Social Commerce 3.0: Where do retail brands go from here?

Article published on Retail Customer Experience - January 19, 2023

The best way for brands to leverage social is to make it easy for customers to discover products on social but buy on the brand site.

Social commerce is a hot topic (again) in e-commerce. One industry analyst predicts social commerce sales will be "worth $56 billion by 2023, a 23% increase from this year." Other analysts are more skeptical, noting "we've been here before" and that social has failed to break through into e-commerce the last two times that this has been tried.

Let's take a look at the reality of shopping on social, the social networks' motivation for getting into commerce, the brands that are selling on social, and conclude that social checkout is struggling again. Given this, the best way for brands to leverage social is to make it easy for customers to discover products on social but buy on the brand site.

A decade of missteps

We've been talking about the intersection between social (where customers spend their time) and e-commerce (where customers go to shop) for more than a decade. The screenshot on the right shows what it looked like in 2011. It didn't take off. Then in 2014, Twitter and Facebook again launched "buy buttons" but subsequently killed them.

The social networks' motivation for wanting to convert sales within their platforms stems from their avaricious desire for customer data. As cookies become progressively more problematic for targeting advertising, first-party data is pure gold: Because the networks are used by multiple brands, they can build a rich profile of each consumer as they shop across different product categories and brands. Very few companies have this data and the consent to use it, and it is a great basis for targeting advertising in a post-cookie world.

Given this, the social networks are highly motivated to keep pushing to try and establish themselves as a viable e-commerce channel, including the checkout.

When Instagram launched its checkout feature in March 2019, an A-list of 26 brands were featured prominently as early adopters, including Adidas, Burberry, Dior, H&M, Kylie Cosmetics and Prada. Today, almost one-quarter of those launch partners no longer use Instagram Checkout but direct traffic to their brand e-commerce stores instead. Brands leaving Instagram checkout include Michael Kors, Prada, Dior, Balmain and Uniqlo.

Instagram also waived its usual 5% seller fee for these launch partners, but this still wasn't enough to get them to stay.

So, what's gone wrong this time around?

There are three core reasons behind brands trying and then rejecting social checkout:

1. Brands want to control the shopping experience

The shopping experience on social falls a long way short of where it needs to be for many brands. A big part of the pleasure of shopping is the brand experience itself, and brands want to control this end to end. That's problematic on social, not just because the look and feel is different and the amount and type of content restricted, but also because many of the actual commerce processes on social are far from perfect. Take inventory synchronization for example. In this example of a purchase on Instagram, the item is shown as available at the moment of purchase, and the purchase confirmation duly follows.

However, two days later the order is canceled, without any real explanation, due to the item being out of stock.

This is symptomatic of a larger issue with all social platforms in that the social checkout is not synchronized with inventory in real time. Had the customer bought the item directly on the Size Official e-commerce site, the purchase would have likely been successful. These types of experience missteps are highly problematic for customers shopping on social, where trust is the number one thing holding customers back from purchasing. It's also not the type of experience most brands want to deliver — one that will encourage customers to come back again and again, becoming over time loyal and profitable shoppers.

2. Brands want data and consent

Many brands are focused on building first-party data together with consumer consent to market to them. The combination of stricter consumer privacy legislation and the demise of third-party cookies has put this into sharp focus as strategically important. The reasons are obvious: The cost of customer acquisition is so high that merchants almost always make a loss on the first sale. Only repeat sales are profitable. Selling through marketplaces or social almost always means no ownership of customer data and no right to contact these customers to get the repeat sale.

3. Consumers prefer shopping on the brand site

Overwhelming evidence shows that while many consumers like social networks for discovering new products, almost three-quarters prefer to check out on the brand site. But it is clear that customers are spending evermore time on social (2.5 hours per day on average), and marketers are planning on reaching these consumers by committing 25% of their digital ad spend to social platforms this year.

The bigger opportunity in social commerce

The opportunity, therefore, is not to build and maintain a duplicate e-commerce store on social but rather to leverage social's strengths as a place where customers can discover new products and then check out on the brand site.

Perhaps what the social networks have still misunderstood is how people shop. Only a small percentage of purchases are made on impulse, where a consumer discovers a product for the first time and instantly buys it. More often, shoppers make a sequence of visits over time before making a purchase, considering, deciding and then purchasing.

During this journey, the customer may seek reassurance about the authenticity of the product, its fit, what others think about it, and check their finances. Finding a post that the customer saw some days ago on social is notoriously difficult, making the consideration phase and eventual decision to purchase highly problematic on social.

Given the current state of social checkout, it's likely that it isn't going to be a big success the third time around. The greater opportunity is to leverage social for new customer acquisition and to direct traffic to the brand site.

Charles Nicholls is a social commerce expert and board advisor to several e-commerce startups. He founded SeeWhy, a real-time personalization and machine learning platform, which was sold to SAP. Serving as SVP of product, he built SAP Upscale Commerce, an e-commerce platform for direct-to-consumer brands and the mid-market. Today, Charles serves as chief strategy officer for SimplicityDX, a commerce experience company. He has worked on strategy and projects for leading ecommerce companies worldwide, including Amazon, eBay, Google and many others.

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Article published on Retail Customer Experience - January 19, 2023

Read more about our insights on social commerce:

Harnessing Social Commerce: The Wild West of E-Commerce

Top lessons for brands on Instagram

Instagram – 6 Key Recommendations for Brands on Instagram

Social commerce: How brands can get the most out of social features

What is Social Commerce? The Top 8 Reasons Brands Need It

Facebook is the leader in social commerce — but it’s also buoyed by Marketplace

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