Image: Lluís Martínez-Ribes
In August 2007 I spent two weeks in China working on a retail project for household goods. I visited a lot of homes as well as a few shops in several cities. In one of these stores, I saw a sofa with a piece of paper on top. It was a public list for those interested in buying the sofa to jot down their personal data. If 10 people signed up indicating they were interested, the store would then sell that model to all of them at a heavily discounted price.
This was the first time I saw an example of we-commerce, albeit an analogue version.
Currently, the group shopping phenomenon is spreading around the world, though taking advantage of Internet instead of paper due to its ease.
What is ‘we-commerce’?
At the individual level, we-commerce is what many companies have been doing for decades: creating shopping groups to be able to negotiate better prices from their suppliers.
We-commerce is the name used to describe a particular way of selling products. It’s led by an aggregator which takes advantage of the bargaining power of group purchasing and the possibilities Internet provides. When a certain number of clients are strongly interested in a given item, the purchase can be made with a very advantageous discount.
How we-commerce works
There are three players in the sales process: interested individuals, companies selling their products, and the agent facilitating the relation between the previous two. The fundamental role of the latter is to aggregate demand so that a certain volume is created, thus allowing the seller to offer interesting price discounts.
In fact, the aggregator creates a ‘vertical distribution system’ as it is referred to in academia: ‘actors’ who are organised and related in such a way that they carry out beneficial commercial transactions for all.
Despite the fact that this bargaining power resides in the purchasers grouped together, the aggregator usually takes the initiative in organising the system. However, the potential customers indicate which products they want to buy through the group.
These items normally consist of high-priced goods which are only purchased sporadically. Examples include homes, large household appliances, stamp collections, etc. This model does not work with ordinary products. One company, tiketocio.es, tried to apply the model to perfumes in 2010 but it now sells them through conventional retailing.
Advantages and disadvantages for purchasers
In exchange for a highly reduced price, in general, interested purchasers are not sure when they will actually be able to carry out the purchase or even if it will occur as this depends on having enough purchasers. Another negative factor is that shoppers are often the ones who have to pay a commission to the agent organising the purchase.
To a certain extent, group purchasers also have to accept certain trade-offs, such as having fewer customisation options available.
For sellers, group purchases represent an important increase in their sales volume though at a notable price reduction. They also have to remunerate the aggregator, whether via commission or periodic payments. This sales model does not encourage brand loyalty, though short-term sales are high.
For aggregators, this model allows them to earn significant income since the other two parties are very interested in reaching an agreement. The weakest aspect of the model currently is that it is still in the early stages and lacks critical mass.
For all three, it is extremely important that all the purchasers who say they’re interested truly commit to carrying out the purchase if the appropriately-sized group is created. If this doesn’t occur, the transaction will not take place, and all those involved will, at a minimum, have wasted their time. In 1989, Bagnoli and Lipman, discussed this model’s theoretical foundation for the first time, arguing that this type of contract required certain guarantees.
What it isn’t
We shouldn’t confuse we-commerce with other business models that share some common traits.
Online outlets (e.g., vente-privee, letsbonus, groupon, privalia, buyvip, primeriti, yoox, net-a-porter, etc.) do not practice we-commerce. They offer products at reduced prices to registered customers that have agreed to be periodically informed about special deals, the latter normally lasting a very short time. In addition, the clients don’t choose the products to be sold; these appear and disappear based on what the companies selling them want to liquidate or promote. This type of outlet store does not need a minimum number of purchasers to carry out the sale.
Social media commerce, that is, sales organised via social networks (e.g., Facebook, Yahoo!, Google+, etc.), can be defined, according to Anthony Mayfield, as the use of social networks for their members to acquire products or services through the network, taking advantage of the highly influential recommendations provided by friends and acquaintances.
Thefancy.com is an example of a mixed social media and affiliation commerce model. Some consider this site to be the Pinterest of e-commerce. Each time someone buys something through a link someone else has shared, the latter receives a commission.
Though it is a type of group purchase, we-commerce is not about sharing ownership or use of a given product. The latter model, in which usage takes precedence over ownership, is growing. Clear examples include firms such as Zipcar.com, through which members share cars, and myluxury.biz, which rents luxury purses by the day or week.
A fairly similar model is cloud housing (vidamesfacil.com/cloudhousing) which manages buildings, applying economically and environmentally sustainable principles and sharing or purchasing supplies together. Another example of a company with strong social and environmental values is London’s The people’s supermarket, though it is still not online. It has been partnering with Spar since 2012.
On the other hand, there are also examples of firms who use the term ‘we-commerce’ though they are, in fact, traditional retailing. This is the case with Join2buy, whose name, appearance and introduction seem to be that of a we-commerce site though it only offers a limited number of products for which it believes there will be strong demand: it simply buys them from suppliers at a low price and sells them cheaply.
We-commerce has a strong social foundation which is actually based on biology. As mammals, we feel comfortable in groups. We like to influence others and be influenced by them. This tendency is heightened even further through Internet where we not only receive content but also produce and share it. Social networks have become the greatest worldwide revolution in the last few years with tremendous impact.
The theoretical basis of this influence is the so-called ‘network effect’ which Robert Metcalfe applied to Internet in 1980: the more people are included in a network, the more everyone benefits, obtaining positive externalities.
In this context, we-commerce unleashes individuals’ latent potential when they become organised. Together they can achieve things which they couldn’t on their own. In fact, shopping is a human activity with a high degree of social content and repercussion.
One of the primary success factors of any we-commerce firm is very likely generating trust to quickly become important and reach the so-called “tipping point” (Malcolm Gladwell, 2000): the point at which it becomes the reference and, as a result, achieves critical mass in the number of consumers.
We-commerce has novel traits, but it also has a paradoxical component in terms of the commercialisation strategy used.
Several we-commerce companies describe their sales model as ‘direct purchase’. However, the majority of aggregators that group interested buyers together neither sell nor re-sell products. By contrast, they expand the sales channel by acting as intermediaries between the purchaser and seller.
In a society which often claims that it wants to ‘eliminate the middleman,’ this example demonstrates that some clichés are poorly formulated.
Two final thoughts
First: Regardless of whether we call them individuals, purchasers, shoppers, consumers, citizens or, better still, people, they will become increasingly aware of their power and their social and commercial influence. The examples cited above are nothing more than the seed of what’s to come.
Second: Many low-cost products and repeat purchases (e.g., detergents, cheese, bread, etc.) cannot be sold via the we-commerce model. However, I can foresee families soon putting a price on their loyalty. It will no longer be a question of ‘how many points do I get for every 10 euros I spend at the supermarket?’ but, rather, ‘What rebate will you give me if I spend 90% of my annual family budget at your store?’. The metric for this already exists and can be calculated: “customer lifetime value”.
Source: Código 84, nº 168.