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Retailers Use Social Media To Fine-Tune Operations

It’s early on Black Friday and retailers are overrunwith holiday bargain hunters when a shopper starts tweeting to friends that a store has quickly sold out of the big flat-screen televisions advertised on sale.

A man shops at the Abercrombie & Fitch store in the San Francisco Shopping Center in San Francisco, California.
David Paul Morris | Getty Images
A man shops at the Abercrombie & Fitch store in the San Francisco Shopping Center in San Francisco, California.

If the national chain that owns the store is following mentions of the business on Twitter, it has choices: Does it rush more TVs to the store? Provide update tweets on which locations are sold out and which have sets in stock?

The hypothetical scenario represents a slice of the opportunities and dilemmas facing retailers as the social media phenomenon changes the shape of consumer behavior.

Platforms like Twitter and Facebooknot only give businesses a chance to promote their wares and build brand loyalty, they also offer an opportunity to respond directly to shoppers and pick up on consumer opinions and trends.

While the new social media landscape means a small customer-service misstep can mushroom into a big public-relations embarrassment on YouTube or Twitter, the ability to monitor consumer tastes also gives retailers access to a trove of information that may help them as they plan product lines and inventory.

“Social media is a great way for companies to interact and get to know their customers and consumers,” says Stephen Wyss, partner in the retail and consumer product practice of financial services consulting firm BDO USA. “It’s also a really fast and cost-effective way to gather information about new markets."

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While these are early days for retailers and social media, big companies are jumping in, in some cases with highly developed strategies.

Wal-Mart Stores, for example, is taking cues from customers via social media in developing its services and selecting products.

“We listen and engage with our customers on Facebook and Twitter on an ongoing basis,” says Sarah Spencer, national media relations director for the discount retailer.

Walmart recently introduced a Christmas layaway optionbased on customer comments on Facebook, and just launched more than 3,500 store-specific Facebook pages in response to feedback from its Facebook “community” — which has more than 9 million members — that shoppers wanted a more local focus, she noted.

Walmart also has added a social feature to its own website that allows customers to vote on the hottest Christmas toys, with real-time tallying. When customers “like” a toy on walmart.com/toyvote, they generate a newsfeed to their Facebook page inviting friends to vote.

“We placed several items from the toy vote online at Walmart.com for pre-order earlier this year, which allowed us to get a sense for the demand of these items. Our online team shared this data with our stores so that Walmart could plan accordingly and ensure the season’s hot toys are in stock and available to our shoppers,” says Spencer.

Ninety-six of the top 100 global marketing brands use Facebook as part of their strategy, according to Carolyn Everson, vice president for global ad sales at the social media behemoth. Everson said she couldn’t think of a major retailer that doesn’t at least have a Facebook page.

Some businesses stick with more traditional ads on Facebook pages, while others use more sophisticated approaches, such as “sponsored stories” that allow fans to promote products, and platform integration, in which fans can “like” products on a retailer’s web site and broadcast that information to their Facebook friends, said Everson.

Walmart uses all three approaches, and Everson also cites Burberry Group PLC and American Eagle Outfitters as advanced Facebook marketers. Burberry, she notes, used Facebook to help launch its fragrance, by employing sponsored stories and offering fans exclusive samples.

Social media allows retailers more precise marketing opportunities than traditional ads, and businesses can benefit from positive customer comments and create buzz with exclusive sales that create a sense of urgency, according to BDO’s Wyss.

While most retailers use social media these days to liquidate or introduce inventory through promotions and build customer loyalty, companies are likely to adopt more sophisticated uses, he says, noting that social media is influencing how apparel retailers view their product mix and design, purchasing and decision-making.

Quick Change for Business - A CNBC Special Report
Quick Change for Business - A CNBC Special Report

“The ability to get constant feedback from your customers and influencers is a great tool to determine what we’re going to do next season,” says Wyss.

Businesses are not yet able to effectively monitor what shoes are selling at what store based on an influencer who mentioned something on Twitter, “but I think that retailers have an eye on that and are developing that approach," he adds.

Companies are trying, with different degrees of success, to develop analytics so they can tell, for example, what 20 tweets about a product might mean in terms of sales and how to translate that into numbers for inventory and staffing.

Businesses also must be more mindful of how customer-service failures can affect them, says Ken Boyer, professor of operations management at Ohio State University’s Fisher College of Business

“If in the past something went wrong, you were kind of limited in your ability to tell a few friends, to maybe send a letter to the company president or somebody,” says Boyer. “Now people can put these [encounters] on Facebook, they can put these on YouTube. They can often complain via Twitter as things are happening, so the potential damage of something going wrong is kind of magnified.”

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