Customer 2.0
In a world full of social networks, customers have more power than ever before—and they are exercising it in innovative ways
By Danny Bradbury
February 25, 2011
February 25, 2011
Shopping has come a long way since the 1930s. Cohen Brothers fans will remember the scene in O Brother Where Art Thou in which Ulysses Everett McGill tries to order a part for his Ford automobile (which will take two weeks to arrive) and a tub of Dapper Dan pomade. Alas, there was no Dapper Dan to be had. The stony-faced shopkeeper carried Fop, instead.
“I don’t want Fop, goddamn it! I’m a Dapper Dan man!” said an incensed McGill.
“Watch your language, young feller, this is a public market,” the shopkeeper replied. “Now, if you want Dapper Dan, I can order it for you, have it in a couple of weeks.”
“Well, ain’t this place a geographical oddity?” said McGill. “Two weeks from everywhere!”
These days, retailers with a similar attitude wither on the vine. Global supply chains enable customers to get what they want, when they want it. And if vendors don’t play ball, then the Internet provides useful leverage. Shopping is merging with social networking, providing customers with an unprecedented level of power, both in terms of spending and in the ability to voice their opinions.
In March 2010, Forrester Research estimated six per cent of the money spent on consumer goods in the U.S. in 2009 was spent online. That will rise to eight per cent in 2014, an impressive figure given the commercial Web is only 15 years old. But it is dwarfed by the percentage of purchases that are informed by online research, even if they are eventually made in a physical store. Online and Web-influenced offline sales combined in 2009 accounted for 42 per cent of total retail sales, with research predicting that will grow to 53 per cent by 2014.
Flash sales
There are several different social networking systems for modern shoppers. One of the most promising is the flash sales model, which gives customers significant discounts through group purchasing agreements.
Groupon, a leader in this field, partners with businesses to offer aggressive discounts. The catch: the deals only activate if enough customers participate. Groupon publishes the deals, which range from cheap restaurant meals to discounted flowers and museum tours. Interested customers sign up to a deal and provide their credit card details. If enough customers sign up, they are sent the coupon.
One Block Off The Grid takes a more targeted approach to collective buying power. The U.S. company offers consumer discounts on photovoltaic solar panels in a bid to boost residential sales of the renewable technology.
“What we’re doing is solving inefficiencies in the sales chain,” said Dave Llorens, CEO and co-founder of One Block Off the Grid. “You suffer from massive customer acquisition costs in the solar industry. The reason [costs are] so big is that it’s a broken sales model.”
Fixing broken models
One of the biggest problems in solar technology is that users are uneducated. Not only do they not know much about the complex and intimidating technology underpinning solar panel systems, but multiple seasons of Holmes on Homes have helped to instill a healthy distrust of home contractors. People have no idea how much to pay, either for the product or the installation, and this combined with the economic downturn makes it difficult for solar panels to spread in the residential market.
One Block Off the Grid negotiates large group discounts with solar installation customers and receives referral fees from pre-vetted installers. It has facilitated five megawatts of sales in residential applications; comparatively, Canada had 95 megawatts of photovoltaic solar installed as of last year but that is across all market segments, including residential, industrial and utility applications. So it’s clearly a useful tool in helping to increase the volume of installed solar power, which, in turn, will help to reduce the cost of solar power to “grid parity,” or the point at which it will cost the same as fossil fuels.
The flash sale is not the only social networking model designed to help shoppers, however. Both Kaboodle and This Next facilitate product recommendations among users. Kaboodle describes itself as a “product discovery engine.” Launched in February 2006, the social network lets customers harvest information about products they see and like online using a Kaboodle button added to their browser. Kaboodle analyzes product pages and classifies products into categories such as cooking, books and music. Products that users like are added to their accounts and can also be inserted into dedicated wish lists hosted by Kaboodle and broadcast in the users’ newsfeeds.
Matt Edelman, CEO of This Next, a Kaboodle competitor, said “Our model is to engage people in conversations about the products that they love and recommend. By engaging individuals in those conversations, we help to influence the purchasing decisions of whoever discovers those products.”
Conversing with customers in new ways
Unlike the anonymous price-driven “social swarms” of sites like Groupon, he said social networks in which identified users share their likes and dislikes offer a richer experience, which will dramatically accelerate the premise advanced 10 years ago in Malcolm Gladwell’s book The Tipping Point. Gladwell argued social influencers known as mavens have the ability to disproportionately influence large numbers of people. Channelling products and services through these mavens could have a profound effect on a market, and accelerate a product toward mass adoption.
“Doing it online, a maven’s reach becomes broader,” Edelman said. However, there is a downside to this. Because it is easier to become a maven, there are more of them, which makes it harder to promote a brand effectively via this channel. “The polarity of influencers becomes smaller, they become diluted. That means brands have to work harder. It’s the online equivalent of a department store moving into a mall with boutiques.”
This Next makes money from affiliate deals, in which products recommended by its customers are purchased via links from This Next’s site. “E-commerce companies have affiliate programs for people who send qualified leads and for people that send them completed transactions. Commissions are based on criteria such as the size of the sale,” Edelman said.
Although a large percentage of products recommended on the site don’t operate an affiliate program, and therefore don’t generate revenues when purchased via This Next links, the ubiquity of recommended products generates new members and increases traffic volumes, meaning that the number of revenue-generating deals increases as the number of general product recommendations grows.
A playful approach
In the absence of group discount features, many social network shopping sites rely on user-generated content tools to increase market share. For example, Kaboodle’s Styleboard is an online collage-building tool that can be used to assemble products that describe a user’s style.
These features can also extend to gaming, as social networking, social games and shopping combine. “We’re in a popular Facebook social game, where you get to build solar panels and then there’s a link underneath offering you the chance to install networks in real life,” Llorens said. Social City, the game in question, is operated by Playdom. At the time of writing, the company was in acquisition talks with Disney, which was reportedly looking at a purchase price of more than $500 million. Clearly, the combination of social gaming, shopping and social networking is becoming big business.
What’s next for the concept of social shopping? Flash sales and recommendation sharing may only be the start, if these sites can gain enough trust to begin linking with other services that help users manage their lives. It’s not unrealistic, for example, to imagine a social shopping site connecting with a fitness tracking site (such as dailyburn.com). Users’ fitness goals could be used to filter product recommendations from friends to highlight related products such as running shoes, diet supplements or iPhone apps.
Money management services are another potentially fruitful vector for social shopping. “We were surprised to learn that some people use Blippy to keep tabs on their spending,” said Philip Kaplan, co-founder and president of the social shopping network that launched last December.
Privacy problems
Blippy users connect credit card and e-commerce accounts to the service so they can share information about their purchases with their friends. “They tell us that browsing purchases on Blippy is much more interesting than looking at a boring credit card statement.”
However, these opportunities also raise privacy concerns. Facebook’s Beacon, initially launched as an opt-out service, worked with third-party vendors who shared customer purchase information with the social networking site. It caused a privacy row that forced Facebook to apologize and change the service to an opt-in model. Eventually, it canned Beacon altogether.
That said, both retailers and customers could benefit from data-sharing opportunities, said Geke Ludden, a researcher at consulting firm Novay. “Customers recommend things online, but that’s not always enough to come to purchase decisions,” Ludden said. “Retail could benefit from online suggestions and social networking tools.”
Examples of these benefits include the merging of mobile phone and retail environments. “You could go to shop with a phone that had recommendations on it and ask to see that item,” Ludden said. Another more exciting example is the use of “smart mirrors” in shops, particularly those selling clothing or glasses. Social shopping choices could be used to mix the virtual with the physical by superimposing an image of the product on a live image of the customer.
Slow on the uptake
However, retailers need to integrate more quickly. Many bricks-and-mortar stores are failing to perform even basic back-end integration between their point-of-sale systems and their e-commerce stores, leading to a mismatch between customers’ experiences online and their online purchasing history.
“With some of them, we’re constantly amazed that it’s still very distinct within their organization in terms of who’s handling the branding for bricks and mortar vs. online,” said Shari Gunn, chief marketing officer at Kaboodle. “There’s not a lot of information or asset sharing.”
Things are likely to change, however, argues This Next’s Edelman. People already talk about smart cities, he said, in which the underlying fabric of the urban environment is Internet-connected and services are enhanced by the ability to interact with each other. “There will start to be smart retail stores, with retailers that embrace technology in new ways,” he said.
And that will be an important step because, in an environment increasingly dominated by e-commerce and online shopping research, retailers cannot afford to turn their backs on social networks.
SIDEBAR
Web shopping numbers from Forrester Research
Illustration: Jason Raish
“I don’t want Fop, goddamn it! I’m a Dapper Dan man!” said an incensed McGill.
“Watch your language, young feller, this is a public market,” the shopkeeper replied. “Now, if you want Dapper Dan, I can order it for you, have it in a couple of weeks.”
“Well, ain’t this place a geographical oddity?” said McGill. “Two weeks from everywhere!”
These days, retailers with a similar attitude wither on the vine. Global supply chains enable customers to get what they want, when they want it. And if vendors don’t play ball, then the Internet provides useful leverage. Shopping is merging with social networking, providing customers with an unprecedented level of power, both in terms of spending and in the ability to voice their opinions.
In March 2010, Forrester Research estimated six per cent of the money spent on consumer goods in the U.S. in 2009 was spent online. That will rise to eight per cent in 2014, an impressive figure given the commercial Web is only 15 years old. But it is dwarfed by the percentage of purchases that are informed by online research, even if they are eventually made in a physical store. Online and Web-influenced offline sales combined in 2009 accounted for 42 per cent of total retail sales, with research predicting that will grow to 53 per cent by 2014.
Flash sales
There are several different social networking systems for modern shoppers. One of the most promising is the flash sales model, which gives customers significant discounts through group purchasing agreements.
Groupon, a leader in this field, partners with businesses to offer aggressive discounts. The catch: the deals only activate if enough customers participate. Groupon publishes the deals, which range from cheap restaurant meals to discounted flowers and museum tours. Interested customers sign up to a deal and provide their credit card details. If enough customers sign up, they are sent the coupon.
One Block Off The Grid takes a more targeted approach to collective buying power. The U.S. company offers consumer discounts on photovoltaic solar panels in a bid to boost residential sales of the renewable technology.
“What we’re doing is solving inefficiencies in the sales chain,” said Dave Llorens, CEO and co-founder of One Block Off the Grid. “You suffer from massive customer acquisition costs in the solar industry. The reason [costs are] so big is that it’s a broken sales model.”
Fixing broken models
One of the biggest problems in solar technology is that users are uneducated. Not only do they not know much about the complex and intimidating technology underpinning solar panel systems, but multiple seasons of Holmes on Homes have helped to instill a healthy distrust of home contractors. People have no idea how much to pay, either for the product or the installation, and this combined with the economic downturn makes it difficult for solar panels to spread in the residential market.
One Block Off the Grid negotiates large group discounts with solar installation customers and receives referral fees from pre-vetted installers. It has facilitated five megawatts of sales in residential applications; comparatively, Canada had 95 megawatts of photovoltaic solar installed as of last year but that is across all market segments, including residential, industrial and utility applications. So it’s clearly a useful tool in helping to increase the volume of installed solar power, which, in turn, will help to reduce the cost of solar power to “grid parity,” or the point at which it will cost the same as fossil fuels.
The flash sale is not the only social networking model designed to help shoppers, however. Both Kaboodle and This Next facilitate product recommendations among users. Kaboodle describes itself as a “product discovery engine.” Launched in February 2006, the social network lets customers harvest information about products they see and like online using a Kaboodle button added to their browser. Kaboodle analyzes product pages and classifies products into categories such as cooking, books and music. Products that users like are added to their accounts and can also be inserted into dedicated wish lists hosted by Kaboodle and broadcast in the users’ newsfeeds.
Matt Edelman, CEO of This Next, a Kaboodle competitor, said “Our model is to engage people in conversations about the products that they love and recommend. By engaging individuals in those conversations, we help to influence the purchasing decisions of whoever discovers those products.”
Conversing with customers in new ways
Unlike the anonymous price-driven “social swarms” of sites like Groupon, he said social networks in which identified users share their likes and dislikes offer a richer experience, which will dramatically accelerate the premise advanced 10 years ago in Malcolm Gladwell’s book The Tipping Point. Gladwell argued social influencers known as mavens have the ability to disproportionately influence large numbers of people. Channelling products and services through these mavens could have a profound effect on a market, and accelerate a product toward mass adoption.
“Doing it online, a maven’s reach becomes broader,” Edelman said. However, there is a downside to this. Because it is easier to become a maven, there are more of them, which makes it harder to promote a brand effectively via this channel. “The polarity of influencers becomes smaller, they become diluted. That means brands have to work harder. It’s the online equivalent of a department store moving into a mall with boutiques.”
This Next makes money from affiliate deals, in which products recommended by its customers are purchased via links from This Next’s site. “E-commerce companies have affiliate programs for people who send qualified leads and for people that send them completed transactions. Commissions are based on criteria such as the size of the sale,” Edelman said.
Although a large percentage of products recommended on the site don’t operate an affiliate program, and therefore don’t generate revenues when purchased via This Next links, the ubiquity of recommended products generates new members and increases traffic volumes, meaning that the number of revenue-generating deals increases as the number of general product recommendations grows.
A playful approach
In the absence of group discount features, many social network shopping sites rely on user-generated content tools to increase market share. For example, Kaboodle’s Styleboard is an online collage-building tool that can be used to assemble products that describe a user’s style.
These features can also extend to gaming, as social networking, social games and shopping combine. “We’re in a popular Facebook social game, where you get to build solar panels and then there’s a link underneath offering you the chance to install networks in real life,” Llorens said. Social City, the game in question, is operated by Playdom. At the time of writing, the company was in acquisition talks with Disney, which was reportedly looking at a purchase price of more than $500 million. Clearly, the combination of social gaming, shopping and social networking is becoming big business.
What’s next for the concept of social shopping? Flash sales and recommendation sharing may only be the start, if these sites can gain enough trust to begin linking with other services that help users manage their lives. It’s not unrealistic, for example, to imagine a social shopping site connecting with a fitness tracking site (such as dailyburn.com). Users’ fitness goals could be used to filter product recommendations from friends to highlight related products such as running shoes, diet supplements or iPhone apps.
Money management services are another potentially fruitful vector for social shopping. “We were surprised to learn that some people use Blippy to keep tabs on their spending,” said Philip Kaplan, co-founder and president of the social shopping network that launched last December.
Privacy problems
Blippy users connect credit card and e-commerce accounts to the service so they can share information about their purchases with their friends. “They tell us that browsing purchases on Blippy is much more interesting than looking at a boring credit card statement.”
However, these opportunities also raise privacy concerns. Facebook’s Beacon, initially launched as an opt-out service, worked with third-party vendors who shared customer purchase information with the social networking site. It caused a privacy row that forced Facebook to apologize and change the service to an opt-in model. Eventually, it canned Beacon altogether.
That said, both retailers and customers could benefit from data-sharing opportunities, said Geke Ludden, a researcher at consulting firm Novay. “Customers recommend things online, but that’s not always enough to come to purchase decisions,” Ludden said. “Retail could benefit from online suggestions and social networking tools.”
Examples of these benefits include the merging of mobile phone and retail environments. “You could go to shop with a phone that had recommendations on it and ask to see that item,” Ludden said. Another more exciting example is the use of “smart mirrors” in shops, particularly those selling clothing or glasses. Social shopping choices could be used to mix the virtual with the physical by superimposing an image of the product on a live image of the customer.
Slow on the uptake
However, retailers need to integrate more quickly. Many bricks-and-mortar stores are failing to perform even basic back-end integration between their point-of-sale systems and their e-commerce stores, leading to a mismatch between customers’ experiences online and their online purchasing history.
“With some of them, we’re constantly amazed that it’s still very distinct within their organization in terms of who’s handling the branding for bricks and mortar vs. online,” said Shari Gunn, chief marketing officer at Kaboodle. “There’s not a lot of information or asset sharing.”
Things are likely to change, however, argues This Next’s Edelman. People already talk about smart cities, he said, in which the underlying fabric of the urban environment is Internet-connected and services are enhanced by the ability to interact with each other. “There will start to be smart retail stores, with retailers that embrace technology in new ways,” he said.
And that will be an important step because, in an environment increasingly dominated by e-commerce and online shopping research, retailers cannot afford to turn their backs on social networks.
SIDEBAR
Web shopping numbers from Forrester Research
- 2009 six per cent of U.S. consumer spending was online
- 2014 that will rise to eight per cent
- 2009 42 per cent of total retail sales were online or Web-influenced
- 2014 that will rise to 53 per cent
Illustration: Jason Raish
