The Social Market

Social networking: the term has become synonymous with wall-posting, tweeting, poking, liking and stalking, specifically of the Facebook sort. With over 750 million users worldwide, and millions more joining up each month, it is hardly surprising that Facebook has become one of the most powerful marketing tools we have ever seen: one out of every eight minutes online is spent on Facebook, more than on any other global site, including Google. Consequently, a marketing revolution has snowballed since Facebook’s founding in February 2004: no doubt you will have noticed the adverts lining the right hand side of your screen when you have logged on.

Surprisingly, however, a recent study carried out by a New York based Think-Tank called Luxury Lab (also known as L2) has revealed that fashion houses in general have been rather slow on the uptake. The L2 Digital IQ Index was released earlier last week, assessing the digital IQ of top fashion brands through their use of a website (35%), digital marketing (25%), social media (25%) and mobile devices (15%). The relative percentages show the significance of each aspect in brand building. Under the social media heading, the report considered each brand’s Facebook page, Twitter feed, YouTube videos and Tumblr activity. According to the overall results of the analysis of each company, they were then placed into one of five categories: genius, gifted, average, challenged or feeble.

The Digital IQ dispersion of the 49 companies L2 reviewed followed a normal distribution, with 4 classed as genius, 12 gifted, 17 average, 11 challenged and 5 feeble. Topping the chart and leading the social media surge was Burberry, whilst Manolo Blahnik was left floundering at the very bottom. Improvers of the year were
Donna Karan and Alexander McQueen with a 43% increase on their performance on 2010’s Digital IQ test. In contrast, Hermes suffered a 35% decrease by comparison with last year’s results, making it the biggest loser of the study.

Statistics are all very well, but what do they actually mean for these fashion houses? According the Scott Galloway, the founder of L2 and Clinical Professor of Marketing at NYU, “digital competence is inextricably linked to shareholder value”. There is no doubt that social media sites do significantly reduce costs, which is one of two main ways of increasing shareholder value (the other being to increase revenue). Bearing this in mind, we would therefore expect the share value of Hermes to have fallen. So what are we to make of the fact that Hermes shares have actually risen in value by 31.97%? The truth is that share prices of the French brand jumped in December 2010 after reports that LVMH was looking to invest further in the business. L2 might accuse Hermes of relying too much on their “iconic status” rather than innovation and digital marketing developments but the reality is, the number of “likes” on their Facebook page or followers on twitter hardly impacts the consumer choices of their high profile clientele.

I think its safe to say that Facebook and other social networking sites are an increasingly important tool for enterprises but from my own experience at OFS, it seems it is more crucial for smaller, emerging brands to use them rather than longstanding fashion houses. Galloway’s dire threat that Hermes; poor digital marketing will come back to haunt them and their shareholders is, I believe, rather empty.

Tessa McGuire