The Truth about Social Commerce
The Truth about Social Commerce
  • 안석현기자
  • 승인 2011.11.07 21:55
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These days, many people sit in front of their computer to shop on social commerce sites whenever they have spare time. This is because social commerce allows consumers to purchase products at greatly reduced prices. In addition, social commerce lets people deal with transactions for services such as restaurant reservations, performances, and pre-packaged foods from the comfort of their homes. However, some limitations and side effects to these services have come to light during this rapid market growth. Some of the situations that have come up place vendors, suppliers, and consumers at risk. In this article, the Observer will take a closer look at social commerce and also point out its advantages and limitations.

What is social commerce?
Social commerce is a form of e-commerce that makes use of social media and online media. There are four types of social commerce, but in Korea the only type available is group purchase. Social commerce follows the premise that if a certain number of people are gathered at a certain time they can buy items at a large discount. For example, if over 100 people are gathered to buy one product, they can buy it at up to a 50% discount because collectively they have increased purchasing power. Social commerce is also called social shopping because the people who want to purchase a product at a discount often use Social Network Services such as Twitter or Facebook in order to gather group purchasers.

Characteristics of social commerce
It is a new business model that consists of contracts between social commerce enterprises and merchandisers in service industries as well as between social commerce enterprises and consumers. Social commerce consists of online marketers that markets coupons of particular stores and sells them to consumers directly based on the contracts with those stores. Consumers only make contracts through these social commerce sites, so the consumers do not have a direct relationship with the seller.

The background of social commerce
Nowadays, due to the vitalization of smart phone supplies, Social Network Services have become increasingly essential to modern citizens. Based on this trend, members of SNS are increasing rapidly in foreign and domestic markets. By tapping into the power of SNS a new shopping paradigm has been created.
In the United States, the social commerce enterprise “Groupon” hit the jackpot through social commerce services that provided products at substantial discounts when enough buyers came together. From March 2010, many social commerce enterprises have appeared in Korea, such as “Wipon,” “Coupang,” “Ticket Monster,” and “We Make Price.”

Growth of social commerce
Social commerce enterprises have increased from 60 in August 2010 to 200 in late 2010. In 2011, that number increased to 800. The sales generated by social commerce are expected to grow by 6 to 10 times from 50 billion won in 2010 to 300 to 500 billion in 2011. Currently, social commerce mainly deals with concerts, restaurants, cafes, and beauty-related products. However, markets are beginning to extend to include various products and services from leisure to fashion and electronics. In August 2011, companies like "Coupang," "Ticket Monster," and "We make Price" in Korea, had 920,000 daily visitors on average. A satisfaction survey asked 1,000 people about their social commerce transactions. 59.6% or six out of 10 people in their twenties answered that they bought products or coupons through social commerce sites. 48.6% of people in their thirties made use of these sites, and only 26.5% of people in their forties used them.

The reasons people use social commerce

Consumers use social commerce because they can buy the same products or services at a 50% to 90% discount compared to retail. According to a recent survey, 84.4% of 1,000 respondents who made use of social commerce stated that they were satisfied with their experience and 91.3% of those positive responses were made primarily due to the low prices.

Interview with Na-Yung Kwon, social commerce user
Q) How often do you use social commerce?
A) I use it whenever I take time and think about what I want to buy.
Q) What is good about social commerce?
A) It is good because I can buy products at cheaper prices and there are many good restaurants and interesting events that are affiliated with social commerce. I got tickets to the National Geographic Photo Exhibition through social commerce.
Q) What are some bad points of social commerce?
A) I have never experienced significant difficulties personally, but I heard that some people went to restaurants that were affiliated with a social commerce site and the portion sizes of the discounted meals were small.
Q) How can we make better use of social commerce?
A) I use the “Olcoo” site which organizes all social commerce. On Olcoo, products that are discounted all come up in the same place. Olcoo is convenient because it is smart to check it frequently because different products are updated every day.Q) Have you ever made any impulse buys?
A) I am not usually an impulse shopper, but sometimes I feel the urge if there is a big discount for a good restaurant.

For marketers, social commerce is an effective promotional tool. It provides effective promotion opportunities to small business owners who are not able to pay high advertising costs even though they have good products or services. In addition, it allows restaurants to promote new menus or push non-popular menus items. It can also help attract young people due to the low prices.

The social commerce industry is not difficult to enter due to the low initial investment which allows just about anyone to easily start their own business. For example, the number one social commerce enterprise in Korea, Ticket Monster, was started up by five people who were in their twenties.

Problems of social commerce
Consumers who make use of social commerce can be taken advantage of if the products received are different from those posted on the internet or if they are fakes. On August 18th, 2011 the Korean Consumer Agency reported that 50% of 1,000 customers surveyed have been taken advantage of while internet shopping. Also, social commerce customers sometimes receive lower service standards than people who bought the service at the original price.
Existing social commerce operators called themselves “telemarketing brokers” and gave notice that merchandise and services could not be refunded after the expiration date of the coupons which were posted on ad pages, in clauses, and in payment pop-ups. Refund-related statements for products and services have accounted for 46% of E-trade disputes so far in 2011. In May 2011, the Fair Trade Commission changed the status of social commerce enterprises from telemarketing brokers to telemarketers. Therefore, customers are able to get refunds within seven days even if they bought the product through social commerce.
In the first half of 2011, there were 172 consumer relief complaints related to social commerce and that number is increasing every month. The most frequent cases of complaints are as follows: meal and beverage coupon dissatisfaction 20.9%, clothing and jewelry 11%. 36% of all complaints deal with discrepancies between advertised merchandise and merchandise that is actually delivered. Miscellaneous complaints account for 23.2%, and cancellation of contracts accounts for 13.3%.

In the case of restaurants that make use of social commerce most must provide services and products at half price to customers and spend 10 to 50% of profits in promotional fees to the participating social commerce enterprise. Therefore, it is difficult for marketers to make a profit.

Almost all social commerce enterprises including the well established ones cannot get out of the red due to the advertising war being waged to occupy the market. Top enterprises such as Ticket Monster, Coupang, and We Make Price advertise on TV at a cost of about 10 million won per second. In addition, they advertise extensively with online banner ads, on the side of buses, and in subway cars. There is also a problem with consumers who cannot buy products with their coupons because the social commerce enterprise issued more coupons than the marketers have in stock.

Ways to reduce risk while using social commerce
Consumers have to check to make sure that the social commerce enterprise and service supply enterprise are responsible providers. First, consumers have to check information such as telemarketers reports and registration of entrepreneur numbers. Second, they should make sure that the customer helpline is well run. Third, it is necessary to check the usual menus and prices of service providers. In addition, customers have to examine the fine print of products and agreements carefully. Customers must clearly understand the refund policies and check the expiration of the coupons. The customer must also check product information such as product guides, conditions for purchasing, use instructions, and product warnings. Customers must also be aware that it is a violation of the law for marketers to have a no-refund policy. Customers need to understand that they can return coupons purchased through social commerce within seven days regardless of reason.
Consumers should not engage in impulse buying. The average discount rate on social commerce sites is more than 50%, and there are many other benefits because the competition is cutthroat. Social commerce sites often exaggerate their advertised discount range by raising undiscounted prices higher than actual prices. Therefore, consumers should compare the actual retail prices of any advertised product.
If you suffer a loss due to social commerce, you should file a report at the Consumer Counseling Center (1372) or another related department or organization. You will be able to receive help such as quick refunds by following simple procedures. Merchants and service providers should consider whether they can deal with the large discount rates, whether they can serve a large volume of customers within a certain period of time, and how customers will make use of the products and services in the future.
Social commerce enterprises should pay attention to consumer protection, and controls dealing with violations of social commerce are also needed.

Social commerce has risen rapidly as a new business model which provides products and services at cheap prices. It also helps merchants market their products and services. However, as social commerce is still quite new, there are still many uncertainties and limitations. To resolve these issues, social commerce enterprises need to create trust with the consumer above all else. This will enable social commerce to develop enduring relationships that will improve everyone’s ability to find quality products that fit our busy lifestyles at affordable prices.

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