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How Social Media will disrupt the traditional “Retailing” Model 

Groupon, the “localized” deal of the day website has witnessed phenomenal growth in the last one year. Groupon’s success underlines the power of Social Media which makes it so easy to connect with other like minded people over the internet. (for more on Groupon’s success, watch this excellent CNNMoney Video)

Even retailing giant Walmart seems to be taking note of Groupon’s success and has launched a Facebook deals app called CrowdSaver, which unlocks a discount once enough consumers opt in (for more, read this AdAge article titled Walmart Takes a Page From Groupon in Facebook Promotion). I think this is a step in the right direction for Walmart and other retailers should (and will) follow suit.

Traditional retailing involves buying in bulk from the manufacturer (or distributor) and selling one piece at a time for a mark-up. This model has served both the manufacturer and retailer well – so far. This is about to change, thanks to Social Media.

Customers are increasingly going to leverage power of Social Networks to connect with other like minded customers who want to buy a particular product or service. Collectively, this group of customers is a force to reckon with and manufacturers (or distributors) can directly sell to them breaking the hegemony of major retail chain stores. To counter this, retailers can leverage the power of Social Networks and offer deeply discounted prices to its customers if a certain volume of sales is achieved – what Walmart seems to have done.

Whichever way you look at it, Social Media will disrupt the “traditional” retailing model for good. And customers are going to be winner as they can exercise group buying power and buy products/services at lower prices or at better terms. If retailers don’t innovate and leverage Social Networks, their margins will be under increasing pressure and they will lose customers to those who leverage the effectiveness of Social Networks and offer great deals.

What do you think? Do you agree that Social Media will disrupt the traditional “Retailing” Model? Please do share your thoughts:

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6 Responses to How Social Media will disrupt the traditional “Retailing” Model

  1. Doug Stephens October 31, 2010 at 7:52 pm #

    Harish,
    I’m confident that your observations are correct. I put forth a very similar projection in my article Who Needs Retail Anyway which you can find here http://retailprophet.com/blog/?p=816

  2. Jeanie November 1, 2010 at 4:15 pm #

    I think it is a slippery slope and we may become more of a throwaway society. We already deal with angry customers who bought at a box store only to discover it’s no good or the warranty is not what they thought. Many of the manufacturer’s farm out customer service to call centers; if you buy from them directly you may have little to no help if there’s a problem. With better deals comes less service; do the math.

  3. Harish Kotadia, Ph.D. November 6, 2010 at 12:46 pm #

    Thanks for your comment and kind words:

    Harish Kotadia, Ph.D.
    http://hkotadia.com/

  4. Harish Kotadia, Ph.D. November 6, 2010 at 12:52 pm #

    Thanks for your comment. Much appreciated:

    I do not think it is a slippery slope provided Social Networking tools are used correctly and are backed up by good customer service and support.

    If customer support is bad to begin with, no tools or technology can help – and we need to fix customer support processes first rather than blaming tools/technology for poor service.

    Thanks again for your comment,

    Harish Kotadia, Ph.D.
    http://hkotadia.com/

  5. Mark Parker November 8, 2010 at 11:53 pm #

    Harish
    I agree with your basic proposition that social media will disrupt bricks and mortar retailing. Like you I’ve been pondering this issue and wrote about it a while ago.

    One point I disagree with you on though is the role of sites like Groupon will play or even this idea of group discounting.

    When I look at sites like Groupon I can’t help but feel it’s a race to the bottom. For companies that have a good product, good service, and a good team, Groupon simply represents a vote of no confidence in your company’s ability to compete on anything other than price.

    The other point I see with sites like Groupon and Walmart’s idea of group discounting is they will simply be a magnet for the most price conscious customer – so your chances of building loyalty would have to be close to zero.

    The more airtime that the bottom feeders like Groupon get, the more the mindset will develop that social media is simply there to promote discounts or price focused competition. Isn’t this totally the opposite of what we’ve been trying to achieve with social media?

    As Facebook grows into a parallel internet, company’s need to start thinking about how to define, execute, and measure campaigns and purchases that are fully contained with the Facebook eco-system – not simply using the tool to create brand awareness whilst trying to drag the “fan” into a bricks and mortar store or onto another site.

    Mark Parker
    Smart Selling
    http://www.smartselling.com

  6. Jeanie November 9, 2010 at 6:33 am #

    I think you missed my point.

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