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SpirE-Journal 2012 Q2

Social gifting: The new buzz in internet shopping

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Social gifting: The new buzz in internet shopping

Social networks have integrated the world into one big family. With so many forms of personal interaction happening online, it was inevitable that gift-giving would go the same way. It now has. As with internet coupons, the social gifting phenomenon can be a powerful tool in the hands of the right marketer.

The genesis of social gifting

Social gifting refers to an individual or a group of people exchanging gifts via Facebook. This new platform is proving to be a boon to retailers, enabling them to offer what is effectively discounted prices to consumers without compromising their core retail pricing too much. This has also spawned an increasing number of social gifting companies who specialize in delivering services around this form of buying.

Social gifting was started as a means to drive sales to brick and mortar stores by offering discounts but without diluting their brand image. It has created a new market for retail stores across the globe. Many social gifting companies such as Wrapp, Cashstar, Socialgift, Groupcard Apps and DropGifts were set up to leverage this growing trend through partnerships with large retailers. They would help retailers to market their products on Facebook. The efforts of these firms have made social gifting a USD1 billion industry.

Popularizing social gifting

Retail companies have adopted different methods to execute social gifting campaigns. To draw more customers into their brick and mortar stores, some retailers distribute free gift cards on Facebook, to be spent at their stores. These cards allow Facebook users to send gifts to their friends, either individually or as a group. These gifts can be saved on the recipient’s mobile device, to be redeemed online or at the retailer’s stores. Retailers stand to benefit from the entire transaction, as there is little direct marketing cost incurred. A key benefit, of course, comes in the form of other transactions from the beneficiaries when they visit the retailer’s store to redeem their gift.

Social gifting through mobile devices

Social gifting applications are available on mobile devices as well. Retailers favour such mobile applications, as there is very little marketing cost incurred and customers usually end up buying more once they set foot in the store.

Karma is a mobile application available on both Android and iOS, allowing users to send gifts through mobile phones. The sender would have to pay for the gift once the recipient receives the gift. The recipient gets to choose a gift “that fits” (in the case of apparel), and even get it exchanged for something else. Letsgift is another example of such a mobile application.

Social gifting pioneers in the U.S.

Wrapp

Wrapp was the first start-up in the field of social gifting. It is a leading gift card network which allows customers to buy each other gift cards on Facebook from retailers who have partnered with Wrapp. These gift cards can be redeemed online or via iOS apps or Android. The Wrapp application is available on tablets, smart-phones and computers. It helps customers obtain free promotional gift cards from leading retailers.

Wrapp is in partnership with over 60 retailers in the U.K., Norway and Sweden. Some examples include H&M (Hennes & Mauritz) AB, Gap, Sephora and Fab. These retailers tap on Wrapp to reach out to potential customers in specific locations and age brackets.

The main reason for Wrapp’s success is its smart combination of three trends: gift cards, social networks and mobile shopping. Its key innovation? The fact that the sender only pays when the recipient redeems the gift.

Dropost

Another example of a social gifting service provider is Dropost. It is similar to Wrapp. The innovation it introduced, though, was to allow the customer to purchase a gift and drop it at a location for a friend to pick up the next time he or she is there.

Social gifting in emerging markets

The social gifting trend is slowly but surely infiltrating Asia and emerging markets, changing the way people shop and gift online.

The gifting culture is prevalent in many of emerging countries. In fact, in China and India, festive and social gifting is deeply entrenched culturally, and accounts for a significant part of the household expenditure of even poor families. Major social gifting companies are entering these markets to tap these cultural affinities.

Wrapp has chosen Taiwan as the first stop to introduce its unique social gifting service to Asian markets. Bruce Chen, Wrapp’s country manager based in Taipei, commented that Asian retailers can be assured of a conflict-free and long lasting relationship that is built on innovation and real value creation.

Badhai.in is India’s first social gifting company.

Inevitably, Asian rivals to the U.S. social gifting pioneers are springing up. Badhai.in is India’s first social gifting company. As with Wrapp and Dropost from the U.S., it allows recipients to choose what they want and reduces the possibility of receiving something he may not like. The Badhai voucher can be used in leading retail chains as well as on e-commerce sites. It also enables social or pooled gifting through Facebook and allows users to track special occasions.

Brazil is becoming a market of choice for social gifting. It is now Facebook’s second-biggest market after the U.S., and has seen a boom in smartphone users. As at August 2011, there were approximately 19 million smartphones in Brazil – about 1 for every ten Brazilians. Wrapp has been tapping the widely-noted Brazilian affinity for shopping and trying new things.

Social gifting: Benefits

Retailers

Social gifting benefits retailers to a large extent. Not only does it give them an opportunity to reach out to their targeted customers around the world, it also drives shopper traffic to their brick and mortar stores.

Consumers spend six times the value of the gift card when visiting the store, driving footfall traffic for the retailer at very low cost.

Moreover, with the help of social gifting companies like Wrapp, retailers are now able to promote their brands cheaply, as they are not charged until a transaction is made. Many retailers tend to give out free gift cards worth USD 5 to USD 15 on Facebook. But an average consumer ends up spending six times the value of the card during their visit to the store. In this way, the retailers drive footfall traffic at very low cost. Also, it is easier for retailers to establish their businesses’ online presence with the help of sites like Wrapp, Dropgifts, FriendFund or SocialGift.

Social network companies

Social gifting benefits social network companies as well. For instance, Facebook and Google would earn a part of the retailers’ social gifting revenue through advertisements on social networking sites.

Consumers

Consumers across the globe stand to gain from social gifting. Not only do social gifting applications help customers remember important days with the help of calendar prompts. They also provide flexibility in shopping – allowing the recipient to change a gift she does not like. Another benefit is that friends can send gift cards through their Facebook walls and invite other friends to contribute as well, pooling money for bigger gifts. The medium of Facebook is well-suited to help customers to rally more contributors for the gift.

Social gifting: Disadvantages

Social gifting is still a nascent concept and, as yet, does not please absolutely everyone. Examining the downsides provides useful insights on the dynamics of e-commerce via social media.

Retailers

Due to the perceived element of “getting something for free”, social gifting has been growing explosively, as did coupon sites in their heyday. Hence, the onus is on retailers to ensure that they have the capability to handle the influx or orders, or else risk losing customers. There is also no guarantee of customers revisiting the store as they may be on the look-out for better deals.

Consumers

As the buying process may involve gathering a group of people to pool money for a gift, there is always the possibility, or even the perception of a possibility, of compromising credit card information. Anecdotal evidence also suggests that some consumers dislike the social gifting practice of appealing for contributions to a shared gift as being a commercially-driven intrusion on their freedom of choice.

Groupon vs. Wrapp

In 2011, Groupon made waves by providing free online deals to customers from various retailers. It rode on the euphoria around “getting something for free.”

Groupon brought new business to many retailers. But some saw a decrease in online ratings due to these deals, while other retailers did not see the hoped-for repeat business materialize. There was also a backlash from some customers who were on the receiving end of too much spam from retailers and the Groupon site itself. In some instances, businesses lost money from Groupon deals. For instance, a bakery lost USD 20,000 from a Groupon deal when the shop did not plan for the surge in customers and had to hire extra help to manage the increased demand.

Social gifting, on the contrary, does not place pressure on businesses in the same way. The broad idea of Wrapp’s marketing scheme was attained from Groupon. However, Wrapp does not charge the retailer unless the transaction has been completed.

Conclusion

It is early days yet for the social gifting trend in emerging markets. It is clear that gifting is a deeply rooted cultural practice in many emerging countries. The potential is there for social gifting to leverage this by riding on the increasing penetration of social media.

Social gifting is likely to be a hit in countries which send large numbers of migrant workers abroad.

Gifting is likely to take off in countries with high rates of internet and social media (particularly Facebook) penetration. It is likely to be a hit in countries which send large numbers of migrant workers abroad – such as various South Asian countries, the Philippines, China and Myanmar. Social gifting eliminates the cost and hassle of sending a physical gift across national borders. It is perfectly feasible, given the rising penetration of mobile phones among migrant workers.

Social gifting will also ride on the trend of organized retailers gaining share from unorganized “mom-and-pop” retail shops. This is because social gifting allows retail chains to promote footfall traffic cheaply.

What is more, the cultural practice of gifting in countries like China and India is often used to signal the status of the giver. Branded retailers may leverage this phenomenon to great effect in Asia.

However the future will hinge on how retailers execute social gifting initiatives. If there is too little flexibility, or the values of free gift cards are too small, social gifting could get a bad name before it really becomes widespread. It is also likely that Asian internet firms like Badhai.in and China’s Taobao (the world’s largest online retailer by revenue) will develop new social gifting products and concepts, giving the U.S. pioneers a run for their money.

Retailers and vendors in Asia will have to choose between the risk of diving into social gifting too early and the risk of not moving in fast enough, losing first mover advantage. They will have to make this choice in internet time.

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