Social shopping: Navigating the pitfalls and possibilities

Heather McIlvaine

16th Nov 2017

This is the second part of a feature on social commerce. Click here to read part one. 

HiSmile, Showpo and Cycology are just a few of the growing group of online businesses using the power of social media to drive sales. Nourished Life, Mon Purse, Koala, The Daily Edited and others have grown into multimillion-dollar businesses largely through social media.

The ability to reach customers in a highly targeted way, without a lot of investment, through social media has changed the way businesses enter the market.

“Five years ago, we would speak to e-commerce clients, where 50 per cent of their investment strategy and time was spent focusing on their online store and 50 per cent on building relationships with retailers to get a distribution deal. Now it would be as skewed as 90-10,” says Laura Qureshi, founder of DO Commerce.

“We had someone come in the other day who just cancelled their distribution with a national retailer because it was eating into their margins and they weren’t even getting paid on time. They’ve got a large database and can keep 50-60 per cent more of their margins [by going direct-to-consumer].”

But Qureshi cautions that the same factors that are enabling businesses like HiSmile, Showpo and Cycology to grow through social media, are giving rise to untrustworthy operators.

“We’ve recently had some people pass through the system who sell online with generally high revenue levels, but they’re drop shipping. The quality can be questionable; their sourcing may be questionable. Often, the customer isn’t getting [the order] until 28-30 days later. That’s just not good enough,” she says, noting that these businesses are primarily advertising through Facebook and Instagram.

“If you generally are selling what you say you’re selling and delivering when you say you’re going to, [social media] is a beautiful thing for anyone wanting to sell online. It’s the people who think they can make a quick buck and aren’t transparent about their sourcing and delivery that are risky. It’s really a double-edged sword,” Qureshi says.

Showpo’s head of marketing Mark Baartse says there are other downsides to relying too heavily on social media to grow your business, particularly around customer data.

“I think the danger for retailers is that Facebook ends up owning all their data, which – given that ecommerce is very much about data – puts them in a position where they’re completely dependent on Facebook. It’s a risky business strategy. You’re at Facebook’s whims and need to be cognisant of that,” Baartse says.

“Facebook is very good at ingesting data, but poor at giving data back. They know all about your customers, but if you want to find out who exactly has liked your [business] page and integrate it with your system, you can’t.”

The future of social shopping

You can’t talk about the rise of social businesses – both the possibilities and pitfalls – without talking about the future of transacting on social media.

The bar has been set in Asia, where consumers not only follow and interact with brands and retailers on social media, but also buy products and services directly on the platform.

This is known as contextual commerce, and while it isn’t widely used or available in Australia yet, many believe it is the future of social commerce.

Qureshi says around 50 Australian businesses that use the Shopify e-commerce platform are currently beta testing technology that will allow them to sell more directly through Instagram.

And Facebook’s head of retail in Australia, Kate Box, says the social media giant is currently testing in-platform payments in the US, though she declined to provide details.

“There’s some testing going on in the US. That’s all we can share at the moment. With the retail industry having 90 per cent of sales occur in store, a lot of the new [ad] products and our focus are on driving offline traffic.”

Many of Facebook’s current ad formats, such as Collections, Carousels and Canvas, as well as Instagram’s ‘Shop now’ ads, allow customers to click directly through to the retailer’s or brand’s website, or even product page.

HiSmile’s head of marketing, Justin Gaggino, says this creates a virtually seamless transition from ad to purchase, but there’s room to make it even more integrated.

“With Facebook advertising [now], it takes you from the ad system to our website, but it’s a very seamless transition because our website is mobile optimised and synced with items,” he says.

“There are things in the works that will allow customers to purchase immediately [on social media] via direct message. As soon as it’s available in Australia, we’ll be on it.”

Brian McDonnell, director of mid-market and small business of PayPal in Australia, backs this up.

“The traditional model where you click on an image, land on a website, go to the purchase page and buy, will change. Chatbots will drive that. It’s an evolutionary process,” he says.

According to recent research from PayPal, there has been a 128 per cent jump in the number of businesses accepting payments via social since 2016, though this still equates to just 16 per cent of businesses overall.

“The technology exists [to make payments on social media]. There aren’t many retailers that have enabled it from Australian perspective yet,” says McDonnell.

“We’ve got a ways to go, but we’re already talking about it with merchants that are really clear on who their audience is and what their marketing and digital roadmap strategy is. They’re ready to do it. When you talk about mass adoption, I would say that it’s still a few years away.”