The Homa Files

TakeAway: Despite the craze over sites like Groupon and LivingSocial, many companies are finding it difficult to maintain sustained growth after using the site.

New research shows that the buzz these sites generate can’t make up for products that do not deliver a good value.

So perhaps the 40% of companies that wouldn’t use Groupon again should reevaluate their offerings.

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Excerpted from Bloomberg Businessweek, “What Groupon and LivingSocial Cannot Offer,” January 25, 2011

Last month,Amazon invested $175 million in the number two online coupon site LivingSocial. True to form, Amazon is already using the platform to create enormous buzz: last week, they announced a coupon: $10 for a $20 Amazon gift certificate. Within hours, the offer generated massive interest, giving LivingSocial one of their biggest growth days and selling over $10 million in Amazon gift cards …

LivingSocial is not the first to create a compelling coupon offer. That honor goes to the market leader, Groupon. …Now, thousands of companies are jumping on the latest trend trying to generate buzz for their products.

Putting aside whether coupon sites are sustainable, all this begs the question of the value of buzz and being a first mover.

The costs are clearly high, but companies with products that tend to generate early buzz seem to do very well. At least that is the conventional wisdom. But a new study shows that no amount of buzz, excitement or first mover’s advantage will lead a product to sustained growth.

The study … tested whether early buzz could precipitate a product’s ultimate success. Using an online music test site, researchers tested whether music that was highly praised early on would be downloaded more than songs with less buzz. True to form, results from an initial study demonstrated that buzz and social influence generated early adoption and the more a song was discussed, reviewed and downloaded, the more people wanted the song. Success begets success.

But then the research team took that data and dissected it further. When they did, a surprising result emerged: while social influence can give a product an early advantage, that edge is typically not sustainable. “Social cues could convince you to take a look … but didn’t necessarily make you go in the store and buy something.” …

In business, we too often forget that what we are selling is value: we instead try to sell technology, or packaging, or just plain vaporware. To add value, your technology needs to be productized, and to do that you need to offer unique value to a customer. Without a valuable and unique product, viral marketing, social influence and buzz will help initially but will be of no lasting consequence.

No surprise, this is what many companies are finding on sites like Groupon and LivingSocial. There has been a large backlash by companies stating that these sites just don’t work: they cost a lot of money and the initial pop in sales dissipates moments later. A Rice University study found that upwards of 40% of companies who have used Groupon say they wouldn’t do so again. …

Edit by DMG

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This entry was posted on February 1, 2011 at 6:15 am and is filed under Internet Marketing - eCommerce -, Mktg - Buzz - Word of Mouth. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.