More evidence that social media sites can erode brand pricing power

Recent research from Google suggests that social media may become a double-edged sword for brands. While social media sites may be excellent platforms for promoting sales, they can also position a brand as a source of deals and discounts. This positioning can erode a brand’s pricing  power by conditioning customers to shop on price rather than intrinsic brand value.

In other words, unless a brand takes care in how it develops its social media community, it may lose in strategic pricing power what it gains in immediate promotional power. I say “may” because the data is far from complete at this time. But it’s data that points in a definite direction.

Retaining pricing power is crucial for brands

Social media provides enormous value to its users while offering low-cost and effective communications and promotional opportunities for brands. (For typical examples see here). For brands, the critical task is to develop a productive social media strategy that deepens brand engagement and experience while maintaining price premiums. I previously discussed this issue in a post on a Razorfish social media study conducted in 2009. Razorfish found that roughly 40% of brand “fans” and “followers” of Twitter and Facebook were looking for deals. My takeaway from the Razorfish study was that a brand may risk becoming a “brand of deals” if it is constantly linked to deals, or to the expectation of deals. The brand’s pricing power may be reduced accordingly.

Google finds that a brand’s “friends” on social media often want deals

Google released partial data from its research on Facebook, the 800-lb. gorilla of social media sites (and, we should note, a prime Google competitor). Google’s data indicates that the single largest segment (25%) of those who “friend” a brand on Facebook do so in order to receive discounts, deals and other types of special offers. In my view, this may perfectly acceptable if a brand needs constant promotions to attract customers. However, a brand that is not in the business of hot offers and blowout sales may find that this “deal ethos” on social media sites reduces its leverage as a brand of exclusive qualities. You cannot be a high-rent brand with a low-rent strategy.

A chart of Google’s findings

Below is a chart from the findings that Google presented:

For the consumers who do friend your brand, what are they looking for? Discounts!

A brand’s social media pages can become virtual coupons

Google’s data seems to confirm the Razorfish findings that a significant portion of a brand’s social media followers is shopping on price. These followers may treat a brand’s social media presence as a source of deals and discounts, as if the brand suddenly appeared in an outlet mall, offering an equivalent outlet mall experience. The brand may get more traffic and social graph referrals, but it’s traffic that can put price pressure on the brand if the prevailing ethos of fans is “let’s get a deal.” Fundamentally, brands are the deal; they don’t have to make deals. And once every competitor rolls out their social media shingle, deal shopping between brands will be easy. Strategically, the brand’s ability to command a price premium may be compromised.

Two causes of why this may be happening

I can envision two causes for why the deal ethos suggested by this data may be developing on social media sites. The first is that many companies envision social media as the ultimate advertising and PR platform–low cost, viral and high impact–and have consequently flooded their social media pages with sales pitches, deals and promotions. These companies want sales, not a strategic brand community. They gladly create a deal ethos, perhaps because their brands are little more than a sales ploy to begin with. They target fans and followers with pitches, and their “fans” target them with the expectation of deals.

The second reason is that the minimalist designs and capabilities of social media sites generally resemble bare-bones discount sites. The brand is a tenant on social media sites, with a cookie-cutter store front. In such formats, it’s hard for brands to create exclusive brand experiences. Brands that  lack strategic brand vision and a community sensibility (as many do) may adopt a social media default mode of persistent promotion—just to fill up the space.

Current social media sites may homogenize brands

A further thought: It seems to me that in their current formats social media sites can exert a significant power to homogenize brands. They can (inadvertently) reduce brands to a lowest common denominator (e.g., Facebook page or Twitter account) that fits the social media scene. We wind up with brands stripped down for the convenience of social media sites themselves. If you look at how the brands express themselves in a fixed social media format you can sometimes glimpse a frightening similarity, as if two very different brands in the real world behave virtually the same in the social media world. Is this what your brand wants?

Comparing Starbucks and Dunkin’ Donuts

In this regard I like to compare Starbucks and Dunkin’ Donuts on Twitter. These are state-of-the-art Twitter sites. They’re equally cheery, friendly, chatty, upbeat, clued in and helpful, and constantly steer followers to the latest products and specials. They seem like everything a brand’s Twitter page should be. And yet, they sure seem like they’re cut from the same brand cloth. In the real world Starbucks and Dunkin’ Donuts are distinctly different places, but on Twitter they’re becoming  look-alike brands.

If your fans target you for deals, what good is your brand?

It’s great to have a million fans or followers on Facebook or Twitter, but if they’re targeting your brand for deals and discounts they’re a potential brand problem. The goal is to have them pay more for your brand, not less. When the rosy bloom of Facebook and Twitter diminishes in a few years–as it’s now done for MySpace–where will your brand be positioned? Will brands on social media be forced to offer steeper deals and discounts to keep their followers?

Brand options beyond social media promotions

Social media sites like Facebook and Twitter are limited in the forms of brand engagement and experience they can provide. While they offer promising platforms for promotion and publicity, most brands want 1:1 relationships with the customer in the context of the brand, not in the context of a social media site, and certainly not in the context of deals and discounts.

Going forward, brands have several options to create more customer value on social media sites beyond current promotional approaches.

The strategic solution: build a brand community

In the era of social media every brand must now find a way to balance commerce and community. Using social media platforms as targeted sales platforms may benefit a company’s commerce in the short run, but strategically could slide the brand toward the status of a social commodity. Building a brand community requires the brand to transform its vision, values and culture into a social context that advances the brand and its customers beyond the reach of competitors. This is a much larger strategic issue than we can discuss in this post. However, we can point to some specific steps to consider, as outlined below.

Connect with customers on brand innovation

Customers want to be more, and to do more through the brand. Teaming with customers to co-develop innovations for the brand is one way to build meaningful customer relationships.  Co-creation is a strong connection. Starbucks’s interactive My Starbucks Idea is a good example. It even has its own Twitter page (with a co-creation–not promotional–context).

Bring social media inside the brand

A brand could launch its own social media site, where the prime relationship is between the brand and the customer, rather than rely on third-party sites such as Facebook or Twitter. Apple’s new Ping social media site for music is one example. Burberry’s Art of the Trench is another (supported by Facebook Connect). The strategy is to use third-party social media sites as a springboard to the brand experience, not as a substitute for it (and not as a final brand destination).

Develop personal brand applications

Mobile apps, in the form of personal brand applications, are another avenue for deepening the brand relationship in a 1:1 brand/customer engagement. Note that personal brand applications are a far cry from superficial “branded apps” that are usually ads wrapped in app clothing. A brand is an application itself–of a company’s vision and values. A personal brand application translates that vision and those values into rich experiences that are personal, portable and persistent. Your personal brand application should be a second skin to users:  mentor, guide, confidant and sidekick. This assumes all those qualities are latent in your brand, as they should be.

NPR’s mobile app is a step in this direction, planting the NPR brand at listener’s fingertips, where NPR can be a trusted associate and enabler throughout the day.

Use a multi-tiered social media approach

Whole Foods employs a multi-tiered and fine-grained social media structure, with multiple Facebook pages, Twitter pages, and mobile apps. These enable the brand to stay close to its customers, at a more personal and local level, right down to individual neighborhood stores. The Whole Foods brand context remains paramount.

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