AFTER LEARNING HOW to market themselves through tweets and status updates, some small companies are taking the next step: selling directly to consumers via social-networking sites.
Merchants on Facebook and MySpace are adding e-commerce stores to their fan pages, hoping users will scan lists of for-sale items and services—such as floral bouquets, hand-crafted jewelry and spa treatments—and click a button to add them to online shopping carts. (MySpace is owned by News Corp., publisher of The Wall Street Journal.)
The e-commerce trend, also being adopted by large companies such as Hallmark Cards Inc. and Brooks Brothers Inc., so far appears limited to Facebook and MySpace, where applications for selling directly to consumers started cropping up in 2008. Other popular social-networking sites, such as Twitter and LinkedIn, don’t offer a direct-sale platform.
Early adopters say they’ve so far seen only modest results, and generally not until after they’ve established a loyal-fan following.
Scott Burnett last month added an e-commerce option to the Facebook page of Guitar Syndicate Inc., a retail business he co-owns in Kansas City, Mo. Items such as guitars, harmonicas and microphones are listed for sale via an application from CoreCommerce, an e-commerce company in Franklin, Tenn.
Consumers who add items to a shopping cart are then taken to the company’s website to make a payment. “It’s another doorway to find our products,” he says.
Guitar Syndicate, which was founded last year, has seen its overall online sales grow by 17% since its Facebook store was added in mid-April, according to Mr. Burnett. But he says he isn’t clear how many sales can be attributed to buyers who started their transactions on Facebook.
Mr. Burnett further notes that Guitar Syndicate has invested $5,000 since January to grow its Facebook fan base by giving away that much worth of prizes though a contest it’s promoting on the site. The company now has about 4,400 Facebook fans.
For e-commerce via social media to work, “You’ve got to spend money on advertising to make people aware that [your fan page] exists,” says Larry Chiagouris, a marketing professor at Lubin School of Business at Pace University in New York.
Businesses without a significant number of Facebook or MySpace fans may have difficulty swaying buyers, he adds. A fan page that isn’t heavily trafficked could create the impression that it isn’t popular, he says. “And nobody likes to shop at places where no one else shops.”
Another potential downside is that disgruntled buyers could also quickly blast their dissatisfaction to their network of friends, adds Michael Trusov, an assistant marketing professor at Robert H. Smith School of Business at the University of Maryland. He says a buyer’s network is right at his fingertips when he feels most annoyed with his experience with a company.
Mr. Trusov says companies “would need to make sure the customer service level is much higher” than that on a website or in a physical store.
Entrepreneurs looking to tap into the trend should also expect to pay a fee for applications that provide shopping carts. For instance, the CoreCommerce application that Mr. Burnett uses charges a fee starting at $24.99 a month, based on the number of products a company wants to list for sale. About 1,150 businesses, mostly small enterprises, are using it, says Matt DeLong, chief executive officer.
Other applications allow multiple social-media users to chip in and collectively buy items, and some let shoppers make payments to merchants without leaving the social-media sites. Many are compatible with both Facebook and MySpace. Neither site charges merchants fees for hosting the stores or a commission on sales, however Facebook recently announced it will take a 30% cut of sales of credits for certain virtual goods.
Whether consumers will embrace shopping on social-media sites remains to be seen. Facebook, approaching 500 million users, recently came under fire over its privacy policies. Some shoppers may feel uncomfortable entering their credit-card information on the site, while others may be wary of making a purchase that could be broadcast on users’ news feeds or profiles.
Houston retailer Sun & Ski Sports added an e-commerce store to its Facebook fan page in 2008 using an application from Volusion Inc., a Simi Valley, Calif., software provider. But Sun & Ski has so far only sold 50 products this way, accounting for barely 1% of the company’s overall online sales, says Scott Blair, director of e-commerce. “It’s not a major source of revenue,” he says. “It’s part of our overall strategy with social media.”
Peddling certain products or services on a social-media platform may be challenging for businesses, says Yogesh V. Joshi, an assistant professor of marketing at Robert H. Smith School of Business. “You might not want to buy toothpaste on Facebook, but you might want to buy a Coach bag,” he says.