Sunday, May 26, 2024

How social media transformed the way companies sell us products

Social media is now the go-to place for companies to sell products. Xactly analyzed industry reports to understand this retail transformation.

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Social media was designed to make the world a smaller place where people could share their lives

Social media was designed to make the world a smaller place where people could share their lives and stay connected with their families and friends. Corporations also discovered that it was an easy way to connect consumers directly to their brands.

Fast forward to today, and social media is still a major player in keeping people connected to each other, but it has also become a platform for selling things. About 45% of all companies sell products via social channels, according to Harvard Business Review. This marketing channel shift has proven profitable. Insider Intelligence estimated that there were about 211.4 million online buyers in the U.S. in 2021—a figure that is expected to grow in the coming years.

While influencers have been a marketing tool since ancient Roman times, leaps in technology have enabled noncelebrities to become influencers with a reach that ancient Romans could never have dreamed possible. As platforms went global and brands and influencers steadily amassed millions of followers, users also grew more cautious of increasingly informal sale pushes and off-brand recommendations. By 2017—seven years after Instagram debuted and only a year after TikTok launched in the U.S.—social media users were already citing authenticity as key. A Stackla (now Nosto) survey found that 86% of respondents expected brands to be authentic

The COVID-19 pandemic fueled the next shift in online shopping as people headed online en masse—and straight to their shopping carts. In 2020, e-commerce accounted for 19% of all retail sales in several major global markets, up from 16% the year prior, according to U.N. experts in trade and development. Global sales through social media platforms hit an estimated $992 billion in 2022. 

Social media helped drive the boom in online shopping with tools that make it nearly seamless to press purchase while scrolling through your feed. As social media rolls out more tools to sell products and services, Xactly analyzed industry news and reports to understand this retail transformation.

Just as social media sites have grown to offer a wider selection of features, social media marketing has also evolved to incorporate many different strategies. Here are just some of its innovations.

Targeted ads

Before social media, companies relied heavily on banner ads, pop-up ads, and pay-for-placement on search engines as key advertising strategies. In 2007, Facebook launched Facebook Ads, paving the way for companies to reach specific users based on demographics or interests. It works by tracking users' actions throughout the site—what they post, comment on, like, and search. Cookies collect this information, and algorithms help advertisers find users who would respond better to their ads. Google and many other sites also operate on similar practices.

However, ad placement strategies are constantly changing with economic headwinds. Better consumer targeting only works when advertisers take advantage of these tools. In 2023, The New York Times reported that large companies were pulling back on their ad spending, likely due to the swift drop in digital ad spending as companies tightened budgets to weather the economic downturn. Scrambling to fill the revenue gaps, social media platforms lowered prices and signed on budget-conscious advertisers who were less inclined to pay for more precise ad placements. X, in particular, also lost advertiser budgets after Elon Musk bought the platform in 2022. According to the Times, the platform's 10 largest advertisers spent 55% less when Musk took over compared to the year prior. As the economy rebounds, we may see another shift as advertising budgets return.

Tracking habits

When companies create targeted ads, they want to know a lot about the consumers they're serving, so habit tracking came into vogue. Data brokers collect user data through cookies (text files that can be used to identify unique users), browser fingerprinting (identifying one device from another by noting its hardware or other characteristics), in-app tracking, and location tracking. They also use probabilistic matching, which compares how closely search histories or other activity match between devices, to track people over multiple devices. Ad tech companies then buy this data and use it to build consumer profiles to better target ads to each customer.

Third-party cookies that track user browsing habits have come under fire over consumer privacy issues, however. In recent years, Apple's Safari and Mozilla's Firefox browsers have limited third-party cookies. Google announced a plan to eliminate third-party cookies on its Chrome browser—which ranks first of any browser with 63% share—by the end of 2024 and replace them with alternative products, according to the Mozilla Developer Newsletter.

The brand as personality

In the mid-2010s, social media managers began infusing their social posts with offbeat humor and sarcasm to attract millennials' attention and stand out in a crowd of saccharine posts. Consumers are used to brands toeing the line by using the typical messaging designed to be inoffensive and widely appealing to everyone. But on social media, brands adapted to the informal, conversational posts that fit more organically with an online ecosystem that thrives on memes and clapbacks. Having brands throw shade, take a jab at competitors, or openly troll commenters was especially popular on Twitter (now called X). These roasts drew attention—and sales.

MoonPie snack cakes even had to shut down a factory when it ran out of ingredients following a surge in demand from a 2017 post mocking Hostess. Its social media persona was responsible for a 17% sales increase, according to Fast Company.

Influencers

Celebrity product endorsements are not new, but social media has taken influence to a new level. Now, ordinary people can rack up thousands of followers, monetizing every aspect of their lives or hobbies. Whether making videos about products, earning sales commissions off product links, or signing with sponsors for their content, influencers can team up with social platforms to build their personal brands. TikTok's Creator Marketplace connects brands with rising stars on its platform. Some third-party companies have even capitalized on this trend by setting up their own camps and classes specifically for would-be influencers.

The business of influence is big money. Influencer Marketing Hub estimated that companies spent $21.1 billion on influencer partnerships in 2023, up over 1,000% since 2016. The type of influencer they partner with has also changed over time. Out are the big names and influencers with large followings, and in are nano- and micro-influencers with no more than 10,000 and 100,000 followers, respectively.

In-app purchases

In 2020, Instagram launched an in-app checkout capability, coming at a time when online shopping surged due to the pandemic. Other platforms are also vying to become the vehicle for consumer spending. That same year, Facebook launched Facebook Shops, where businesses can feature products or collections on a Facebook and Instagram online store.

Habits die hard—shoppers still use social media more as a shopping research tool, but about 7 in 50 will actually buy through a social media platform, according to a July 2023 report by PYMNTS and Amazon Web Services. The report found that Facebook had the highest share of purchasers, with 7.3%, followed by Instagram, with 4.6% of consumers purchasing products in the previous 30 days.

In terms of specific categories, the report found that shoppers bought more clothes through Instagram due to its reliance on pictures. Beauty products and toys sell better on TikTok because shoppers use the platform to see how to use a product in videos as short as 10 minutes. When consumers want to see how a product performs, particularly appliances and home furnishings, they'll first turn to YouTube videos to see people using the product.

As technology continually advances at a fast clip, social media platforms are sure to follow the money and will adapt as needed. Now, marketing materials aren't just being optimized for search engines like Google, but for social platforms like TikTok and Instagram. Meta's launch of Threads could usurp X's place in the social media landscape as well. As users stay in touch with friends far and wide, companies will certainly find ways to remind them of all the other things they could be spending their precious time and money on.

Story editing by Carren Jao. Copy editing by Tim Bruns.