How Group Sales Sites Are Transforming Commerce

April 5, 2011

4:00 pm

The latest buzz phrase among those who discuss such things is “O2O” or “Offline to Online Commerce.” The most commonly referenced company in this category is undoubtedly Groupon, the group sale site with a pre-IPO valuation between $15 – 25 billion. Time will tell if this valuation is even close to accurate, but the bigger story is what it means for commerce, both online and offline, going forward.

It is my position that the success of Groupon and its closest rival, LivingSocial, is indicative of a much more fundamental shift in the way people participate in their own experiences and add value to the exchange of goods and services. The future of commerce is in creating platforms for people to participate. The more passive the creators of these platforms make the experience, the more people will opt-in to them.

Critics of the “Group Sale Industry” cite mass deflation and the diminishing of brand around the emerging consumer mentality towards the “fire sale”. This is a valid argument, and while I do not think that the vertical will sustain on discount alone over the long term, these critics and most everyone else seem to be missing the bigger picture. Mass discount is the lowest hanging fruit for first-movers like Groupon and their hundreds of clones. When Andrew Mason, CEO of Groupon, and his partners at Lightbank Ventures, an early stage VC firm based out of Chicago, figured out he could use his group action platform, then called “The Point” (which demo’d at the 8th Tech Cocktail Chicago mixer event) to drive people through the doors of small businesses and take his cut from the exchange (as opposed to chasing small business owners for a check), discount was simply the easiest motivator.

The easiest, but not the only motivator– not by a mile.

We are in the infancy of a transition to an experience-based or “creator economy”, and the incentives, or motivators, leveraged to drive offline business using the Internet are still to be determined. Technology clearly plays a role. The sheer mobility of network technologies is driving all kinds of interesting models, but I see it more as sociology over technology. The ingredients are (at least partially) as follows:

Passive Participation
People are adverse to committing to a first-time purchase for obvious reasons.  They don’t know you — are you trustworthy? Asking someone to opt-in to an email list or log in with their social media account(s) is a relatively passive exchange and therefore much easier to convert a “siteseer” to a customer.

Uncertainty
Uncertainty does not lie in risk, but surprise.  People are creatures of habit: they do the same old tasks, wear the same thing, eat the same old lunch at the same old place. They like the idea of someone else taking out the surprise element by curating the opportunity to break out of the mundane, even for a brief of time.

Opportunity
You don’t need to hard sell people. Just give them the opportunity to participate past an opt-in so they can add layers of value to their own experience.  The value we get from something is entirely perceived. Stoke that perception with an interesting, nuanced environment, and people will thank you for it.

Social Integration
The rise of the social gesture is the best thing to ever happen to a marketing budget.  As human beings, we are wired to share things about ourselves, particularly those things we think make us more interesting or increase our worth in the eyes of others. Look no further than the badges of the quickly growing location-based platform, Foursquare.

There are dozens of examples of social gestures disguised as viral marketing, and the open application interfaces of sites like Facebook and Twitter are opening the flood gates to the types of actions you can take and the exposure they will garner for their host platforms.

If your company is currently selling product(s) where you compete on price, you need to rethink your model to incorporate participation or risk perishing under the weight of location-relevant discount models. Available to people right now, and soon to become commonplace, you can enter any product you wish to buy into your phone and find the cheapest price in stock, closest to you right then. If you think most people aren’t going to go down the street to save a big chunk of money because your store has a better sign or more attractive cashiers, you are fooling yourself.

For entrepreneurs looking to create disruptive companies in this space, you need only to pick a vertical and identify two groups of people who benefit from doing business together. Build platforms that bridge the gap between these two that, until now, has been filled with advertising and marketing. Provide something measurable and derive your revenue from the exchange of commerce. You can still use the discount model, but it should be a secondary motivator. Focus on experience so discounts are not the reason people opt-in to your platform in the first place. Do that, and everybody wins.

At Cultura, for instance, we just launched WAAG, a platform that bridges online and offline professional networking and uses the above reference components and incentives (which we call SWAG). The perks you get just for showing up are a great way for brands to drive traffic to their stores and onto their websites without the stigma of a fire-sale.

Editor’s Note: This article was written by Jason Lorimer a Fellow Entrepreneur @CulturaHQ, advocating on behalf of those with the ambition to do more than just entertain ideas.  Jason and his team transform pre-internet business models into post-internet companies that scale.  When he is not working with partners to incubate their early stage ventures, he posts on his blog and loves kicking around ideas with other entrepreneurs from around the world.  When disconnected from the World Wide Web, Jason transforms into a music lover and amateur artist with several creative outlets including photography and painting. You can find Jason on Twitter: @CulturaHQ.

Photo courtesy of Ell Brown.

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Jason Lorimer is a strategist and fellow entrepreneur @Entrepreneurs (http://blog.culturahq.com/), where he works to advocate and execute on behalf of those with the ambition to do more than just entertain ideas. Jason and his team transform pre-internet business models into post-internet companies and prepare them to scale. Most recently Jason has set out to help cultivate industrial age cities into start up hubs. You can follow him @JasonLorimer

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