Customers balk at social commerce

By Yoon Ja-young

The social commerce market has marked explosive growth, with hundreds of companies competing in the sphere. To draw customer’s attention, they are spending billions of won in advertisements. Customers, however, complain that the money should be spent to improve services.

The social commerce market opened up here a year ago, but it is expected to grow by over 10-fold this year from 50 billion won last year. According to a survey by the Seoul Business Agency, two out of three people here have used social commerce. Among them, 84 percent said they plan to use it again.

Negative views on social commerce businesses continue here. Excessive advertisements by the firms are adding to concerns that there may be a bubble in the market.

Ticket Monster, the biggest player in the industry, marked 20.6 billion won in sales in April. Coupang recorded 15.2 billion won, and WeMakePrice made 4.7 billion won. The top three account for over 80 percent of the market.

As part of their aggressive marketing campaign, they are running advertisements on prime time TV. Ticket Monster started running its TV advertisements from February, and Coupang has been posting advertisements featuring hallyu stars Kim Hyun-joong and Lee Na-young. WeMakePrice also signed up with Koo Ha-ra, a member of the popular girl group Kara.

They are estimated to be spending billions of won on advertisements. When considering that they get around 20 percent of the total sales as commission, they are spending most of the money they earn as marketing expenses.

Why advertising?

Social commerce businesses are pouring money into advertizing in the belief brand awareness sets their corporate value. For such a business, previous sales record determines their bargaining power with shops and sales are directly related to brand awareness.

Conglomerates’ advancement into the market is another threat. Angelprice.com, which is waiting to launch this month, is headed by a relative of Lotte Group’s owning family. Shinsegae is operating HappyBuyrus, and SK Telecom recently started social commerce services targeting mobile service subscribers totaling 26 million.

There are already too many players in the industry, with over 600 companies competing. The entry barrier is low. When large corporations start pouring in capital and exercise bargaining power, small players will inevitably become losers, doomed to disappear from the market. Analysts estimate that hundreds of minor players may have to close down their business this year. Warren Buffett has already warned of social services. “It’s extremely difficult to value social- networking-site companies,” he said, pointing out that “Most of them will be overpriced.”

As they rely on advertisements, some analysts hesitate to call them social commerce. In case of Ticket Monster, only five percent of shoppers come from social networks. Most of the customers are believed to click after watching advertisements.

Meanwhile, consumers complain that social commerce should focus on improving services instead of marketing.

Ticket Monster angered customers by canceling coupons for tteokboki at BBQ, and Coupang customers had a similar experience with coupons it issued for Vons Chicken. Some shops are continuing to discriminate against coupon customers, and shops also are turning lukewarm to social commerce events with some ending up sustaining significant losses.

Korea Internet Businesses Association said it is preparing guidelines for social commerce consumer protection, which includes banning discrimination and facilitating refunds.

“Businesses participating in social commerce shouldn’t regard consumers only as their target of sales. Social commerce can be a new opportunity for them only when they regard consumers as partners,” said You Jae-hoon, a researcher at the LG Economic Research Institute.