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The Facebook challenge for merchants

By George Eberstadt

I was talking recently to a customer frustrated by his inability to drive meaningful revenue out of Facebook, despite substantial efforts.  The conversation got me to revisit this by now well-discussed topic.

The conventional wisdom is that selling on Facebook doesn’t work because it’s like trying to sell to people drinking at a bar.  (Ref 1Ref 2.)  Certainly context matters, but I think this metaphor is misleading.  The same logic could be used to argue that advertising in a newspaper shouldn’t work because it’s like selling to people reading at a library.  Or that advertising on TV shouldn’t work because it’s like selling to people watching a movie.  Or that shops at airports shouldn’t work because they’re like selling to people, um, in the middle of a painful surgical procedure (an experiment on the effects of stress on rats, maybe?).

I’d propose that a lot of the frustration about the difficulty stores have in monetizing Facebook comes from misunderstanding where Facebook fits into the purchase intent cycle.

Purchase intent comes from many sources.  A lot of intent comes from non-commercial sources.  If someone has a baby, they’re going to need a crib.  Trying to create purchase intent for a crib absent a baby is pretty tough.  For discretionary purchases, intent is often sparked by direct experience.  You see something that looks good on someone walking by and you decided you want one, too.  And, of course, purchase intent is sparked by friends.  (One among a gadzillion studies showing this.)  To the degree that purchase intent can be engineered, that’s generally the job of brands, rather than stores.  If a brand can get a consumer to want the thing they – and only they – make, then they are going to make a sale, regardless of the channel in which the consumer chooses to purchase.  Stores generally don’t invest much in intent-generation because of the risk that the money they spend on intent generation comes to nothing when the customer goes elsewhere to buy.  It’s much safer for stores to invest at the intent fulfillment stage.  Thus the success of search engine marketing, which is all about ensuring shoppers who already have purchase intent chose your store for the purchase.  This is also why Sunday circular inserts from merchants generally contain offers on such a large number of products.  The store isn’t trying to convince the reader to want something they don’t already want; they are fishing for intent that already exists – hoping that one of those many special offers will match up with an existing customer need.

So back to Facebook.  I’d argue that Facebook is a pretty good environment for intent generation, and a pretty bad one for intent fulfillment.  This applies both to the organic side of Facebook (friend sharing) as well as the paid side.  This means that Facebook is going to more easily deliver value to brands than stores, and that that value is going to be best measured through traditional advertising metrics like awareness rates and control population studies rather than through online metrics like click-throughs.  It’s possible that with Facebook’s continually improving tools for micro-targeting, they will get to the point of being an economical vehicle for intent-harvesters , but this capability will arrive for some product categories long before others, so sellers should be careful to evaluate the relevance to their particular category before plunging in.

Because Facebook is primarily an intent generation environment, higher-level brand messaging will succeed better than the sort of late-funnel, fulfillment-oriented messaging that works for intent harvesting.  For example, one pet supplies store is having success by sharing cute animal photos that get widely distributed.  The click-throughs are low, but they view this campaign as awareness-building and see the results in site visitor counts and conversion rates over the long run.  Pinboards filled with positive-sentiment checkout comments are also appropriate on Facebook as a tool for intent generation.  Here’s a nice example.  On the other hand, some types of content that are very important for conversion late in the purchase funnel – like customer reviews – are totally out of place in Facebook’s early-funnel, intent generation environment; a product review is just spam to someone who has no interest in the product.

Viewing Facebook through this intent-cycle lens doesn’t produce any magical solutions for merchants to monetize Facebook.  But it does suggest what sort of investments are likely to pay off, and what sort of expectations are realistic. Facebook is going to continue to be a tough environment for merchants because of their focus on intent harvesting rather than intent generation.  And strategies aimed at clicks leading directly to purchases are likely to disappoint.  Stores which take that approach will indeed find themselves in the position of selling in a bar.  But those who find value in developing their store brand and are able to look at brand advertising metrics rather than direct web conversion metrics may yet find water in the Facebook well.

One Response to The Facebook challenge for merchants

  1. When the user is not actively looking to buy something, the goal of an online ad is to generate intent. The intent generation market is still fairly fragmented and will grow rapidly over the next few years as brand advertising increasingly moves online. P&G – which alone spends almost $4B/year on brand advertising – needs to convince the next generation of consumers that Crest is better than Colgate. This is why Google paid such a premium for Doubleclick, Yahoo for Right Media, and Microsoft for aQuantive (MS’s biggest acquisition ever).

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