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(originally published by Booz & Company)


The Dollar Payoff from Social Media

The analysis showed that there was no significant difference in the frequency of store visits by the two types of wine customers before the retailer started its site, but the picture changed after the launch. Customers who engaged with the site began to shop at the firm’s stores with greater frequency, and when they did shop, they spent more.

These effects were amplified for certain types of customers: Those who posted more messages tended to buy in larger volumes, preferred special or premium products, and were more loyal to the company. On the other hand, the effects of social media were muted on customers who were more likely to buy products when they were on sale, suggesting that these shoppers might be using social media strictly as a way to find deals and that they were less committed to any one firm. The shopping and purchasing behavior of customers with a narrower focus—in this case, those who typically preferred a particular variety of wine (red, white, or rosé)—was also less affected by their social media use.

The authors point out several implications for managers who may be under pressure, especially in times of economic uncertainty, to defend their promotional budget and prove that their social media spending makes sense. The first recommendation is to nurture customer relationships through social media, to help ensure that the online bond actually translates to a more robust bottom line. In other words, it’s not enough to merely create a Facebook page. Companies should make sure the interface is user-friendly, offer regular updates, send personal messages to specific customers, and encourage users to provide feedback.

But not all customers are the same, the authors warn; nor do they have similar responses to social media networking. The study’s results show the importance of segmenting and targeting customers on the basis of their shopping background, demographics, and history with the firm. “It is vital that managers integrate their knowledge about customers from both offline transactions and online social media sources in order to better serve them,” the authors write.

Finally, companies should create product-specific social media platforms. The findings imply that managers could increase the response to social media efforts by tailoring them to specialized discussion forums or online communities—for example, customers looking to buy premium or unique items.

Bottom Line:
Customers who interact with a firm’s social media site visit its stores more often and spend more when they do, on average, than those with a similar shopping profile but no online relationship with the company. The evidence supports the business value of investing in social media, so long as companies tailor their efforts to specific types of customers and nurture their online presence by providing regular updates and messages.

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