The unspoken downside of social shopping

The unspoken downside of social shopping

Everyone, including me, loves a good deal. But as an advertising professor who studies how people are persuaded by commercial messages, I’m increasingly concerned about the downside of social shopping. Despite the fact that most of us know it isn’t always such a smart decision to purchase the deal, those discounted rates are difficult to simply ignore.

Take me. I confess that I have a couple of expired Groupons stashed away in my desk drawer. At the time of the purchase, six months seemed like more than enough time to enjoy brunch on a Sunday or to visit an antique market. However, things often get busy and a year passes by in a blink of an eye. I won’t be able to use the discounted rate anymore, but I still have to force myself to use the piece of paper that has some cash value, which can only be retrieved at a particular venue. When I bought those Groupons six months back, of course, I thought I urgently wanted to go. So did other daily deal shoppers as an estimate of 20% to 30% vouchers remain unredeemed before the promotion period ends.

My concern cuts against the mainstream. Popular consensus says shopping social is a win-win business because it allows the buyers to shop cheap and the businesses to reach new people. But shopping social means other people can become involved in your decision, and, as new research is beginning to show, shopping social can therefore have an unexpected cost. We have inadvertently entered a whole new era of Buyer Beware.

Because social shopping seems poised to stay, it’s up to the consumer to shop smart. Daily-deal sites are continuing to expand their businesses by selling more variety of goods in addition to the traditional prepaid coupons. Groupon recently acquired a flash sales fashion retailer to provide even more “great” deals. It has been revamping its website and adding features such as product search function and made its site easier for the users to navigate. In early February, Groupon launched a service that allows small businesses to post deals on their own, which will only increase both the number and scope of the deals.

Shoppers have already faced deal fatigue and some analysts, like Jody L. Rohlena, senior editor of ShopSmart, a shopping magazine from Consumer Reports, say the bloom is off the rose, as reported in Forbes as early as this past fall. Still others provide a list of tips to avoid the downsides of social shopping such as read the fine print carefully, do thorough price comparisons, and check your calendar to make sure you can use the deal before it expires. Here’s a tip that has not been discussed much, and should be: Avoid the herd mentality.

Avoiding the herd mentality means thinking—really thinking—before you buy. In addition to the percentage savings, both Groupon and LivingSocial show you how many people have already bought the deal. These percentages provide lure, sure, but they also afford us the opportunity to stop and interrogate motive. Imagine you’re looking at a deal that allows you to save over 50% at a restaurant. Are you making the decision to purchase the deal because of the dollar amount it saves you or because a number of other people have already purchased it?

When I posed this simple question to 96 adults who are regular online shoppers, the discount rate was considered to be much more important than the number of people. This is consistent with previous research that suggests consumers have the general perception that they will get better deals through such sites because the discount level typically ranges from 40% to more than 90%.

However, my research shows that people might actually be using the cue that they think is less influential: how many people bought the deal.

In an experiment I conducted last year, one group of people was told that five people bought a local restaurant deal and another group was told that 300 people bought the same deal. Presented with exactly the same scenario, the latter group had a higher purchasing intention than the former group.

As researchers are just beginning to understand how people respond to daily deal sites, more research is warranted in this area to explain the psychological process that made the number 300 more powerful than 5. Preliminary findings show that people are more confident about the quality of the product and feel that there is lower financial risk when more people have bought the deal.

But even without referring to psychology theories, we already know the pitfalls of the herd mentality. Herd shopping is nothing new. A colleague shares a story about a holiday shopping experience not so long ago, back when people used to shop only at brick-and-mortar stores. During the busiest times, a store representative would go around the store with a cart loaded with cheap scarves, which shoppers would then buy even though they weren’t on their list.

This story applies to the online world, with a twist. While people usually rush to deal sites for the upside of discounted pricing, the lesson here is that even something as simple as the number of buyers can change how we perceive the value of a deal.  And here’s the clincher: in this age of digital savvy, where social is the new front rack, we pretend not to be aware of the sway popularity holds.

Returning to my own findings, the information about the number of other people who have bought the deal has a more persuasive appeal than people think it actually does. Without your realization, you probably looked at how many people participated in the deal and gained more confidence about your purchase. This is the unspoken downside of deal sites that people are vulnerable to, and it can be a costly one. 

Other researchers are finding what I’m finding, too. A recent study conducted by Xitong Li at MIT Sloan School of Management and Lynn Wu, an assistant professor at the Wharton School, University of Pennsylvania provides similar insight. Li and Wu suggest that this herding effect is stronger for experience goods such as restaurants, spas, and other service related coupons—which, surprise, account for majority of Groupon deals.

So here’s a trick for this new era of Online Buyer Beware: 

The next time you search for something on deal-of-the-day sites, ask yourself if you would purchase it even if only a few people have bought the deal. If there’s any hesitation, you probably don’t need it.

Taking advantage of the collective power and jumping on the bandwagon can be a safe decision, if we can ensure we are being swayed by the bargain itself. But as we know from our own shopping experience, that’s not always the case. Our research findings are not just cautionary tales; they are sealing the deal.

Yeuseung Kim, PhD, is an Assistant Professor of Advertising and Public Relations at Chung-Ang University.