Investors NEED TO KNOW Free Ads Rule Facebook
Facebook (NASDAQ:FB) advertisement and its ability to earn the company revenue has been the subject of some critical debate over the past few days, but a new report finds marketing on the social network actually does influence consumer behavior. The study says people who see brand messages on the site spend more money on those brands and they act quickly. Unfortunately, the study largely focused on “earned media,” or messages that Facebook users share with each other on their own, not the ones paid for by brands.
comScore’s “The Power of Like 2: How Social Media Works,” studied the experiences of brands including Best Buy (NYSE:BBY), Starbucks (NASDAQ:SBUX), and Target (NYSE:TGT). According to the report, users who saw unpaid marketing messages about Starbucks bought something at the coffee store chain within four weeks, 38 percent more often than those who didn’t. For Target, the fans who saw the messages were 19 percent more likely to buy goods at the retailer than the group that didn’t see the messages, while their friends were 27 percent more likely.
These included people who had “liked” the brand on the website, as well as their “friends.” Setting up brand pages is free for businesses on Facebook, and once users click to “like” the page, companies can then post messages on their News Feeds.
While Facebook would want to use the report to prove the success of advertising through its platform, the results also add credence to the action of General Motors (NYSE:GM) last month. Just before Facebook’s IPO, the automaker had delivered bad news for the company by announcing it was pulling paid advertising from Facebook. However, it added that it would continue to promote its brand on the social network through unpaid measures.
As far as paid advertising goes, companies have to pay for their spots to be highlighted or placed on specific pages. Facebook’s in-house research shows companies see a return of $3 for every $1 they spend in 70 percent of advertising campaigns.
Facebook shares closed up 40 cents at $27.40 on Tuesday. The stock has dropped over 27 percent since the company’s IPO. The report was a joint effort of comScore and Facebook.