Full price is dying. Social is the perp.

March 25, 2011 by George Eberstadt

As discussed in a couple recent posts (one, two), it’s much harder to get people to share purchase-related information than other types of personal news and content.  And the type of sharing you can get people to do in bulk (“contextual sharing”) is more limited than the broadcast-to-all-your-friends type that most merchants dream about.

But there’s one big exception: discounts!  Discount offers and social are a perfect symbiosis. Access to deals is the #1 reason people fan brands on Facebook (driving brands to offer more deals to get more fans).  Deal-a-day services (Groupon, LivingSocial) and private sale sites (Gilt, Rue La La) owe much of their explosive growth to the eagerness with which members share their deals.  And new services like CureBit and SocialFeet have realized that even paying customers to share purchase news with their friends doesn’t work unless you also give those customers a discount offer to share with their friends at the same time.  In a nutshell: social networking is driving discounting to levels never seen before.

But how far can discounting strategies go before full-price has no meaning any more?  Discounting has always been used in a limited way to bring in new customers and as a price-discrimination tool.  (Clipping coupons is a pain, so only people who care more about the savings than their time did it.)  But those uses of discounting are only affordable to merchants when the bulk of sales remain at full price.  Also, most customers don’t mind paying full price if just a few people, for special reasons, got a discount; but no one wants to be the only jerk who paid full price when most others got a discount.  With too much discounting, the full-price-with-occasional-discount model breaks down, and everything has to be sold at a discount.  And then the discount price has to be raised to preserve margins, so the full-price price becomes a meaningless number no one would consider paying.  And that sort of price confusion is paralyzing to buyers.

Clearly, the discount tsunami is still coming in – no one knows where the high-water mark is going to be.  But in this environment, we think it’s more important than ever that merchants continue to explore tools that help them grow without compromising margins and not just get swept along in the discounting frenzy.

Why Social Commerce is so hard

February 2, 2011 by George Eberstadt

I was recently on a Social Commerce panel (photos here) for Social Media week hosted by Digitas in NYC.  (Thanks Beth McCabe, Noah Mallin, Jonathan Burg, and fellow panelists Matty de Castro of Facebook and Bob Tuttle of 8th Bridge!).  One of my fellow panelists put up a screen shot of the Levi’s Friends Store as an example of Social Commerce and provided an opening I couldn’t resist.

Look in the lower right: Levi’s has 2.9m Facebook fans.  That’s 2.9m people who have agreed to allow Levi’s to send them messages in Facebook.  Not bad!  Now look at the Original 501 Stonewash jeans.  450 people have liked this.  Only 450 people.  How many people do you think own these jeans?  And Levi’s Friend Store was Facebook’s poster-child ecommerce partner when they launched the Like button.  In fact, for several months, Levi’s entire online store was the Friends Store.  (Even now, the Friends Store is one of the main menu options.)  So it’s not like the feature was hidden.

Thank you Levi’s for providing such a clear illustration of the main challenge of Social Commerce.  What’s working well for Levi’s is leveraging Facebook to enable dialog between the brand and their customers.  That’s the 2.9m fans.  But that’s not Social Commerce, it’s Social Media Marketing.  Social Commerce is encouraging commerce-related conversation between customers.  That’s what the Like button next to the individual products is for.  That’s the 450 people who have Liked the 501 Stonewashed.  And that’s what’s not working.  (You can define the terms differently if you like – I don’t really want to provoke an argument about definitions; the distinction between customer-to-brand vs. customer-to-customer is what’s important.)

Why is it so much harder to get people to share product and purchase information with each other than it is to get them to accept marketing messages from a brand?  The biggest reason is this: the stigma against shilling has not disappeared just ’cause now we share on social networks.  Any time a statement can be (mis)interpreted as “trying to get your friends to buy something”, all sorts of alarms go off.  Not to mention all the other baggage that goes along with sharing on wealth-related topics.  (She can afford that?!  Is that the best he can afford?!)  Content sharing on social networks has been a runaway success.  But when the subject of the sharing is product/purchase/commerce, the sharing rate falls off a cliff.  (Acknowledging some exceptions: discount offers, especially deep ones, get shared.  And commerce objects of exceptional interest get shared – I’d argue that this is better understood as content sharing, tho.)

Does this mean that if you sell stuff, you should forget about trying to connect your shoppers and your customers with each other?  No way.  You can try the discount-offer and too-cool-not-to-share end-runs.  You can even go the full-on viral content route where your brand/product message is just a low-profile passenger.

Or you can try a radically different approach we call Contextual Sharing.  More on that in a later post.