Groupon Versus Groupthink

The American public loves bargains. It always will. And yet a new article suggests
that promotional strategies may be running out of steam…

SymphonyIRI Group reports that even
though the percentage of packaged goods sold on price promotion increased
markedly for the second consecutive year, the average volume lift per promotion
fell. A person familiar with Costco’s monthly coupon books—among the most
generous in the industry—reports those, too, stopped providing as much lift
last year. (Costco declined to comment.) 

This could be the result, the article suggests, of the
“percent-off” sector becoming over-saturated:

In 70% of package-goods categories
last year, at least 30% of merchandise was sold with some kind of promotional
support, according to SymphonyIRI; that’s up from 60% of categories four years
ago. In all, two-thirds of categories saw increased promotional support last
year…

“We do believe there’s a level
of promotion fatigue out there,” said Susan Viamari, the report’s author.

Now, this seems to contradict the enormous success of Groupon and other group deal sites. But part of these sites’ appeal is they offer pretty
spectacular deals (generally over 50% off) at places that don’t generally offer
such promotions. Groupon also
vouches for the deals and the businesses—which gives them a little more credibility
than your average coupon book.

And yet, as this market becomes more crowded, and the sites (inevitably)
become less selective, eventually group deals could be looked at, as the
article says, as “just another coupon.” And business are starting to see them as just a short-term jolt. They get the word out, quickly. But the jury is still out whether they help long-term.

Groupon is generally considered a “social commerce” site. But I would argue that the more lasting aspect of “social commerce” is how it will eventually turn the retail experience into more of a community effort.

We
know that reviews on places like yelp can impact shopping behavior. But even
more important than anonymous reviews is what friends think. If a family member
vouches for a place, that means more to me than if Groupon does. 

Social commerce, like many web trends, simply takes standard
human behavior and makes it more efficient. If someone has 10 friends and
they all buy diamond studs, then that person is more likely to buy diamond studs.
Except that right now, people don’t necessarily know what their friends are
buying. But that could change if
they share that information on Facebook.

Now, granted, no one wants to log into Facebook to hear everyone
bragging about all how they just bought jewelry. That would be annoying. But current social commerce apps aren’t that crass. As Wired magazine describes
them
, they would work like this:

Facebook is leading the social
commerce charge with a) social plugins that add a social layer to retail sites
(so people can share likes and purchases with friends, and get personalised
recommendations) and b) Facebook Deals that add a social layer to bricks and
mortar stores (allowing people to share store visits—and get deals).

Basically, social commerce makes word of mouth more
efficient, because it gives everyone a bigger mouth to spread the word.

So where does this leave the jewelry business? It may mean
that fads and styles will gain steam quicker. (They may also burn out quicker.)
It will mean that jewelers will have to be more on guard for unhappy customers,
because now they have a larger megaphone to air their unhappiness. It may also mean
that, if your prices are substantially higher than your competitors, that information will
get out quicker. And if they are lower, that will get out, too.

All of which sounds a little scary, but a recent
article in TechCrunch
suggests social commerce will benefit local
stores, as their expertise is building word of mouth:

If you’re looking for a new house cleaner, which would matter most to you:

a) A half dozen reviews from people you don’t know.

b) A coupon for 10% off the cleaner’s first visit.

c) Two friends that use the same cleaner—and are fans?…

Say you’re looking for a new apartment and trying to figure
out where to live, do you want lots of data on maps, or advice and
recommendations from your friends and co-workers?…

Great local businesses have always
been people-based businesses that understand the power of relationships and the
importance of participating in a local community. There’s a reason the car
dealership sponsors the local little league team. What these businesses haven’t yet been able to figure out is
how take what they’re already doing in their local communities and transfer it
to the new world of Facebook and the Web. But they’re learning…and when
they do, it will be transformational not only for them, but also for us—their
customers.

JCK News Director