. (Brennan et al. 2010) The most current model search campaign, Wet Seal netted 300,000 YouTube views. (Kontze 2011) The campaign involved customers voting on the best videos from the aspiring models (Rueter 2011) and was attributed to 100,000 store visits during the campaign. (Kontze 2011) Figure 2.6.1 | Starbucks | Wet Seal | Louis Vuitton | Channel views | 518 661 | 35 901 | 923 953 | Total upload views | 6 263 012 | 321 888 | 1 231 213 | Joined | Nov 30 2005 | Jun 5 2006 | Dec 17 2005 | Subscribers | 9 484 | 958 | 4 938 | Rank in most subscribed | 63 (all time) | Not available | Not available | Rank in most viewed | 88 (all time) | Not available | Not available | Source: youtube.com/user 3. Discussion 3.1 Customer interaction The overwhelming element in the findings suggests that retailers can ill-afford to dismiss the importance of social media. The growth in social media is not a short-term phenomenon. Brennan et al. (2010) suggested that many retailers were wondering whether the ‘social media phenomenon was just a passing fad and were questioning the necessity of becoming involved’. There are good reasons for retailers to explore new avenues. Apart from the obvious need for any business to innovate, the benefit of social networking provides ‘essential feedback for retailers to learn from, encourages shoppers to try new products and swap ideas and perhaps spend more money’. (Datamonitor 2007) Today’s consumers are more discerning and much more value conscious. They are in control of the participation phase as they blog about products and customer service, become fans of brands on Facebook, show off purchases on YouTube or vent to their friends and the masses on Twitter. (Brennan et al. 2010) Gone are the days where a customer with a bad experience would tell ten people, now it is 10,000 people. Bruno cited in Unknown (2010) states ‘14% of consumers distrusted conventional ads but 78% said they trusted products or service testimonials found on social networking sites’. Newman (2007) states this has changed the dynamic and importance of customer experience and retailers must realise how powerful these tools are in engaging with consumers. In a retail landscape where it is getting tougher for retailers to stand out, social networking offers businesses an opportunity to nurture their relationships with consumers and create a new culture of brand loyalty. (Hargrave 2008) What is also evident from the findings are that brands and products that do not have an authentic connection or engagement with customers are left behind. For companies that want to take information from social media and use it to drive sales, then they are not going to be successful. (Choueke 2010) For American designer Rachel Roy who tweets several times daily and has 1 672 followers, this has meant leveraging her presence on social networks with a mix of promotional tweets with more personal tweets. (Stephenson 2009) This is also evident in the strategies of Starbucks, Wet Seal and Louis Vuitton. Kubo (2011, cited in Kontze 2011b) CIO of Wet Seal points out the key to getting results from social media is "customer engagement". ‘A typical Wet Seal deal offered through Facebook attracts some 200 comments, which Kubo called interactions. By contrast, posing a question on Facebook related to style, or posting a relevant quote—a politician’s quip about fashion tends to attract some 2 000 or 3 0000 comments.’ (Rueter 2011) 3.2 Luxury – an aspiration One of the trickiest challenges facing luxury companies is how to take the world of luxury and make it relevant to a much wider audience without compromising the exclusivity factor. (Costa and Handley 2011) In the findings LVMH’s Louis Vuitton has been an example that has successfully adopted a social media presence. The important distinction luxury brands need to understand is that being ‘instant’ doesn’t mean it cannot be ‘exclusive’. Louis Vuitton is extremely exclusive. The company sells its products at selected retail outlets and produces only limited quantities yet the brand is everywhere. (Wells 2011) Social media can be used to drive aspiration over accessibility. Alongside ensuring that the flagship retail environments are in keeping with the brand’s image, social media can enforce a perception of rarity. (Costa et al. 2011) The re-opening of Louis Vuitton new Bond Street store or Maison Yves as Carcelle enabled customers to be part of the “exclusive club”, to get excited about the brand, engage the brand with its customers by allowing them to live the Louis Vuitton dream – live. (Lipp 2010) The crucial question is how do transparency and accessibility sit with mystique and exclusivity — traditionally, Rules Number One and Two of luxury branding' “The fashion houses are not showing you the boardroom, but the supermodels, the things that create glamour and desire.” (Phan, 2010 cited in Britten 2010) Even if millions of consumers are engaging on Facebook or Twitter with retailers, the true purchaser of luxury product will still be price driven. (Costa et al. 2011) 3.3 Analysing the value Social networking offers the opportunity to make an etailer’s brand an integral part of a customer’s life and the benefits in investing in social media far outweighs that of not investing. Achieving a high profile on social networks does not guarantee sales. A key component of social media is the “real-time” feedback. The potential in which it can support a marketing strategy cannot be easily measured; however quantifying a situation that prevents a customer service problem from a being public relations disaster is incredibly useful. (Stephenson 2009, p.1) The desired marketing outcome is to understand consumers in order to segment, target the appropriate segments in order to position a company’s brand. Social media enables a direct line to consumers and for Wet Seal this has translated into conversion rates (from browsing to buying) of over 40 percent for customers who have viewed a user-generated outfit. (Kemp 2009; Partridge 2010, p.4) 3.4 Today’s retail engagement The findings suggest consumers are actively using social networking to interact with etailers. Ertell (2010, cited in Brennan et al., 2010) supports this finding and emphasised that consumers who interact with a retailer on a social media platform are ‘more satisfied, more committed to the brand and more likely to make future purchases from that company than those that do not.’ Consumers become your brand advocates and whether retailers want to engage in a dialogue with the potential clients or not, the possibility that consumers are already chatting or blogging their thoughts and experiences is inevitable. This was a concern for Louis Vuitton who recognised that there were hundreds of ‘fan page’ devoted to the brand on social network sites yet none of them were official. (Tungate 2009, p. 142) Rather than surpass the opportunities social networking presented, Louis Vuitton and other forward-thinking retailers like Starbucks and Wet Seal has embraced virtual communities on Facebook, Twitter and other social networking applications. Social media are without its challenges. The key challenge facing many organisations is the risk management issues where employees may be creating content or interacting with customers on the behalf of the firm. (Culnan, M; McHugh, P; Zubillaga, J 2010) ‘Risks include security breaches, breaches of confidentiality, leaks of intellectual property, and violations of the firm’s policies and codes of conduct’. (Culnan et al. 2010) Policies should be developed to address acceptable and unacceptable behaviours for both customers and employees noting that the process is a two-way conversation. (Culnan et al. 2010) Care must be taken to do it properly. Companies must be vigilant in minimising their risk. A comment negative in nature could harm a company’s image if there are no counterpoints from the brand. (Stephenson 2009) 4. Conclusion The use of social media continues to rise. The steady growth of social media would suggest that it is a global trend. The power of online social networks lies in that people are profoundly social beings. Online social networks allow for the creation of an intensely personal connection and etailers need to invest as to not miss the opportunities presented. Whilst the usage of social media by etailers is still in its infancy, consumers that have interacted with etailers on social networking sites like Facebook, Twitter and YouTube have been positive. An underlying point to the success of the retailers presented in the report has been the ‘engagement’ of consumers. The findings are encouraging for many retailers and social media when used with authenticity and reciprocity can be a powerful marketing asset. Being transparent and telling people exactly what a company is doing and how they are thinking as a company ensures the sustainability of the business. 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