July 31, 2011, 12:00 PM

Social Gold Mine

Facebook isn't just for making friends; with the right strategy, it's for making money.

Lead Photo

With Facebook on virtually every retailer's mind, many of them are asking, "Why aren't we using Facebook to make money?"

Indeed, some already are. Social gaming powerhouse Zynga Inc., which sells virtual goods through its FarmVille and other online games available only on Facebook, has demonstrated the willingness of Facebook users to spend money on the social networking site. Zynga, which says it has 232 million monthly active users, reported last month in its filing for an initial public offering of stock that it had revenue of $235.4 million for the first quarter of this year, up 133% from $100.9 million in the year-earlier quarter.

The technology for selling on Facebook has existed since 2009 and it's proven to be an effective, low-cost sales tool. But in a study of retailers in the Internet Retailer Top 500, my company, e-commerce software provider Ability Commerce, found that 90% of those retailers are not selling on Facebook. Moreover, 21% of them, or 105, have yet to even create a Facebook page. Why the delay? What is holding these companies back? The data we collected points to some answers and may give clues to the future of e-commerce—and specifically Facebook commerce, or f-commerce.

We found that larger e-retailers such as OfficeMax Inc., J.C. Penney Co. Inc. and Express Inc., which are respectively ranked 9, 20 and 124 in the IR Top 500, were more likely than smaller retailers to have a Facebook shopping application.

But many other retailers, particularly small to midsize ones that sell goods commonly purchased online, such as clothes, consumer electronics, and books and other media products, appear to be missing an opportunity. And with Facebook recently reporting it has 750 million active users, it's a big opportunity.

Most "Liked" retailers

One aspect of Facebook that retailers have readily adopted is the brand page. In the roughly one year since Facebook introduced company brand pages where consumers can click to "Like" a company, replacing "fan" pages that used to compile the number of consumers signed up as fans of a company, consumers have enthusiastically "Liked" the Facebook pages of their favorite brands. Retailers have started treating these "Likes" as markers for social media engagement—collecting them through awareness campaigns, contests and other incentives. The top five most "Liked" IR Top 500 retailers as of May 15, 2011, were:

Retailers in the Apparel/Accessories category, which includes the top three "Most-Liked" companies in the IR Top 500, actually average far fewer "Likes" than retailers in other Top 500 categories, with an average number of "Likes" per retailer of 592,175. That figure falls behind the retail categories of Books/Music/Video, Toys/Hobbies, Mass Merchant and Health/Beauty.

The top five most "Liked" retail categories in the Top 500, by average, as of May 15 were:

Converting Facebook traffic

Some merchants have gone beyond just seeking "Likes" to selling directly to Facebook users.

One example is American Musical Supply, an instrument retailer that is No. 262 in the Top 500 with $45 million in 2010 sales. Inside the retailer's Facebook store, a virtual shopping cart lets shoppers select as many items as they want. When a customer clicks to check out, she is redirected to the secure checkout on AmericanMusical.com and the contents of her Facebook cart transfers with her. American Musical Supply also features contests like "U like U Save," where its Facebook fans vote on which product they would like to see on sale.

"With such an enormous user base, we knew Facebook presented a huge marketing opportunity for us," says Mike Kane, director of purchasing for American Musical Supply. "Implementing a Facebook shopping app was easy to do and has opened up another high-volume channel of commerce for us."

Retailers now have a variety of applications available to them to enable direct selling on the world's most popular social network. Here's a deeper dive into what Facebook shopping apps can offer:

Virtual Carts—Because Facebook does not offer checkout, many companies with shopping applications offer a Buy button that redirects shoppers to the retailer's web site to complete a purchase. This can be cumbersome for someone who wants to buy more than one item. Well-designed Facebook shopping apps work around this issue with a virtual cart. A virtual shopping cart, such as the one used by American Musical Supply, allows a shopper to add multiple items to her shopping cart without leaving Facebook. When the customer is ready to check out, the contents of her shopping cart are transferred to the web site where she can complete a secure checkout.

Live Chat—A simple and cost-effective way to help customers as they browse a web store, live chat has become an integral part of many of the IR Top 500's e-commerce sites. However, while that feature is readily available for Facebook, only eight Top 500 retailers, or 2% of those with a Facebook page, offer chat to their Facebook visitors. Among the categories of Apparel/Accessories and Computer/Electronics retailers, just four retailers employ live chat for Facebook, while the categories of mass merchant and jewelry each has one retailer with a Facebook chat interface.

Other retailers are missing out on a great opportunity to easily connect with their Facebook customers and increase conversions. Live chat enables the retailer to help eliminate buyer objections, direct shoppers to products they need, and up-sell buyers on products and related items.

In researching Ability Commerce's clients, we have found that shoppers who use live chat for help are three times more likely to buy than other visitors to e-commerce sites. Those shoppers bump up the average order value as well, as chatters buy 55% more than non-chatters.

Other Features—There are other features that can enhance a Facebook store, but adoption is limited. Of the 395 Top 500 retailers with a Facebook page, only three integrate their Facebook product listings and their Amazon.com merchandise, a step that lets customers buy through Facebook any items a retailer sells through the Amazon e-commerce platform. Looking at other features, only 24 merchants, or 6%, of the Top 500 with a Facebook page, offer some kind of promotional freebie on their page, and only 17, or 4%, let Facebook visitors buy gift cards.

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