What’s wrong with social shopping?

Two things:
  • They either offer discounts to people who would have bought anyways.
  • Or, they sell to deal-seekers, who always wait for deals before buying stuff; basically customers with permanent negative lifetime values.

Hell, as Groupon becomes more popular, even regular people are becoming deal-seekers!!

In a recent study (How effective are Groupon promotions for businesses? Sept-2010, Prof. Utpal Dholakia, Rice University), 42% businesses who used Groupon said they would not want to use such services again. That’s a big red herring. Not sure why Groupon is still valued at $ 6 billion.

It seems Groupon and other social shopping sites are adding some value to new and small businesses that are yet to establish their brands and are seeking new customers.

The study suggests three interesting ideas to make services like Groupon more useful for businesses:
  • Reward relational behaviours of consumers over transactional behaviours. Instead of offering $60 food for $30, offer $10 off on each of customer’s next three visits.
  • Instead of offering a discount on a consumer’s total bill, offer specific discounts on various items and give businesses opportunity to cross-sell.
  • Help businesses use unutilized capacity through promotion offers or sell unpopular items. A yoga studio can offer classes on a weekday afternoon, for example.

I think social shopping needs to learn a lot from well established database marketing principles or we’d just be making mistakes and reinventing wheels. Kevin Hillstrom and Jim Novo have some very interesting things to say about how database and multichannel marketing principles can be used in social/digital world.

Part-II is here.

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