How Social Media will disrupt the traditional “Retailing” Model

Groupon, the “localized” deal of the day website has witnessed phenomenal growth in the last one year. Groupon’s success underlines the power of Social Media which makes it so easy to connect with other like minded people over the internet. (for more on Groupon’s success, watch this excellent CNNMoney Video)

Even retailing giant Walmart seems to be taking note of Groupon’s success and has launched a Facebook deals app called CrowdSaver, which unlocks a discount once enough consumers opt in (for more, read this AdAge article titled Walmart Takes a Page From Groupon in Facebook Promotion). I think this is a step in the right direction for Walmart and other retailers should (and will) follow suit. [pullquote]  Traditional retailing involves buying in bulk from the manufacturer (or distributor) and selling one piece at a time for a mark-up. This model has served both the manufacturer and retailer well – so far. This is about to change, thanks to Social Media.[/pullquote]

Traditional retailing involves buying in bulk from the manufacturer (or distributor) and selling one piece at a time for a mark-up. This model has served both the manufacturer and retailer well – so far. This is about to change, thanks to Social Media.

Customers are increasingly going to leverage power of Social Networks to connect with other like minded customers who want to buy a particular product or service. Collectively, this group of customers is a force to reckon with and manufacturers (or distributors) can directly sell to them breaking the hegemony of major retail chain stores. To counter this, retailers can leverage the power of Social Networks and offer deeply discounted prices to customers if a certain volume of sales is achieved – what Walmart seems to have done. [pullquote] Customers are increasingly going to leverage power of Social Networks to connect with other like minded customers who want to buy a particular product or service. [/pullquote]

Whichever way you look at it, Social Media will disrupt the “traditional” retailing model for good. And customers are going to be winner as they can exercise group buying power and buy products/services at lower prices or at better terms. If retailers don’t innovate and leverage Social Networks, their margins will be under increasing pressure and they will lose customers to those who leverage the effectiveness of Social Networks and offer great deals.

What do you think? Do you agree that Social Media will disrupt the traditional “Retailing” Model? Please do share your thoughts:

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11 responses to “How Social Media will disrupt the traditional “Retailing” Model

  1. Interesting, but how? Groupon and the like still relies on retailer-initiated offers. How do you see consumers linking together to buy merchandise? Still the shopping cart is the most convenient.

    • Thanks @Market_8 for your comment. Greatly appreciated!

      It is true that Groupon and the like still rely on retailer-initiated offers. But it is only a matter of time before manufacturers/distributors start offering deeply discounted prices on sites like Groupon once volumes pickup – bypassing Retailers altogether.

      Thanks again for your comment,

      Harish Kotadia, Ph.D.

  2. It isn’t that social media will disrupt retailing models rather it is the innovators who create new business models. New models that leverage assets, reduce friction and enable value exchanges faster than ever before is the new Social Value Index quickly emerging.

    • Thanks @JDeragon for visiting my blog and for your comment.

      I agree that innovators will create new business models to leverage the reach and effectiveness of Social Media channels. But it is important to note that Social Networking technology will drive this innovative that will disrupt the traditional retailing model. That is what I have tried to highlight in my post.

      Thanks again for your comment,

      Harish Kotadia, Ph.D.

  3. Groupon introduces a new online community model – it replaces the people-to-people connections by people-to-hubs of value connections.

    This effectively proves that “strangers” can be brought together to form part of a mutually beneficial community; and then the connections disbanded as soon as the value is realized. In a retail scenario, this design is more natural for a retailer , as it it is lean on personal data – and instead focuses on transactional business – it is the beginning of what true Enterprise 2.0 should be.

    • Thanks Eric for visiting my blog and for your comment. I agree with you that Groupon’s model brings together “strangers” to form part of a mutually beneficial community; and then the connections disbanded as soon as the value is realized.

      We are likely to see this happen more and more, and retailers have to leverage this to their advantage – what Walmart is trying to do, else this will work against them.

      Thanks again for your comment,

      Harish Kotadia, Ph.D.
      @HKotadia

    • Thanks Eric for visiting my blog and for your comment. I agree with you that Groupon’s model brings together “strangers” to form part of a mutually beneficial community; and then the connections disbanded as soon as the value is realized.

      We are likely to see this happen more and more, and retailers have to leverage this to their advantage – what Walmart is trying to do, else this will work against them.

      Thanks again for your comment,

      Harish Kotadia, Ph.D.
      @HKotadia

  4. Pingback: How Social Media will disrupt the traditional “Retailing” Model – Retail Power Tools

  5. Nice post Harish, I have a few observations.

    Groupon, while being the startup to focus on, is now starting to lose it’s shine. And let’s not forget what it really is, a large list of email addresses with a basic call to action. If you want this offer then buy it, once a lot of other people do then you can have it. And don’t forget that these are Groupon customers, not the retailer’s customers at the end of the day.

    No social media there.

    While retailers use social media to gain sentiment on their customers (and customers to be) there’s still one fact, the likes of Facebook are for person to person communication and to suddenly blur that advertising can have a negative effect. Retailers I know that have posted offers on social media sites have had very little comeback, many have lots of “likes” but no actual foot over the door and money changing hands.

    The retailers that I’ve spoken to the same thing: how do we know who our top performing customers are and how do we encourage the others?

    The 80/20 still rules for them and making profit on the bottom line is now more important than ever. Groupon doesn’t do that for all of them and as we know some have publicly acknowledged that. Posie’s Cafe being the obvious name.

    I was under pressure from my peers to “do a Groupon” but haven’t done it until I’ve found a way that better helps the retailer. http://jasebell.posterous.com/2010/08/26/i-was-about-to-do-a-groupon-type-thing-but

    Social media will engage the conversation but it won’t make the sale. And right now it’s the sale that retailers need more than ever. In the UK the next 12 months is going to be very rocky for retail.

    Kind regards
    Jase Bell
    Founder of Datasentiment and uVoucher.

    • Thanks @jasebell for visiting my blog and for your insightful comment. Much appreciated.

      Yes, I agree that competitors are fast catching up with Groupon with better models and “cheaper” options for marketers. Social media comes into picture for sharing deal of the day with friends and followers over Facebook and Twitter. If it were not for Social Media and only for email, I don’t think Groupon could have grown so fast and in so many markets so easily.

      Regarding Social Media buzz not getting translated into footfall, well, retailers have to target their “local” market like what Groupon is doing. Engage those customers and offer them good deals to draw them into the door. Or better still, get Social Media profiles of existing customers and engage them, make them share deals etc.. with their “local” friends on Facebook and Twitter. Unless this is done, it wouldn’t help if some one in London sees a good deal from a Burger shop or a pub in New York in their Twitter of Facebook stream.

      Yes, 80/20 rule is more important than ever and few (or should I say many) marketers don’t make enough money in the first deal they offer on Groupon to cover all their cost and earn a decent profit. But the hope is that even if they convince a fraction of those who have opted for the deal to return for purchase a second time, it is well worth it.

      Social Media helps in engaging customers for building trust and loyalty, and engaged and loyal customers become advocates for a brand – they are the most valuable assets for any marketer, especially in this Social Age, where they can influence opinion of others and make the cash register ring – Groupon or not!

      Thanks again for your comment, much appreciated!

      Harish Kotadia, Ph.D.

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