Joe Preston, e-commerce manager at teaching supplies retailer Really Good Stuff, is, relatively speaking, an old hand at advertising on Facebook. He began three years ago, trying to use Facebook ads to drive traffic the way paid search ads do, and quickly found that wasn't cost-effective. Then he shifted his focus to ads that encourage his target audience, teachers, to Like the e-retailer's Facebook page, which increased his fan base by a few thousand consumers.
But he really started to hit pay dirt in January when Facebook introduced Sponsored Stories, a targeted ad service that lets a retailer use Facebook members' comments and actions in ads that appear on their friends' Facebook pages. For example, if Emily posts on Facebook that her kindergarten class loved a newly published book available on ReallyGoodStuff.com, the e-retailer could use Emily's comments in an ad that would appear on her co-worker Roy's main Facebook page, known as the news feed.
Really Good Stuff launched a Sponsored Stories ad campaign almost immediately and its ads quickly gained traction with a nearly 50% boost in the ads' click-through rates compared with the retailer's other, self-service Facebook ads, Preston says. "Because teachers are compulsive sharers and communicators, many of them are posting on Facebook all the time," he says. "Using those posts in ads enables us to reach shoppers who might otherwise not know us."
Using a mix of self-service ads, which used to be called Marketplace Ads, and Sponsored Stories, the retailer has attracted more than 38,000 Likes, and roughly half of the retailer's new customers now come via Facebook, which Preston knows because they use unique coupon codes shared on the social network.
Facebook followed Sponsored Stories with more changes this fall that draw on its greatest asset—the voluminous detail it has about the opinions and preferences of hundreds of millions of consumers. Last month, the social network introduced a new ad format that, for instance, when appearing on Bill's Facebook page indicates that his friend Liz Liked the advertised brand while also including a brand message. That followed a Facebook news feed redesign in September that puts posts at the top of a Facebook user's news feed, including posts from retailers that draw a lot of attention on the social network.
It all means that retailers can use Facebook advertising more effectively to reach the shoppers they target—but they run the risk of their Facebook posts and brand pages being ignored if they don't take steps to draw attention to them.
Experts agree that a positive comment from a friend can make a big difference in an ad's impact.
"It's no secret that most people don't trust advertising," says Sean Corcoran, Forrester Research Inc. senior analyst. "But when an ad features a friend's endorsement it adds an element of value and trust." Facebook's own analysis of marketers' ads suggests that consumers who view an ad featuring social context, like a friend Liking a retailer, are 68% more likely to recall the ad, twice as likely to remember the ad's message and four times as likely to make a purchase related to that ad. The ability to bring that context into advertising is a huge plus for Facebook, which makes most of its revenue from advertising. The social network's U.S. ad revenue for Facebook is forecast to reach $2.01 billion this year, a 66.1% jump from $1.21 billion a year ago, according to market research firm eMarketer Inc.
Facebook calls "social context" the pairing of ads with what consumers have said or done on the social network. And Facebook has plenty to work with. More than 2 billion posts are Liked or commented on every day, the social network says. And, unless a consumer specifically clicks on his Account Settings and selects "Pair my social actions with ads for No One," Facebook reserves the right to highlight consumers' actions in ads.
While Facebook does not disclose how many consumers opt out of ads, experts say that percentage is small. That gives the social network ample opportunity to turn Facebook users' actions into compelling ads, Corcoran says. "It plays off the strength of word-of-mouth advertising, which is one of the biggest ways to influence a consumer to buy something," he says.
That's the idea behind Sponsored Stories. The ads enable marketers to highlight consumers' actions, such as clicking Like on a retailer's page. Each ad features the profile picture of the consumer whose action is highlighted, along with his name. Facebook built on that concept last month when it launched a new ad format, which it calls a Premium ad unit. A Premium ad makes use of social context, such as if a friend Liked a Facebook post from the advertiser.
The ads appear on the right side of a consumer's home page, next to the news feed. At the top of the ad is the label "Sponsored" followed by a message noting that a friend Likes a piece of content or a brand. Beneath that is messaging from the advertiser itself. For instance, a Premium ad for the movie "The Ides of March" featured a note that a consumer's friend Liked the film, along with the message, "Rolling Stone calls Ides of March ÔA big, bruising thriller,'-Peter Travers."
This format is designed to let marketers leverage the social network's detailed information, supplied by consumers, to precisely target the consumers they wish to reach. "We know social context works and we're trying to give marketers more tools to be social because it enables them to increase their reach," says Elisabeth Diana, Facebook's advertising communications manager.
Unlike Sponsored Stories, which amplify consumers' actions, Premium ads enable advertisers to deliver their own messages. And the ads do not appear in the news feed, where they can be glossed over as a consumer reads the often-voluminous posts from his Facebook friends, Diana says.