Word-of-mouth--or rather word-of-mouse--marketing is a natural outcome of social networks. Consumers compile connections and further feather their nests with friends of friends. Lending Club's business model leverages these links, inspiring borrowers' responsibility by engaging investors from their communities or extended social groups. (Lender funds are aggregated before monies are distributed to borrowers, reducing lender risk further and adding anonymity to the borrower's side of the deal.)
"Facebook extends an assumed or inferred endorsement across groups of people," Donovan says. "By pairing borrowers and lenders who share some level of connectedness, borrowers are more likely to receive funding on the one hand and are more likely to repay it on the other hand."
Lending Club invested in more than just a profile. It integrated its application into Facebook, within the Facebook platform. The application had attracted $1 million in loans within two weeks of the service's launch.
'The Internet Is All Social Networks'
Financial services, consumer packaged goods and cars all make sense to market through social networks such as Facebook, MySpace, Gather and more.
Max Lenderman, executive creative director of GMR Marketing in Chicago, says it's imperative that these products and services use social networks to advertise their brands. "To a certain extent, the Internet going forward is all social networks--not just MySpace, Facebook and LinkedIn but a clear manifestation of the evolution of the Internet are mobile phone connectivity, gaming as a social experience and reputation networks," he says.
One of Lenderman's clients--a leading male grooming brand--buys advertising on Facebook and MySpace for every new product introduction, "but it also tries to form a community around the product" with promotions, games and themed music. "Thousands and thousands of 'friends' sign up, fully aware that it's a marketing campaign," he says.
Whether introduced by marketers or by consumers--those paid brand ambassadors or voluntary fans--marketers' presence on the sites is growing and is drawing consumers' free media time less than a year after brands took to the social network scene. The activity must continue, Lenderman reasons.
"You have to homestead it," he says, adding that "the key to any social network campaign, the most paramount thing, is authenticity. Be upfront--be true to the brand." This recognizable sincerity comes from the right insight to consumer needs and interests, and a consistent presence in the virtual community.
"Wells Fargo, a brand as old as the stagecoach, went into Second Life and created an island where people can do fun stuff, but they have to spend money. They go to the ATM, they take quizzes, they engage with the brand, and they go on," Lenderman says. The brand created an experience, established authenticity, and in time, it translated to a sleeker, tech-savvy reputation.
Just Another Commercial?
"A lot of brands are looking at this, but I don't think that's necessarily a good thing," says Robert Passikoff, president of Brand Keys consultancy in New York. It's cool, he concedes, and the most enticing consumer demographic checks in with connections at virtual communities.
But their participation with brands represented at YouTube, MySpace or Facebook "is not endorsement whatsoever," he says. Consumers view marketing through social networks as just another commercial.
"Signing on as friends of a brand is just part of the process," he says. That it is voluntary engagement with a brand, he says, is like saying consumers opt into advertising by watching the commercials interspersed with their chosen TV programming.
"You're dealing with a different consumer base--the bionic consumer of the 21st century," he says. "Smart marketers are beginning to realize that they need to have some sort of predictive engagement metrics in place before they go out and do this.
"A flick of the mouse is not loyalty; it's not engagement," he continues. "Ultimately, every brand has to write a reality check," and "a good deal of the sign-up you see is more habitual than interest-based. There is a certain degree of pride in being able to talk about how many friends you sign up."