Social Gifting: Helping, or Hurting Business?

By Nick Ruble May 01, 2012

It’s pretty safe to say that most stores want as much business as they can handle – and the customers certainly don’t mind getting free merchandise or huge discounts either. In the age of the Internet, those coupons that come in the mail every Sunday aren’t the only means of saving a couple bucks at the market anymore – there are sites like Groupon.

Groupon serves as a sort of middleman between select retailers and customers, providing the customer with a generous discount, and in turn, driving tons of business to the retailers. The idea is to encourage the customers to check out a business that they might not otherwise visit – potentially turning them into one of the ‘regulars,’ which means a huge boost for the business. Groupon will then get a cut of the revenue in which they helped to rope in, thus everyone’s happy – right?

Well, maybe not everyone.

There’s been somewhat of an invasion of like-minded services popping up all over the Web, or more specifically, all over Facebook. Social gifting is strikingly similar to Groupon but more focused on getting the user’s own friends to encourage them to check out that new store down the road.

No, your friends haven’t been brainwashed into working for social gifting firms – the concept is to encourage people to get together and send mini-gift cards and other perks to their peers.

It seems like a pretty lucrative business plan, but not every business is benefitting from it. The gift cards and coupons are being handed out with intentions that the customer will shop around and spend more money than what’s on that measly $10 gift card. Nothing about that sounds very out of line – it seems like that’s exactly what it would encourage; more business.

As it turns out, the overwhelming majority of recipients make sure not to go a penny over the budget of the gift cards – which also isn’t very out of line or unreasonable either.

The major flaw in this system is with the mom and pop stores. Sure, everyone wants a lot of business – how else would they make money? But when 500 people come swarming into a business that’s only prepared to deal with 10 or 15 customers at a time, things can get messy.

Just ask Rachel Brown – her bakery was nearly run into the ground by an overwhelming influx of orders that were brought on by Groupon. She’d hoped to take on a healthy boost in revenue and maybe welcome in some new customers through the deal, but all she got was a debt of nearly $20,000 – the businesses yearly earnings.

Ironically, social gifting doesn’t really help out the businesses or the middleman as much as it does the consumer. The real winner is ultimately the gifting firm, followed closely by the recipient of the perks. It’s definitely not going to be putting Wal Mart or McDonalds out of business any time soon, but it has the potential to deal an unintentional blow to the smaller businesses.

Edited by Juliana Kenny

TechZone360 Contributing Writer

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