am Decker is chief marketing officer of Bazaarvoice, the market and technology leader in hosted social commerce applications that drive sales.
Social networks and social media (Facebook, Twitter, blogs, etc.) get a lot of attention in the business world, and with good reason – these sites have huge audiences who are spending more waking hours being social online than ever before. However, another major marketing movement may have a much larger impact on how products are made and companies are managed: discounted group buying sites.
Group buying sites attract businesses’ attention because these sites drive purchase behavior and results. However, it’s the bright light they shine on the importance of improving product and service quality that may have the more lasting effect on the marketplace. The group buying phenomenon is pushing businesses to improve their customer experience because making sure customers get real value from your brand is crucial to future success.
That’s why product reviews and group buying are a match made in Heaven.
How Group Buying Is Changing the Retail Game
A recent Forbes profile on Groupon reported that the group buying site’s sales have reached $500 million and that the company’s valuation is now $1.3 billion. Groupon will be the fastest company to reach $1 billion in sales, and they were profitable seven months after inception. In just three years, there are now 200 competitors to Groupon in the U.S. alone (over 500 internationally, says Forbes), and this number is growing — not to mention the likelihood that Facebook, Yelp, Foursquare, and niche publishing sites seem likely to get in on this model of selling. Clearly, group purchasing has resonated with the market.
This model is simple: a massive discount with urgency and strong merchandising. In Groupon’s case, a 50%+ discount will definitely drive sales. It’s important to realize, however, that they are unprofitable sales. According to the article, the retailer only gets half of their discounted deal, netting only up to 25% of the list price. No, the retailer doesn’t make money; however, they do get eyeballs on their company and product. The bet is this exposure will attract full price customers, offsetting the loss.
A couple things will happen with businesses that advertise on sites like Groupon. First, it will be difficult to get off the “crack” of sales from these deals. Groupon reports 97% of their retailers want to be featured again. And with 200 group buying sites, and more coming, many retailers may just make the rounds of discount after discount. This is a recipe for losing money and commoditizing your brand. Unless – and this is the big caveat –the retailer sees sustained profitable sales from returning customers.
Which brings us to the second and more salient point: Groupon reports 22% of customers who buy a deal return to buy full price. What’s the standard deviation on that curve? Discounted customers will only return if they had a great experience with the product or service, and if, at full price, the experience is still a great value. What percentage of companies will clear that high bar? Companies must become amazing to attract profitable customers back, or they may discount themselves out of business. And that’s where Groupon shines a light on the need for a superior customer experience.
Why Reviews Matter
How can companies reach that level of excellence? By actively listening to customers and striving to improve their products and services based on feedback. Based on the over 140 billion impressions of reviews and other user-generated content my company has served over the past five years on more than 950 retail and brand sites, we’ve seen how companies transform based on what customers say about their products. Studies show reviews will influence 83% of all holiday shoppers this year, and over half of the top retailers now have customer reviews on their products. But this isn’t just about shopping online. Retailers feature review content in catalogs, ads, store signage, mobile apps, and on social networks. Local review sites such as Yelp have exploded as popular communities for reviews of local businesses, and as a result, customer reviews and ratings come up near the top in most business or product search results.
Logically, reviews will become as important to manufacturers as they are to retailers. E-tailers have been working with reviews for years now, and they know the impact reviews have on sales. They use product reviews to decide what to put (and keep) on shelves, what to merchandise in their ads and on their home page, and what to buy next year. The voice of the customer influences what will be sold.
It follows that manufacturers must also to pay close attention to reviews, lest they disappoint customers, who then give poor feedback. Brands now listen to what customers are saying because product reviews are the most direct and actionable source for product decision-making. Similarly in retail, reviews inform manufacturer decisions on product development, design and marketing.
By listening to customers, both on the retail and manufacturing side, business participants in group discount buying sites can increase their chances of converting coupon customers into full-paying ones.
Conclusion
Reviews and discounted buying are two very powerful strategies that result in the same implication for business. Reviews drive sales, and can point to how to improve products. Discount buying sites drive sales, but require brands to become better to retain profitable customers. Both underscore that how you build your products and business matters most. Make your products exceptional. Make your service exceptional. This will enable success on group buying sites, and listening to customer feedback can help you get there.
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