Instagram has become the platform of choice for digitally-native high growth brands looking to grab attention for a product launch or marketing campaign. After the rollout of “Shoppable Posts” it was clear that Instagram planned on leveraging their high conversion rates to push more ecommerce sales via their platform. Now, Instagram has taken a huge step with the launch of Instagram Checkout, allowing customers to complete a purchase of their favorite brands without ever leaving the app!
While this is a huge release, Instagram has taken a slow approach to the rollout of this feature and has launched it in an initial beta open only to a select group of retail partners and US consumers. Nike, Adidas, and Warby Parker along with 20 others have been selected to test out the feature, which is processing payments via PayPal. It is a push by Instagram to enter an online retail ecosystem that has recently experienced an onslaught of new entrants from the likes of SnapChat, Pinterest, and Google. The move comes as Facebook, who owns Instagram, has put a strong focus on commerce and diversifying revenue streams this year after seeing ad revenue slow down significantly in the last fiscal year.
If successful, the Instagram Checkout feature could unlock an enormous channel for DTC brands, especially in the fashion and beauty segment. Instagram has proven their ability to convert customers through their shoppable posts feature at a much higher rate than traditional social media advertising. The Instagram Checkout feature seems to be a part of the company’s long-term investment in ecommerce shopping, which they view as both a revenue stream and a hobby for their customer base. The success of Instagram Checkout remains to be seen, but market experts say the feature could become a $10b revenue stream for Facebook. While Instagram would not release how much they have sold through their Shoppable Posts and Checkout feature, they did mention that 130 million people per month engage with product tags in shopping posts.
Image Source: Instagram
There are some concerns regarding the checkout feature, mainly amongst DTC brands, that haven’t been fully fleshed out, as it is still in beta testing. One major worry is that the Customer Lifetime Value (CLV) of consumers through the Instagram Checkout feature will be remarkably lower, due to an increased likelihood of impulse purchases. It is most likely safe to assume that the average order value through Checkout will be lower, but unless you are running a high-churn company like a subscription service, it should help promote brand loyalty by creating direct customer touchpoints and a seamless buying experience.
The other issue, which seems to be a far greater concern, is data privacy. As most people know, Facebook, Instagram’s parent company, doesn’t have a stellar data-privacy track record after last years Cambridge Analytica scandal and their previous foray into retail with the Facebook Beacon technology was a total disaster. While Instagram has stated that it will not expose payment information to Facebook, it did not clarify about sharing other data. (age, locations, buying trends, etc..) There are extra security features in place to help alleviate any anxiety the customer may have including the option to delete payment info from their system and a pre-purchase PIN code to deter fraudulent purchases.
As Instagram solidifies itself as a major player in ecommerce, it will open up the doors for DTC brands to build a healthy sales channel on top of the brand exposure they already pay for within the app. It may take time to gain traction, but there is an overwhelming feeling that this will soon make up a major portion of ecommerce sales, especially with younger generations.
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