How Social Media will disrupt the traditional “Retailing” Model

Groupon, the “localized” deal of the day website has witnessed phenomenal growth in the last one year. Groupon’s success underlines the power of Social Media which makes it so easy to connect with other like minded people over the internet. (for more on Groupon’s success, watch this excellent CNNMoney Video)

Even retailing giant Walmart seems to be taking note of Groupon’s success and has launched a Facebook deals app called CrowdSaver, which unlocks a discount once enough consumers opt in (for more, read this AdAge article titled Walmart Takes a Page From Groupon in Facebook Promotion). I think this is a step in the right direction for Walmart and other retailers should (and will) follow suit.

Traditional retailing involves buying in bulk from the manufacturer (or distributor) and selling one piece at a time for a mark-up. This model has served both the manufacturer and retailer well – so far. This is about to change, thanks to Social Media.

Customers are increasingly going to leverage power of Social Networks to connect with other like minded customers who want to buy a particular product or service. Collectively, this group of customers is a force to reckon with and manufacturers (or distributors) can directly sell to them breaking the hegemony of major retail chain stores. To counter this, retailers can leverage the power of Social Networks and offer deeply discounted prices to its customers if a certain volume of sales is achieved – what Walmart seems to have done.

Whichever way you look at it, Social Media will disrupt the “traditional” retailing model for good. And customers are going to be winner as they can exercise group buying power and buy products/services at lower prices or at better terms. If retailers don’t innovate and leverage Social Networks, their margins will be under increasing pressure and they will lose customers to those who leverage the effectiveness of Social Networks and offer great deals.

What do you think? Do you agree that Social Media will disrupt the traditional “Retailing” Model? Please do share your thoughts: