Two Sides of the Social Buying Coin
Lately all the buzz has been about social buying websites like Groupon, LivingSocial and SlickDeals. Everyone loves a bargain. I know I like the idea of getting half price at a good restaurant – whether it’s an old favorite or a new one I’ve been meaning to try. And it’s a great way for the business to get trial. Everyone wins, right?
Well, not so fast, my friend. Last month Scott Tingwald wrote about Groupon engaging in some activities that could hurt its brand. There are other factors retailers may want to consider before jumping on the social buying bandwagon.
The biggest concern for retailers should be whether they are willing to risk devaluing their product. There is always a point of diminishing return when it comes to discounting. If a product is always on sale, why would anyone ever buy it at full retail? Unless they are desperate, most consumers will simply wait until the next coupon mailer or this week’s “sale of the century.”
There’s also the issue of selling below cost. If costs are higher than the selling price, “making it up on volume” is a dubious strategy. As I understand it, sites like Groupon essentially require retailers to discount their products by 75 percent. The consumer gets 50 percent off. The retailer and Groupon split the other 50 percent. That leaves the retailer with 25 cents on the dollar.
So what’s the problem? It’s just a temporary loss leader to stimulate trial. Nothing new or radical about that. Until it runs into that pesky old law of unintended consequences.
Let’s say all these new customers are just bargain hunters. They have no plans for return visits and don’t even fit in with the profile of the company’s regular customers. In fact, the influx of activity could upset the regulars and exceed the capacity of the organization to provide a positive experience for everyone. That’s seldom a good thing, and may be very costly.
But wait! There’s more. Never forget the nature of social media users. Many of them like to make their opinions known. That means reviews on sites like Yelp or Groupon itself. If those reviews are positive, great. If not… well, you get the picture.
There’s no doubt social buying sites have tremendous potential. For certain businesses, these sites can be a powerful new marketing tool. But as the old expression goes, “there are two sides to every coin.” So before you make the call, it would be good to know which is the winning side for your business.
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