August 1, 2010, 12:00 AM

Proceed With Caution

Social strategies are not do or die for online retailers, at least not yet, says Sucharita Mulpuru of Forrester Research.

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E-business executives are placing multimillion-dollar blind bets today on social commerce technologies that may or may not provide a long-term return on investment. Customer ratings and reviews? Check. Open APIs? Probably. Fan pages on social networks? Maybe.

Companies are eager to jump on the social commerce bandwagon: one-fourth of web retailers surveyed by Forrester Research Inc. said they have budget to enhance or implement their social initiatives in the future. But consumers are fickle: only 5% of U.S. online adults have become a fan of a retailer or added a retailer as a friend on a social networking page.

The path to monetization for this emerging space in retail is still unclear, and specific prescriptive actions to drive sales are elusive. For example, in spite of widespread usage of tactics such as social network pages, several companies told us their primary benefit was intangible and that it was mainly a channel to listen passively to customer comments.

To help online retailers plan their next decade of investment in social commerce, Forrester recently evaluated the current state of the 17 most important social commerce technologies to determine the long-term success of each and identify which technologies e-business professionals need to double down on, and which ones companies can wait on. Here is an overview of a few tools that have met with significant, moderate and minimal success.

Significant success

1. Customer ratings and reviews. Given the array of social commerce tactics to choose from, there is one that has been proven to work and to provide value to shoppers—customer ratings and reviews. Ratings and reviews encompass star ratings on web sites as well as open text fields allowing users to comment on a company, product or service. The value-add for this technology is higher than for any other social commerce tactic and is immediately apparent—50% of U.S. online adults say they find reviews trustworthy or very trustworthy.

Much of this benefit is due to the fact that consumers can engage in direct feedback on the offerings most important to them, providing instant and critical insights for a wide variety of brands, products and retailers. Most deployments are customer-facing with the objective of supplementing product detail content. But the smartest companies also use ratings and reviews as an inexpensive market research tool to quickly gather data on the strengths and weaknesses of core products and to improve product development efforts.

2. Customer-generated outfitting. This sort of social technology hub encompasses apparel web sites such as The Wet Seal Runway, allowing users to create outfits and to rate those outfits created by others. Despite being an emerging application, this has the potential for tremendous value-add for several reasons: It presents an opportunity to engage active customers and brand evangelists, a way to reduce reliance on manual merchandising, and a tool for market research about trends and popular (or unpopular) items.

Moderate success

1. Co-browsing and co-shopping. Co-browsing and co-shopping can be executed with customer service representatives (not unlike live chat) or with other shoppers. While interaction with customer service representatives can be extremely valuable because it can reduce abandonment by confused or frustrated shoppers, interaction among peer shoppers on a web site is more questionable.

The specialty retailer Charlotte Russe has co-shopping functionality on its site primarily for its younger shoppers who are familiar and comfortable with communicating via instant messaging and may be likely to find value in shopping online with their friends in this way.

Forrester sees a medium business value-add in this space. Customers most likely to use this (e.g., younger, technology-savvy) are often lower-value shoppers, but applications of this tool to high-value verticals such as appliances or auto could be promising. Although there is little interest in developing the technology at present, Forrester expects co-browsing and co-shopping to be pushed to viability within five to 10 years, a process that may be accelerated if there is broad adoption in high-ticket, high-consideration verticals (e.g., jewelry).

2. User-generated product. In some cases, companies actually enable individuals to participate in creating products that ultimately are sold on a web site. The T-shirt company Threadless (skinnyCorp) is one such example, enabling customers to submit graphics, some of which are sold to the public. Online marketplaces such as Etsy and CafePress enable customers to sell their own products. Forrester believes that such concepts have only moderate promise, in large part because they have not been proven beyond the marketplace model. Some retailers have enabled shoppers to submit T-shirt designs or even to name products, but results have varied.

Unproven tactics

1. Customer-generated videos. While professional video content can often boost conversion rates, customer-generated video has other complex-ities. As a result, Forrester sees the value-add as low. Although videos can be added to a retailer’s YouTube channel, proprietary storage of customer videos at this time requires heavy server capacity. Furthermore, customer videos tend to be uninteresting and do not necessarily do an effective job of selling. Still, sites such as ExpoTV.com allow consumers to upload their own videos to engage with and review a brand—and dynamic videos can, if well done, draw interest.

2. Company social network pages. The role of social network pages is perhaps the most pressing question that marketers have when they inquire about the opportunities within social commerce. Forrester anticipates that nearly all brands and retailers will have some Facebook presence in the next 12 to 24 months but that these pages will deliver little value because companies have low expectations for their fan pages and no explicit goals for monetization. Companies such as 1-800-Flowers.com have launched an e-commerce presence on Facebook, but most companies merely use their social network pages to listen to conversations among fans or to distribute the occasional coupon code.

Pockets of promise

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