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Hit The Ground Running

How Facebook Is Failing Local Businesses

The former head of SMB Marketing at Facebook on why social media can no longer help small businesses reach customers.

[Photo: Flickr user Mike Vasilev]

For years, small business owners have been encouraged to adopt social media strategies as a way of engaging their customers after they leave the store. And they listened: 90% of small business owners in the U.S. are active on social media, and many consider social media the easiest and most cost-effective way to have an online presence.

But recently customer engagement rates on Facebook and Twitter have declined to the point where only paid promoted posts can create meaningful results. Here's a look at why, and what small business owners should do instead.

The Rise And Fall

I joined Facebook in 2010 as the Head of Global SMB Marketing. Facebook started heavily promoting Facebook Pages, urging small businesses to create a business page, generate as many likes as possible, and to frequently post content. This opportunity was exciting to local merchants who didn’t have the resources to engage their customers after they left their stores, and they signed up in hordes. At the most recent count, there are 30 million small businesses with active Pages globally.

But in 2012, Facebook announced that small business Pages organically reached only 16% of their audience. Small businesses had difficulty understanding why they couldn’t reach all of their fans, but Facebook was watching out for their users and trying to make the newsfeed as engaging as possible. Small businesses were frustrated because many had also paid to get more Likes for their Page and now couldn’t reach all of them.

Facebook created Promoted Posts to help small businesses deal with their low organic reach. In January of 2013, Facebook announced that 500,000 Pages had used Promoted Posts, but compared to their total global small-business audience, this was still pretty small penetration. Most small businesses continued to try their luck at engaging their customers through posting for free with mixed results.

Facebook recently announced that it would further reduce the reach of posts from businesses to their fans that it deems "overly promotional." Fast Company also published an article discussing new research which suggests that businesses that make Facebook and Twitter the center of their customer engagement efforts may be wasting their time. The article cites a recent Forrester Research study that showed top brands on Facebook and Twitter are reaching only 2% of their fans, and only 0.07% of followers actually interact with each post.

So if a small business owner is willing to use the paid advertising options on Facebook, then they may see engagement on their posts, but the cost may not be what they’re willing to pay. Facebook has also introduced new, more sophisticated, advertising tools to directly target any user on Facebook in their newsfeed, but for the most part, these tools are used by savvy direct marketers at mid-sized or larger companies and not small businesses.

What Can Small Businesses Do?

My observation from talking to many small businesses is that their owners are now confused. Most still believe that they should posting regularly on their Facebook Page or on their Twitter feed, and sometimes they even ask their staff to do it on their breaks. However, most don’t know if these efforts are driving anyone into their stores.

The declining organic reach of Facebook and Twitter means that small businesses should be looking elsewhere to engage their customers outside of their store. Facebook can still be a place to build a free online presence, but it is no longer the way to drive meaningful engagement with customers. The Forrester study suggests that going back to email might be the way to go—after all, typically over 20% of the recipients of your email will open it, which is far higher than the organic reach of a social media post. I agree with this general recommendation, but the email channel is also being challenged with Gmail filtering a lot of promotional emails out of the main inbox. There’s also the additional burden of building a big enough database to reach as many customers as possible.

Small business owners might look to the success of companies like Starbucks and Panera Bread who have now built customer databases of millions of customers using their rewards program. Moreover, now there a number of startups including my own that help small business owners build their own digital rewards program that can reach customers using push, SMS, and email. The key in picking the right loyalty platform is to find the one that will help you build the biggest database with the least amount of work and one that can engage customers where they are increasingly to be found—on their mobile.

Should Small Businesses Abandon Facebook?

But what about Facebook? Should small business owners abandon it completely? I don’t think so. The posts that are still getting reach on Facebook are the posts that are generated by customers. This is very different from content generated by the small business owner. If you can get customers to check-in or tag your business on their posts, this can still generate a ton of reach and word-of-mouth.

Social media in the form of getting followers and posting to engage them is rapidly becoming irrelevant for small business owners, but the overall goal of customer engagement is not. Small business owners should focus on building their own customer database through an attractive rewards program, so they can keep engaging their customers after they leave the store and then reach them with channels like push, email, and SMS at the right time with the right message. This will produce the type of engagement that small business owners have been craving and haven’t been able to get with social media, and will result in more return visits and more profits for small businesses everywhere.

Chris Luo is VP Marketing at FiveStars. Chris has 14 years of experience in marketing, inside sales, and strategy. Previously, he was the Global Head of SMB Marketing at Facebook, where he drove small business adoption for Facebook Ads and Pages and built a team of over 20 marketers and 200 inside sales reps.

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