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RETAILNETGROUP STRATEGY ALERT No. 6 Issue
SOCIAL NETWORKS
August 2008
Greetings!

With online ad-spending in the US reaching an estimated $25 billion in 2008 much time and attention is being devoted to the commercialization of web strategies.

A significant share of that spending will go to social networking sites - as much as $1.5 billion dollars - while at the same time these sites will capture a disproportionate amount of web traffic.

The core users for social networking sites are the largest generation ever - the "millennials" - and their media consumption (and participation) habits are more fragmented than ever. Their spheres of influence are more numerous and complex, and their expectations for how to engage with retailers and brands more direct and conversational.

Smart retailers and dozens of start-ups are working to commercialize these trends by making it simpler for shoppers to find and recommend stores and products; receive support and service from retailers and manufacturers; and offer their insight and feedback on everything from product design to labor practices.

These strategies leverage tools including social shopping sites and widgets, online communities, and social media like Facebook, Twitter, and blogs.  More importantly, they are shaping how both CPGs and retailers communicate with consumers, and viceversa.

Below you will find a summary of the leading strategies and technologies being implemented around the world.  To access any of the reports please follow the links on each story or contact us to request direct access from our website.

Tim O'Connor, Vice President
Retailnetgroup.com
Retailers Experimenting With Social Networks

Social networking allows marketers to connect with existing customers and enables them to potentially deepen the level of engagement with its users.  Retailers and CPG's alike are increasingly trying to engage shoppers and consumers not only for share of wallet but also for share of mind.  By creating online communities, companies can:
  • Increase word of mouth advertising and brand awareness.
  • Increase the number of touchpoints by establishing conversations with consumers and shoppers at two additional points in time: pre and post purchase.
  • Increase loyalty by allowing users to become contributors rather than browsers.
  • Gather new ideas and insights around trends or opportunities for product development and improvements.
Companies trying to engage consumers and shoppers in the online world need be aware of potential barriers to being successful in social networking.  A key barrier as highlighted in Deloitte's Tribalization of Bussiness Survey report has to do with achieving critical mass.  According to the report, a majority of the communities on the web have fewer than 500 active members and their biggest challange is to keep members engaged.

Nonetheless, retailers today continue to experiment with different approaches to social networking and have had varying levels of success.
  • MyStarbucksIdea.com - As Starbucks scaled their business many claimed they lost touch with their consumer. The company launched this site as a way of establishing a converstaion with customers and allow them to "help shape the future of Starbucks".
  • Avon embracing social networking - After a roll out by year's end, Avon representatives will have the ability to blog on their personal Avon websites allowing them to tell the story of the products they sell.
  • HMV testing a social networking site - The music and book retailer HMV is testing the first stage of its social networking site. Named 'Get Closer', the site is currently being tested by 1,000 users prior to a full launch on September 1st. 
  • The future of Sears and K-Mart - The purpose of this site is best described by the message on its landing page: "You're the customer. You're the one with the best perspective to help us grow. You're the reason we're here. So tell us what's on your mind. Let's talk. We'ld like to hear your ideas - big or small. We're listening. With your ideas, we're ready to make things happen at Sears and Kmart."
  • Other retailers have developed communities and micro-sites around specific topics, such as healthy living.  Examples include Kroger's Healthy Living, Tesco Diets, Safeway's Food Flex, to name a few. 
The availability and ease of use of new technologies have opened the door to a rapid spread of consumer and shopper-based online networks and communities.  In the end, success will depend on how retailers and CPGs are able to capitalize on these networks.
Developing Social Networks

Much has been said about the largest social networks on the web (Facebook, MySpace, Friendster, hi5, etc) but in addition to these sites there are three other approaches taking place today around the development of social networks, including:

1. Social applications.  This is primarily executed through polling widgets, open forums, web logs (blogs), or other specific applications such as YouTube or Flickr.

2.  White label social networks.  Typically considered a 'generic' type of software that technology providers can sell to a number of corporate users with the ability to integrate back into their current systems.  According to a recent report by ABI Research, this could become a $1.3 billion industry in five years.  Companies in this space include Leverage, Ning, or KickApps.

3.  Social application platforms.  This is an underlying platform needed to integrate social networking.  It helps deliver social applications to any site and integrates with existing infrastructures and other social networks.  A good example of a company doing work in this space is Ringside.
Four Models of Social Networking Communities Developing

RNG has identified four types of models evolving within the social networking space and different types of players participating differently on each space.  These include:

Proprietary Open Community.  The community is available on the open web but is affiliated with a single entity. The community sponsor has exclusive access to the information and insights generated (usually basic personal info and anything gleaned from polls/surveys).  A leading company in this area is Prospero (now part of Mzinga).

Proprietary Closed Community. The community is private and carefully controlled, and insight is proprietary to the community sponsor. See Communispace, who manages both the community and the research for major CPG companies.

Syndicated Open Community. The community is available on the open web and its insights are sold/licensed to multiple clients. GamerMetrics is a solid example of this model. A division of IGN (which manages a network of gaming-centric sites including IGN.com, Gamespy.com, Fileplanet.com, and TeamXbox.com), GamerMetrics mines and analyzes its users' traffic and behavior and syndicates that insight for game developers, publishers, retailers, analysts, and the press.

Syndicated Closed Community. The community is private and carefully controlled; insights are sold/licensed to multiple clients instead of to a single sponsor. Sermo is a great example of this model; they maintain an online community of physicians, whose conversations are mined by pharma companies and equity analysts for insight on emerging trends and new medications, devices, and treatments.
Other Emerging Social Networking Applications

Zlio - Affiliate programs are nothing new; Amazon and many other online retailers have been rewarding individuals for driving traffic and conversions since the dawn of online retail. Now Zlio, which has relationships with more than 120 US retailers (including Best Buy, Buy.com, Zappos, and Shopping.com) lets individuals set up their own free online stores, which they are free to brand and customize. Zlio shop "owners" are really just marketers, since orders are fulfilled by Zlio's major retailer partners. Shop owners take commission on each sale and can also earn a cut of Google AdSense revenue.

Social shopping
- Sites like Rasba, ThisNext, StyleHive, Kaboodle, iStorez, and Wists and Facebook apps like MyListo let shoppers see what their friends are buying, discover trendy new products and brands, see their friends' reviews of products, and sometimes even earn cash, credit, or gifts for being ahead of the curve.

Qponix / Meijer MealBox - The Meijer MealBox is the first in a series of widgets to come from Qponix. The widget includes recipes, menu and meal planning tools, interactive shopping lists, a recipe box, coupons and store savings, diet management, and social networking with other cooks-all from within a small "box." Since it's a widget, the box can be displayed on other social networks and blogs.
RetailNet Group is the leading insight and advisory firm focused on retail growth strategies and consumer-facing transformational capabilities. We are deeply experienced retail/consumer analysts and strategists working exclusively to help brand-led businesses and large-scale retailers grow.
 
Sincerely,

RetailNet Group
Note: Articles contained in this newsletter are collected from a variety of sources and links can expire over time.
In This Issue
Retailer's Online Communities
Developing Social Networks
Four Models of Social Networks
Emerging Applications
RNG's New Website
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Rewe's discount format in Central Europe and Bavaria


SAM's Club in Monterrey, Mexico



Marks & Spencer, United Kingdom


Prior Strategy Alerts

Pricing Optimization
Retailers are developing pricing as a strategic capability which raises several opportunities for CPG firms.

Strategic store brand programs are a  significant growth strategy for retail leaders.

Convenience food retailing is changing globally as consumers express their preference for healthy, fresh, and ready to go (or consume) foods.

Explore how retailers are trying to re-organize the way that health and wellness services are provided.

How mobile based commerce and marketing strategies are being utilized by retailers worldwide.
RNG's Web Tools

RNG's website includes a suite of web-based tools that are already having a significant impact on our clients' work.

To learn more about RNG's web tool capabilities or to schedule a web demo please contact Mark Byrd at 757-270-3839
Meet Our Analysts

Dan W. O'Connor
Dan W. O'Connor is the President & CEO of the RetailNet Group.  He also is the Founder of Management Ventures, Inc. (MVI), a WPP Group company. Dan is a widely known industry speaker and thought leader.

Aaron Chio
Aaron Chio is a Senior Analyst leading RNG's  development of new research, insights and growth strategies in Latin America. 

Tim O'Connor
Tim O'Connor is Vice President at RNG, currently responsible for RNG's Growth Strategies Curriculum and European market insights.

Keith Anderson
Keith Anderson is a Senior Analyst and responsible for RNG's North American research practice and transformational
capabilities
curriculum.