The economics of social media

Jason Finch explains what wholesalers can learn from Google and Facebook

The online channel isn’t merely about shifting products or doing customer service by email. Examine the business models of online giants like Google and Facebook and you’ll see how aspects could apply to the very different world of wholesaling grocery and convenience products. Lessons from profitable online businesses can be reshaped and applied to totally different industries offline.

In 1995, we launched a website that helped to unite local people who shared interests, blending an online community with social events so well that it enabled sponsors to target people with laser-precision away from the internet.

A lot was known about those attending each event. For some events, we knew to buy in extra supplies of real ale; for others, a much higher than usual quantity of red wine or gin. Venues could ensure bars were stocked so that product availability was never an issue. Even the percentage preferring European beach holidays to winter holidays in the US was known – ski companies sponsored some events as a result.

Through targeted sponsorship at venues and email newsletters, suppliers wanted to be involved because we showed they would only being paying to advertise to guests most likely to buy their products. If no people at a particular event were big wine drinkers, we wouldn’t seek support from wine ­suppliers.

We focused attention where an event could create the right impact given knowledge about the individual ­attendees.

Internet technology: The end of ‘one size fits all’

A lot changed over 18 years of blending the online and physical worlds. Nowadays, collecting detailed information about online behaviour and making judgements about personal preferences is commonplace. Mobile ads may even know where you are. Advertising can be sold at a premium because companies enjoy a highly targeted distribution of their message, one that may change for every viewer. The one-size-fits-all model of advertising has had its day.

Unlike television ads and the ones you run in your printed catalogues, internet technology now enables advertising to be individually targeted in real-time, learning as it goes. Different ads can be shown to different people and the most effective ads can be focused on. Ads that work best bubble to the top. Virtuous circles are created and unprecedented customer engagement with advertising means suppliers practically beg to give money to help sell their products through such intelligent segmentation.

Facebook made $425m in net profit in the three months to September. In the same period, its revenues surged over 60% with sales of over $2bn. Google earned $14.8bn in the past quarter, with a profit close to $3bn. Much of that income – some $12bn – came from one source: advertising revenues. It’s a similar story with Facebook.

Maybe you’re already running highly creative ads for suppliers in your product catalogues. Maybe you’re already constructing innovative displays in your ­depots.

Believe me – they’re the equivalent of the basic rectangular ads that blanketed websites in the 1990s: everyone saw the same things and few people paid attention to them.

Customer focus: Offer suppliers retailer engagement

Imagine re-arranging your depot as every customer walks in, removing displays they won’t pay attention to and instantly creating ones with which you know they will engage.

Imagine creating specific promotional stands with a selection of new products each particular customer is most likely to buy.

Suppliers have marketing budgets for online activity. They spend a fortune with Facebook and Google – millions of dollars on campaigns building their brands with consumers.

How much are they spending with you? Are you giving them similar opportunities to target so precisely the retailers who will stock their products?

You could enable suppliers to focus their marketing budgets on a set of retailers to which you knew exactly how to upsell specific other products. They would only pay to target those most likely to generate large profits. Let them advertise new products so precisely that every penny of their budgets is spent on retailers that will shift huge volumes in the first week.

Facebook and Google do the equivalent of exactly that. When you search using Google, you’re shown messages that you’re most likely to engage with. That happens after a bidding war lasting only a few milliseconds finds the advertisers that will pay the most money to target you in particular. Clever algorithms let them automatically bid more money to show ads only to those specific people most likely to respond.

Special offers: Avoid wasting budget with targeted campaigns
Facebook and Google do so well because they incessantly seek to find out as much about you as possible. Their machines never stop trying to fill in the blanks. They’ve made billions of dollars by deducing which bits of information are important and then doing something about it.

Would you be surprised to learn that Google makes a judgement about how impulsive you are, based on how fast you click on a link after you’ve searched for something?

Do you know which of your customers are the most impulsive? Can you analyse certain behaviours on your website to make such a judgement? Which of your suppliers would pay to specifically target those retailers?

Could you create special offers in real-time so that more retailers bought products and suppliers only paid when one actively engaged with an offer?

Take away the broad-brush advertising of banners in depots and half-page ads in the product catalogue and replace them with targeted online campaigns with no wasted budget.

If you followed your customers around your depot, could you watch what they looked at and how long they devoted to specific items? Could you recommend other products from specific suppliers? Could you influence the routes they take around the depot? And could you do it for everyone simultaneously?

Websites can and companies pay good money to access that kind of targeted ­relationship.

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Jason Finch
Jason Finch is the co-founder of Port80. The UK's first business combining internet software development and direct-selling retail consultancy, Port80 now focuses on wholesale and is working closely with Palmer and Harvey and other wholesalers that want to benefit from real-time data and online technology.

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