Podcast: Kassenzone - Does social commerce work after all?
I was a recent guest at Alexander Graf's Kassenzone-Podcast. Talking Social Commerce, latest trends from Asia, previous failures and a glimpse into the future of connected mobile shopping.
Alexander Graf: "When Alex von Harsdorf explained the Groupify business model to me, I was quite sceptical. The many "Group Buying" approaches in the last 10 years have been too unsuccessful. The best-known example, letsbuyit.com, has become an integral part of Internet history, but not in the chapter on success models. All the more I was happy that Alex answered all my questions in the podcast and explained why Groupify is different and why it already works today. We also tested it live during the recording. He already has some customers and generates demonstrably higher sales with these customers, but you can see for yourself whether Social Shopping can experience a revival again with this solution, or whether it has to direct the Messenger world from China."
English transcription by courtesy of Alexander Graf:
Social Commerce with Alex von Harsdorf, founder of Groupify
From mechanical engineering studies to music business to the recommendation trade - it would be almost easier to describe what Alex von Harsdorf has not yet tried out. With Groupify, he now dares to tackle a topic that many of you have certainly already written off: shopping together in online shops. In the small podcasting studio of Kassenzone in Hamburg, he explains to his namesake today why he believes in the herd animal in humans and to what extent he takes comparable business models, which have already enjoyed great success in Asia, as his role models.
"We're not the tenth attempt at the same idea."
Graf: Your original idea to encourage fans of a music group to form groups when buying tickets failed after a few years. Where did your motivation to approach social commerce from another direction come from?
Von Harsdorf: At some point this attempt led to the realization that every online shop you look at today still works like an online shop 25 years ago. Basically, a shopping situation in the offline area is still simulated, you still put products in a shopping basket, you still go to the checkout, you pay. Such online shops function like vending machines, like digital catalogues. Meanwhile, however, so much has changed in our everyday lives. Smartphones, messenger services and social networks are now omnipresent. Many have come and gone, but the conditions that have been created are very, very different. And yet online shops are still single user experiences. I myself am regarded as an individual user.
Von Harsdorf: And that although we are not only highly social beings when shopping online, and especially when shopping urgently need advice or the opinion of others.
Graf: Is that so? The other day, when I bought batteries at Amazon, I didn't have the feeling that I still had to invite my friends there ...
Von Harsdorf: Okay, I like to admit that with the batteries, it's a classic procurement. That's targeted shopping: You clearly know what you need, go in and buy exactly those.
Graf: So you mean with all more complex products such as fashion, travel, flights ...
Von Harsdorf: Exactly, for all products for which you are often not so sure, for which you would gather the opinions of friends and family outside of an online shop anyway. That's the starting point for reviews that show how others think about the products. But there is the question: How much do they give you the opportunity to become interactive? How sure can you really be that this is the right product, the right shop for you? In the meantime, a lot of things are revolving around personalization and algorithms that point you specifically to products - but perhaps not the algorithms are best suited to tell you which products are relevant for you, but your friends. And if you need advice about a product, you will sooner or later ask your friends what they think and if they have ever done anything in that direction.
(When they met at a conference a few weeks ago, Alex Graf, like many others, was far from convinced that the Groupify project could succeed. After all, so far many ideas that rely on the customer as a social being have more or less been lost in the sand. At the same time, it is evident in Asia that such approaches can work.)
Graf: Tell us before we dive deep into the topic Groupify, where you currently stand and how many people you are - and then let's take a look at the Asian market.
Von Harsdorf: At the moment we are five people. After the ticketing phase we launched the Groupify Shopping variant in 2018 and had our first paying customer in February 2018. Since then, we have grown continuously. Currently, our monthly sales are growing by 40 to 90 percent, and we do not yet have any external financiers. So much for the question of where we stand at the moment.
With regard to the Asian market, we've found that there are a variety of players and applications over there that rely heavily on social features and are achieving resounding success. The fact that the market there is growing much faster is of course also due to the fact that the whole thing is much younger and the smartphone generation is progressing much faster, but there are players such as Pinduoduo, a social shopping application that was only founded in 2015 and went public in 2018.
Von Harsdorf: Yes, that means as much as "more fun, more fun together" - although my Mandarin is limited to these three words.
Graf: And how exactly does Pinduoduo work?
Von Harsdorf: Pinduoduo is an application in which you invite your family members, friends and acquaintances and which relies heavily on gamification. The service that is offered only really starts when many are present.
Graf: And what is the lever? Savings, the shared shopping experience or more individual products?
Von Harsdorf: Everything! They have different concepts. For example, they give you the opportunity to exchange product categories with many other users, or they offer completely playful things like treasure hunts through the online shop, which you can do with your friends and colleagues. As a result, Pinduoduo's acquisition costs are much, much lower than those of other Asian providers.
Of course, it makes little sense to compare the Asian providers with the Amazons and Zalandos from here, but if you look at the underlying matrices, you can see that the acquisition costs of the big players are 30 or 40 dollars - those of Pinduoduo are 2 dollars. And they are getting smaller and smaller! There are charts that show that acquisition costs have halved with every doubling of the number of users.
Graf: And from their behavior you deduce a reason for existence for similar concepts on the German market?
Von Harsdorf: Basically yes. I would never say that we can simply adopt or copy what works in Asia. For me, this is more the proof that when you rethink and communicate to customers that they are not just data records, but part of a community-building place, and not just to get a discount in the end through the power of the many buyers, but really out of the natural need to build trust, find like-minded people and have fun, then something good emerges. The time spent on these apps is also x times as long as with us. With Pinduoduo it is three times as high as with Alibaba.
Graf: There is a cash zone doctrine that says: At the end of the day, the online marketplaces that have the best set of offers, availability and price win. This means: a wide range, immediate availability and the best possible price. And if a platform can't even offer this as a hygiene set, then it's out anyway. The group buying applications I have seen so far have never been good enough to keep up on these three levels. But you think you would do everything differently. What is your argument?
Von Harsdorf: We even do it differently at many points. The first and probably decisive difference is that we are not a platform. We don't want to replace a large platform, but complement existing shops with this independent, social functionality. Many users always have their favourite shops and know where they can get good service and the best value for money.
Graf: Can we describe this step by step, from a customer and manufacturer perspective? Are you involved in the checkout process?
Von Harsdorf: Let's start with the classic customer journey: A user from the Instagram target group is active in sports himself and sees a running shoe there. He then clicks on it. He ends up in an online shop where he is already greeted with the invitation to set up his own running group in this shop. And this request is already part of our offer. In this group feed he can then get people, with the information that he can exchange himself with his potential fellow runners in the future directly and post products. And he can also see when others become active: When are they in the online shop, when do they buy what?
Graf: And how does he see that? Does he get an email or a WhatsApp notification?
Von Harsdorf: Ultimately, he should be able to receive a notification via one of these channels, yes. We're back in the start-up world - we're not there yet. This should work like a dropbox link that you send to the respective people. And finally you may not be sure yet, look around elsewhere, but then you see that the buddy has just joined the group in the first shop and then you return there. So you have your people there and the whole group is bound to the shop.
(In fact, the lever here is currently still the possible discount that an online shop can grant because it saves the acquisition or reactivation costs. In the meantime, however, Alex von Harsdorf and his Groupify team are trying out different approaches in pilot projects, which on the one hand focus on the financial aspects, but on the other hand also on all aspects of the customer journey that cannot be bought with money, such as additional support or sweepstakes.)
Graf: And which online shops already have this?
Von Harsdorf: We are now represented in around 20 online shops from various sectors.
Graf: Could you name them by name so that people can jump right in and form groups?
Von Harsdorf: hessnatur is one of our partners, a partner from the very beginning. We are currently working with them in their Swiss online shop.
Graf: Then I'll try it out live right now. - Now I have clicked on the Groupify hint, a chat window has opened and I have added two participants: Jeanette ("Can you sign up here?") and Annika (I'll write her "Total cool products here!"). What happens next? And what happens with my data? Privacy is very important to me ...!
Von Harsdorf: You may have noticed that you didn't have to register at all.
Graf: That's right, I think it's good! I didn't have to register.
Von Harsdorf: Your group will only be linked to you when you shop on this site and register in the online shop. But then we at Groupify only know your user ID and know that you have a group.
Graf: And when we shop there, does everyone have their own check-out?
Von Harsdorf: If you were shopping there now, everyone would have their own check-out, but your purchase would be shared with the girls if they followed the link you sent them in the invitation. And you could suggest things to them and put them in their shopping cart.
Graf: And would I have to completely reshape the group if I wanted to shop in another online store tomorrow?
Von Harsdorf: That would be the case for now, yes. But we're working on making it easy to take groups with you.
Graf: Okay, from the customer's point of view I understand that. How do the online shops that you suggest this to react? Are they enthusiastic?
Von Harsdorf: Yes, because we don't have it that way yet. That's why our starting position is that of a classic innovation: there are those who say it's mega and really want it, and there are those who don't participate until we've been integrated and tested in 20,000 shops. Of course, being one of the first to join has the advantage that users won't be setting up groups in an infinite number of shops.
Graf: Ah, that's the argument! I understand that.
Von Harsdorf: Here and now, the online shop first attracts with price savings. Then the users notice how cool it is to be able to communicate directly with people in the shop. This creates a much stronger bond with the shop and stronger loyalty to the brand or platform.
(Alex Graf gets feedback from Jeanette: "A Swiss shop? And she doesn't see anything. The link obviously doesn't work... Alex Graf then asks whether it wouldn't be possible to set up a group first in order to buy with it. Alex von Harsdorf replies that this is a different type of game that the Groupify team is currently testing: "A separate platform on which the group is first created before you jointly select the shop where you want to shop. In addition, they are working on the integration into the apps of the dealers, because this is the core of the project: The uncomplicated meeting in the online shop is primarily intended as a pastime, for example at the bus stop.)
Graf: How does the business model work? Who do you get money from?
Von Harsdorf: At the moment, we are relying on a subscription model without freely available functional features. So no freemium. This means that everything we build is included and is measured by the number of visitors to the online shop. Because the more people use the shop, the greater the social impact that can be achieved.
Graf: Assuming I am the size of Hessnatur, what would I have to pay?
Von Harsdorf: I'm not allowed to say how big Hessnatur is!
Graf: Okay, assuming I have one million visitors...
Von Harsdorf: At one million it costs you a few hundred euros a month.
Graf: And what would happen if you also designed your business model to be revenue-dependent? Although this would probably turn out to be quite difficult for you ...
Von Harsdorf: I would consider our status as a very, very advanced proof of concept.
Graf: But 20 shops are quite a lot for that! - Can you prove that every hundredth or every thousandth session leads to a group formation?
Von Harsdorf: That's even more! In the online shops in which we are now integrated, we have a conversion rate from visit to group start of between five and twenty percent, and sometimes even thirty percent. But of course we also observe that the conversion rate changes for some of the variants we are currently testing.
Graf: What do you expect from 2019?
Von Harsdorf: I assume that in 2019 we will develop those functions that are really obvious from our perspective and that are still missing on the subject. We already have very interesting projects in the queue, which we will approach with partners who understand that this is a mindset and who are willing to further develop this advanced proof of concept with us. Of course we will also discuss our business model, but I am very, very confident because I feel that there is great interest on both sides - on the part of the customers as well as on the part of the dealers - and I am looking forward to doing pioneering work. At least that's how we see it. We are not the tenth attempt at the same idea.
Graf: My final question concerns the industries that this concerns. Could your approach also be applied to more complex things, such as hotel or flight bookings?
Von Harsdorf: Well, we don't have a live flight booking system yet, but one of the partners with whom we are currently starting such a pilot project is a flight booking platform. It's not primarily about discounts, but simply about coordinating the trip - who is there, who has their ticket, who is on the plane and where?
(So it turns out: There's something going on! And this is exactly why Kassenzone-Alex reminds all interested readers, listeners and potential investors to keep their eyes and ears open before he wishes his namesake every success and says goodbye to him.)