A couple of weeks ago we touched the subject of social capital and that the potential to collect and structure social input is enormous. This social input is what collective buying sites are built upon. One of the biggest players is Groupon, a company which is based on the same notion of collective buying as many of its competitors: A daily deal on things to do, see and buy in your local city.
And while collective buying is getting hotter by the minute this is not a new commercial phenomenon. In the middle of the 90s many Asian retail players started bringing the offline behavior of mob shopping, also known as Tuangou, online. Tuangou refers to the consumer behaviour of connecting a network of people wishing to buy the same thing as you and approaching the local store together, aiming to get a cheaper price (trading volume for margin). For retailers this behavior offers an opportunity to increase brand awareness as well as revenue. Apart from the revenue coming from the deal itself (which with discounts landing on 50-70% probably isn’t all that much) it can lead to added in-store spending (the redemption rate for Groupon’s offers is stated to be about 90 %) – and for companies with high customer acquisition cost, this is of course extremely valuable business.
Each deal includes information about the minimum number of people that needs to sign up for the specific deal to be activated (a good way of ensuring social spread), and when the minimum is achieved the customer will be charged and sent a link to a site where the receipt can be printed. Most collective buying sites gain their revenue by charging a commission per sold deal, usually 30-50 % of the value of the deal. The shared revenue model assures the advertiser that their offer will be marketed in the best possible way.
So what can e-tailers learn from the success of group buying?
- Remember your core product: We’re moving away from a digital sphere with information overload, we’re now craving simple choices. Make it easy for your customer to make the right choice.
- Adjust your communication to where in the purchase funnel your customers actually are: Are they looking for information? Give them information. Are they looking for a great deal? Give them a great deal.
- In times of recession, focus on the win-win: Be the customer’s best friend, present meaning- and insightful offers. (This goes for the advertising industry as well: What’s up with still having CPM or CPC as standard business models? Be in business with people with the same goals as you and you will succeed.)
- Remember the social spread: If you are relevant you will get a high engagement level, no matter product or service. (Groupon’s customers get a $10 bonus when someone they invite start using Groupon.
As for the future of collective buying sites I expect to see some major consolidations happening in the nearest future, making some of the players (StealTheDeal, LivingSocial, BuyWithMe) even more powerful.
E-tailers will have to chose: Get inspired and give consumers even better shopping experiences or ignore the new shopping behavior and wake up a year from now with a increasing headache.