The downfall of social commerce

E-COMMERCE   GROUP BUYING   TRAVELZOO

Hong Kong - Social commerce was once hailed as the next big thing in e-commerce, but retailers such as J.C. Penney, Gap and Nordstrom have shut their stores on Facebook after generating few sales.

Group buying may have hit rock-bottom when Groupon put up a US$1,000 deal in June in which Groupon itself would name your baby "Clembough".

In China, industry watchdog tuan800.com said in April that more than 2,000 group buying sites had closed in the past year - that was half of the China market - because of consumer complaints about fraud, fake products and price hikes.

While consumers may still see value in a good deal, some marketers have started to question the long-term benefits of deep discounts and how group buying fits into their marketing plans.

Jason Yap, CEO of Travelzoo Asia Pacific, says the sustainability of the group buying model is determined by the ability to satisfy the needs for both businesses and consumers and in providing real value.

While consumers are more eager to look for information and find bargains online, they are also more educated and internet-savvy than ever before," Yap says.

"It will prove difficult for companies to succeed if they are not delivering the promised services to their customers."

In the travel industry, in particular, Yap says consumers gravitate toward the highest quality and the most cost-effective deals.

To create a long-term relationship, he says working with operators with proven track records in reaching quality subscribers is the key.

"These are subscribers who will likely spend beyond the voucher amount and become repeat customers," he says.

"It is important the operator is professional in planning and working in partnership with marketers to create significant opportunities during need periods."

With social media, Yap says the platform does empower consumers to make smarter and faster choices.

"The positive feedback on a popular social media platform has an aggregating effect. It has a significant influence on travellers' preferences."

So the question is - why hasn't social commerce worked?

Andrew Stockwell, vice-president of marketing and strategy in Asia Pacific for Forrester Research, says it is because it defies the reason why consumers are on social media in the first place.

"People are there to connect, not to shop," he says.

Amazon revolutionised online shopping by crunching lots of customer and purchase data to provide relevant and personalised recommendations.

In the same vein, Facebook's combination of data, analytics and payment should have fuelled e-commerce.

But Amazon set out to be an online shopping destination - Facebook didn't.

"It's a cheesy thing to say, but companies that put customers as their focus will thrive," Stockwell says.

Read the full story in Marketing Magazine Hong Kong July issue.

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