Facebook is trying to answer the one question on every retailer’s mind: Does advertising on the 1.3bn-strong social network actually help increase sales?
In a world that celebrates “likes” and “follows”, the social network has begun to focus instead on ringing tills. It is trialling a ‘buy’ button and detailing how online ads affect in-store sales – something the advertising industry has never previously been able to do. Winning over retailers will help Facebook with its next major challenge: increasing the amount each advertiser spends on the network. But, dogged by privacy scandals for years, it has to tread carefully as it partners with data brokers and makes use of retailers’ own customer information databases.
Eric Roza, chief executive of Colorado-based Datalogix – one of the data brokers partnering with Facebook – said the ability to calculate straightforward metrics such as return on investment is becoming more important as concerns grow about online ad fraud. “A bot can’t buy a product in a store,” he said.
Sarah Hofstetter, chief executive of digital marketing agency 360i, said that by trying to draw a link to in-store sales, Facebook is talking to advertisers in the right language. “It isn’t just the fact that it is measurable that is great, it is against the metrics marketers understand,” she said.
From social network to online store
To measure the effect of adverts on sales, Facebook partnered with 20 retailers. It found an average rise in sales of 2 per cent among people who have been shown an ad, compared to those who have not, and an 8 times average return on the amount spent on advertising.
Advertisements were just as effective at persuading people to pay up in stores as they were at achieving online sales, according to the recently released results.
The recently published research comes as Facebook enters a period of tougher comparisons when it reports second-quarter earnings next week. In the past year it trounced analysts’ forecasts on the back of soaring mobile advertising.
Retail could be key to its future success, since it is the industry that is spending by far the most on digital advertising in the US – research group eMarketer expects retailers to spend $11.2bn on online ads this year.
Nicholas Franchet, head of retail and e-commerce at Facebook, said he hopes the network will be increasingly central to retailers’ advertising campaigns as the next holiday shopping season approaches.
“We firmly believe that this will be done in a secure way for users yet a much more efficient ways for marketers,” he said.
Facebook is keen to stress that it never sees the data on what users buy in stores. One of its high profile privacy U-turns involved using purchasing data on the site, when in 2007 it launched the Beacon online advertising system which automatically broadcast users’ activities on third party sites such as Zappos.com.
It has since apologised for that system and this year tried to put a renewed emphasis on making privacy settings easy to understand – but has not escaped criticism, most recently for conducting a psychology experiment to try to influence users.
Instead of Facebook compiling even more data, retailers upload their customer databases, based on everything from loyalty cards to shipping addresses, which are anonymised and matched with Facebook profiles.
The network also works with companies such as Datalogix and Acxiom, which claim to have the ability to combine thousands of data sources to identify what people are purchasing, down to the brand of toothpaste.
For example Acxiom, which tracks more than 700m people across the world, has been building “master profiles” that combine offline details such as political leanings and income with their online activities.
Walmart has connected its “back to school” ads targeted at Facebook users with school aged children to real sales, claiming to have earned a 16 times return on its ad spending, while clothing retailer Banana Republic said Facebook was its best-performing marketing channel during the last holiday season, when it used the social network to find similar users to its younger customers. Similar effects have been seen for consumer goods companies with adverts for Bud Light boosting sales by 3.3 per cent.
“From an advertisers’ perspective, learning about new products, research and customers sharing their own opinions is mostly happening digitally and yet almost all of the spending is occurring offline,” Datalogix’s Mr Roza said.
“Facebook is a brand new medium. It went from nothing to tens of millions of dollars, so it starts to get attention and they say, ‘Great, I can say I’m doing social, I have a fan page but what I want to know is it driving sales’?”
Facebook’s insistence that people use their real names on the network makes it different from many other publishers of digital advertising, including social rivals Twitter and Pinterest. It also has detailed targeting capabilities based on information users volunteer about themselves.
David Bell, a professor at Wharton Business school who studies e-commerce, said Facebook is trying to solve an “age old problem in marketing” which still exists because so many transactions are offline.
From social network to online store
● Facebook announced on Thursday it is trialling a “buy” button to allow people to purchase a product without ever leaving the social network’s app. The initial test, with a handful of small and medium-sized businesses in the US, could lead to more e-commerce companies buying adverts on the network.
It could also allow Facebook to compile payment information and encourage people to make more transactions through the platform as it would save them the pain of typing in long card numbers on their smartphones. But the social network said none of the credit or debit card information will be shared with other advertisers.
● Twitter acquired CardSpring, a payments infrastructure company, on Thursday for an undisclosed price, as part of its plans to feature more e-commerce around live events or, as it puts it, “in-the-moment commerce experiences”. CardSpring connects your payment details with loyalty cards, coupons and even virtual currencies for transactions online and in stores.
The home of the 140-character message hired Nathan Hubbard, former chief executive of Ticketmaster, last year to work on creating an e-commerce product. It has since worked with Amazon to allow people to add things to their online basket by tweeting and with Starbucks to encourage people to tweet to buy a coffee for a friend.
● Pinterest, the online scrapbooking site, is seen as a natural home by many retail advertisers as users compile wish lists of their favourite things on their boards. On Thursday, it hooked up with Shopify, an online platform for over 100,000 stores often run by crafty creators, to ensure all pins of their products include details such as the price and whether the item is in stock.
Additional reporting by Sarah Mishkin in San Francisco