Alex Jacques & Raffaele Frassetti

APRIL 8, 2015 BMG 320

CREATING A SUSTAINABLE ONLINE SOCIAL COMMERCE

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Table of Content

Abstract 2

E-commerce success factors 3

E-commerce to social commerce 5

Social Media Marketing 6

Content Curation 8

How Social Interaction Drive Sales 10

Revenue Models 13

References 17

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Abstract

The evolution of social networks and its popularity around the globe has provided

the opportunity for a new genre of businesses. The trend towards e-commerce is now

shifting towards social commerce where suppliers provide a community with products,

services or content to satisfy the different needs of that online community. As this new

breed of online selling platform emerges it is important to review how e-commerce

thrived and how can social commerce emerge as the new leader in online selling. This

report is a literature review examining different aspects of building an online social

commerce. The report follows the steps required in creating such an online community

by first going through the success factors of e-commerce. Explaining how e-commerce

evolved into social commerce through the increased popularity of social media. Using

social media and its different tools for marketing purposes. How to use social interaction

in order to drive sales. How to generate content and curate content to promote your

product/services. Ending with two new different revenue models, affiliate marketing and

subscription based revenue, which can be added to an existing selling platform.

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E-commerce Success Factors:

The online selling platform industry is one of the fastest growing industry due to

its low barriers to entry making it a highly competitive and fragmented industry. In order

to strive in this industry Kim & Lee (2002) highlighted the different success factors

divided in two broad categories affecting the performance of the most successful e-

commerce, system design and perceived service quality of the e-commerce system.

System design

The system design could also be called the transaction design, it should follow the

next four phases (Kim & Lee; 2002):

Information: The first thing that consumers must see on the website is

information about the products and services offered by the e-commerce.

Navigation on the website must be easy and consumer questions must be

answered either though live chat or FAQs.

Agreement: The agreement phase is where the consumer is able to view the

detail of the transaction. In this section the customer agrees to pay the fee and

give payment and personal information.

Settlement: This could also be called the ordering phase. In this phase it is

important for the e-vendor to provide customer relationship. This phase also

includes payment mechanism, delivery system, guarantee claims and refunds.

Environment: This phase refers to the website architecture and user experience.

It is suggested that user friendly e-commerce systems are more likely to drive

sales. Ibrahim & Nilashi (2014) reinforces this statement by stating “…consumers

are more likely to purchase online when the shopping website provides highly

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desirable functions, including product catalog, search engine, and intelligent

agents for price comparisons.” (Ibrahim & Nilashi; 2014 p.1908)

Perceived Service Quality:

According to Kim & Lee (2002) service quality refers to four different dimensions,

tangibility, reliability, responsiveness, and assurance. Tangibility refers to the appeal

of the website. It is therefore important for the website to be visually appealing.

Reliability refers to the extent e-commerce delivers promised services.

Responsiveness refers to the perceived quality of the customer service. How fast

are customer questions answered? Assurance refers to the confidence users have

towards the e-commerce. It is therefore important to have quality content. Other,

more recent, research came to similar factors in customers intentions to buy, but

Ibrahim & Nilashi (2014) have proposed more factors that could be added to Kim &

Lee’s (2002) research such as; product value and convenience. Product value refers

to the product’s key features, its price, customer service following purchase, the

perceived quality, and the information provided about the product. Convenience

refers to the tools consumers will find on the website that will reduce consumer’s

perceived effort in the process of buying. The tools may include search engines,

shopping carts, fast delivery systems, etc. It is important that the perceived effort is

less than going to a physical store.

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E-commerce to social commerce

We live in a time of technology were online retails are taking over traditional retail

store. The shift from physical store towards online selling platforms has been caused by

the increased in technology and the many opportunities for organizations and

consumers that stems from selling products online. Kikovska-Georgievska (2013)

highlights 7 major forces that drive e-commerce. The first one being the reduced cost in

marketing and operation. E-commerce offers the ability to easily collect consumer

information as well as lower cost of communication. Online selling platforms are

available for consumers 7 days a week, 24 hours per day which allows for a greater

reach of consumer across time zone. E-commerce enable consumers to access a wider

range of products to cater their specific needs. Buyers also have easy access to product

reviews therefore they are become more aware of better products and promotions. E-

commerce enables consumer to buy different products from one place, home, therefore

the hassle of transportation is taken away. E-commerce enables population in rural

areas to have access to products they had no reach before.

In the past decade there has been a shift within e-commerce. The popularity of

sharing platforms such as; Social Networks, Blogs, Forums which have encouraged

consumers to interact with friends and other consumer who have common interest have

driven social commerce (Hajli; 2015). According to Hajli (2015) consumers who

communicate, share, review and rate products co-create value with the organizations.

As social media enabled consumer to generate content, social commerce has enabled

e-commerce to use social interaction to drive sales. The use of social media has driven

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new business model where the features of social networks are used to design

customer-oriented businesses.

Social media marketing

The development of social media has opened major channels for suppliers to

provide consumers with product information thus creating a new genre of marketing.

Social media provides the ability to create linkages by adopting the various social

networks; Facebook; Twitter; LinkedIn; Youtube; Google+ (Tiago & Verissimo; 2014).

The effective use of social media leads to increased customer engagement thus

creating a stronger customer relationship. According to Bronner & Hoog (2014)

information provided by suppliers is not the main factor in purchasing behavior. Social

networks have changed consumer information-seeking behavior. This has led to the

importance of creating electronic word of mouth. According to Levy & Gvili (2014)

electronic word of mouth is perceived to be more credible and trustworthy than supplier

initiated source of information. The impact of word of mouth depends on three source

factors; social capital; information richness; channel interactivity (Levy & Gvili; 2014).

1. Social Capital:

Social capital refers to the personal association, credibility, and trust relationship

between community members. Users of online communities seek to increase

their social capital, satisfy the need for acceptance, interaction and entertainment

(Levy & Gvili; 2014).The strength of the relationship depends on the familiarity

with the source weather it is from a social network, blog or forum. Groups with

strong social tie generate more influential word of mouth compared to weaker

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social capital source of information.

2. Information Richness:

Information richness refers to the ability of a channel to provide information

regarding the source of the message. It can also be viewed as the ability to

change the understanding of a concept (Levy & Gvili; 2014). Blogs and forums

are an important source of rich information as most of them provide search

engines which gives users the ability to assess content contributors’ posts history

therefore providing users the ability to assess their credibility. Search engine also

gives users the ability for personalized content.

3. Channel interactivity:

Channel interactivity refers to the extent which participants engage in two-

communication. Social networks such as Twitter and Facebook allow its users to

interact with product supplier therefore creating a link between consumer and

sellers.

Electronic word of mouth is based on the distribution of content through online

communities. In order to fulfill the three aspects of electronic word of mouth it should be

any e-commerce provider’s priority to use all form of social networks as well as forums

and blogs. Social media provides a flow of information as well as a platform for

consumer to interact between consumers.

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Content curation

The process of content curation is described as finding, organizing, editing and

sharing online content (Joy & al.; 2012). Consumer and marketers use content curation

site such as Pinterest or Scoop.it in order to find relevant content in the overwhelming

sea of information that the internet has become today. Once the marketers find relevant

content he/she will curate it to his/her site after editing it. Relevant content increases

traffic and time spent on an organization’s website which has become a key to e-

commerce success (Deshpande & Savitz; 2012). Content curation can be used as

storytelling which serves as public relations (Sullivan; 2013). The goals of public

relations are to raise awareness, engage customers and give a positive perspective of a

brand. A key aspect of storytelling that is important when curating content is to consider

who is the story for? Using social media, organizations are able to determine who their

customers are therefore making it easier to answer this question. Once the organization

has determined who the story is for it must decide which actions they want readers to

accomplish. Of course sales is the end goal, but there are other consumer actions that

may be beneficial to the organization, sharing the content and/or give contact

information. Readers whom share the content actively participate in the firm’s social

media presence. Consumers who offer their contact information in exchange for content

provide an organization with key information such as email, location, list of contacts, etc

which may be beneficial to push content and reach greater range of consumers. In

order to manage powerful content Sullivan (2013) suggest four steps: creation,

amplification, curation and analysis.

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1. Creation:

The firm must consider what content is best suited to its audience, video,

reviews, storytelling, etc. Which of these will engage consumers and drive

actions

2. Amplification:

What is the mean to communicate the story? Firms whom already have an

extensive reach of social media followers may choose to use their social

networks profile to post their content whereas firms with small reach may decide

to share through a social influencer.

3. Curation:

Curation is a broad concept, it can go from linking the content to other posts,

commenting other post and sharing similar post. The goal of curation is to add

value to the consumer experience (Sullivn; 2013).

4. Analysis:

Analysis refers to the success and failures review of the campaign. With the help

of social media dashboard like Hootsuite’s analytics firms are able to identify

which post were more successful and helps identify whom the campaign has

reached. Therefore, using the information the firm can adapt its future campaign.

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How social interaction drives sales

Trust is the most important issue in e-commerce, in order to reduce perceived

risk, consumer are more likely to look for consumer reviews over digital marketing. Hajli

(2015) provides a formula in which he describes the role of social media in consumers’

intention to buy.

According to Hajli (2015) there are three important factors that increases

consumers’ trust and intention to buy; recommendation; rating and reviews; forums and

communities. These platforms are supported by organizations but the content is created

by the consumers in order to create higher level of trust.

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Recommendation and referrals:

A major challenge of online sales is recreating the traditional shopping

experience where the consumer can engage with store employees for

recommendations. Research shows that consumers who can’t experience the product

or service rely on other buyers’ experience as a form of recommendation (Hajli; 2015).

Reviews and rating:

In order for a review to be effective it must include important information and

benefits of a given product/service. Research shows that review/rating made by a

neutral third party (consumer) is more effective than regular online advertisement (Hajli;

2015). The engagement of consumer in content creation drives consumer

empowerment which in turn increases trust. An important issue arising from customer

feedback is the identity of the reviewer which has an effect on the consumer perception.

Hajli (2015) suggest that e-vendors need to take action in order to convince reviewers to

give more information about their identity.

Forums and communities:

Online communities use social media to interact with people of common interest.

They support members of community through social interaction and information sharing.

According to Hajli (2015) online communities is the new form of word-of-mouth.

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Through social commerce, consumers are given the opportunity to create value

by co-creating, participating, sharing and interacting with other consumers. Hajli (2015)

suggest that e-vendors form online communities to create opportunities for the

consumers as well as the firms. Research on social network show that people who join

online communities seek social support (Halji; 2014). There are two dimensions to

social support, emotional and informational support. These needs are satisfied through

the different social networks (Facebook, Twitter, Pinterest…) blogs, forums, and other

online community. These online communities allow interconnectivity between users

which will provide or reject trust in certain products.

Online Revenue Models

The biggest challenge for social commerce is to generate revenue. Even though

a website gets substantial traffic, content provider do not know how to monetize this

traffic. This section includes an in-depth analysis of two social commerce business

model, affiliate revenue model and subscription revenue model. The different revenue

models are based on how a social commerce who can generate traffic on its website

should monetize itself. These two revenue models are based on selling other suppliers’

products on social commerce and not traditional e-tail. The goal is to explore new ways

of generating profit through social interaction. Note that these models can be combined

and added to a traditional e-tail.

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Affiliate Revenue Model:

As internet developed, it provided firms the opportunity to develop online

partnership. One of the opportunity that arose for suppliers and hosts was to create

affiliate marketing. Affiliate marketing consist of an agreement where a host provides a

link to a product suppliers on its website. The objectives of such partnership are to

generate traffic and transactions for the suppliers in exchange of a commission to the

host (Bowie & al; 2010).

There are four different payment method for the supplier to the host, pay per

lead, pay per sale, pay per click, and pay per thousand. In pay per sales, the host

receives a commission for every click through that generated a sale. Charging a higher

commission per click, this model reduces the risk for suppliers. This model may be less

attractive to host as sales do not depend only on their ads. Pay per leads refer to the

payment of host when a new customer is generated to a supplier. How does it differ

from pay per sale? Pay per lead does not only depend on sales, revenue can also be

generated from consumers signing-up on the supplier’s newsletter. The previous two

models may be interesting for blogs as their users share a common passion and usually

have high trust towards the host. Pay per click or cost per click are based of a pre-

determined fee for every time a consumer click on the ad posted on the host’s website

that leads to the supplier’s website. This method offers the advantage for the host as it

does not require a sale to generate revenue. The downside is that revenue per click is

lower than the previous two models and offers greater risks for the supplier. The last

model is pay per thousand which refers to a fee for every thousand views. This model is

interesting for websites that generate substantial amount of traffic as it requires 1000

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views to make revenues. This model is mostly used by social networks such as

Facebook which has over a billion users. As for the suppliers this revenue type is less

effective at generating sales but can be an opportunity to raise awareness.

The major benefit of affiliate marketing is its ease of implementation, it does not

require any infrastructure. Although it is easy to implement, generating revenue from

with an affiliate revenue model may take time as the number one source of revenue will

be traffic on the host’s website. Therefore the issue with affiliates lies in the complexity

of developing a hub where consumers interact. Popular websites that offer affiliate

marketing are social networks and blogs. Blogs offer the ability to create a where the

online community shares a common interest. Whereas social networks provide the

mass.

Subscription revenue model:

Subscription revenue refers to the concept that consumers and internet users

pay a periodical fee to access content on a website. As advertising website are

dominated by high traffic websites and transaction website require substantial logistics,

subscription website are becoming the new trend for revenue generating websites.

“Charging users for subscribing to online services is considered one of the major

sources of revenue with several successful examples having been identified” (Horng;

2012 p.892).

There are many advantages for both users and providers of subscription. The

main advantage for providers is the reoccurring revenue. When using a subscription

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based revenue model, providers also have the advantage forecasting revenue overtime.

Providers also have access to users’ data information therefore making it easier to push

promotions of new products and/or services. “For a software vendor, a subscription

pricing and service model can provide potential ways to upsell or cross-sell a customer

as opposed to simple one-time transactions.” (Liyakasa; 2013). Users benefit from

subscription revenue models in many ways. First, when using subscription based

service/products they are able to spread cost over time therefore making it easy for

users tom predict monthly payment for the content provided.

The biggest challenges with subscription revenue model is to convince

consumers that the content provided on the website is worth paying for it. Horng (2012)

identifies four important variables to persuade consumers to pay for content;

convenience, ease of use, added value, and perceived quality. With the overwhelming

amount of information on the internet it is important that the subscription website offers

a solution to its consumers. Blogs and forums are a good example of successful

subscriptions because they offer their users specific content on common shared

interest. It is important for the provider to be an expert in the field.

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