Social shopping eyeing 2 trillion won sales this year

Top three players prioritize consumer satisfaction for further growth


The social commerce industry here has grown into a 1 trillion won ($900 million) market in just two years. Industry watchers say the market size is expected to nearly double this year.

More than 5,000 discount deals are offered every month at each social shopping site, while the value of monthly transactions has already surpassed 100 billion won.

In the early days, popular items at daily deal sites were mostly restaurant coupons. These days their products and services range from tickets for concerts to an overseas travel package and a luxury camping trailer.

After a series of consumer litigation cases last year, the industry, once crowded with some 500 players, is now led by big three services ― Coupang, Ticket Monster and Groupon Korea.

Companies aim to break even this year, stepping efforts to regain consumer credibility. At the same time, they need to prove that their two-year-old business is not just a fad.

Bitter rivalry

Coupang and Ticket Monster, which have almost 80 percent of the local social commerce market, have been engaged in a fierce rivalry since their launch in 2010.

Pouring a huge amount of money into advertising and marketing activities, the two start-ups have competed in the daily deal market where first-mover advantage is crucial.

When Ticket Monster was acquired by the world’s second-largest U.S. social shopping business LivingSocial in September 2011, the company continued to maintain its market No. 1 position.

In November, Ticket Monster and Coupang posted 44.6 billion won and 21.6 billion won in monthly revenue, respectively.

However, Coupang fought back by almost doubling the number of products shown on its website compared to that of its rival.

According to DaOneDay, an industry aggregator, Coupang logged 45.8 billion won in sales in February, higher than the 38.2 billion won of Ticket Monster.

Despite this, the two companies have yet to post profits thus far.

Ticket Monster showed confidence in breaking even within the first half of the year, largely driven by the highest fees for vendors in the industry.

“Considering the potential of our service as a sales platform, the fee rate (15-20 percent of sales) is still too low. We will elevate the overall level gradually,” a Ticket Monster spokesperson said.

The company’s renewed management and sales system since the merger with LivingSocial has also played a key role in improving productivity, he added.

For Coupang, profitability is not a goal right now.

“We are seeking a NASDAQ listing by 2013. In order to do that, our priority is to focus more on securing a healthy revenue structure for the longer term,” said a marketing manager at Coupang.

As part of the efforts, the company will continue investing this year, especially on services for consumer satisfaction, although the official declined to reveal the specific amount.

Coupang, which was the first in the industry to run a customer center at lunch time and on weekends as well as public holidays, opened a new call center in January and plans to operate its own logistics center from as early as this month.

Groupon, late entrant in Korea

Groupon started its Korean service last March. At the time, some experts showed concerns that U.S. firms, including Ticket Monster, could gobble up the market for online discounts in Korea.

But Korea’s Internet industry was unique and challenging for foreign businesses to enter, allowing Groupon Korea only the distant third-place position with some 12 percent market share.

“It’s widely known even abroad that global Internet firms struggle in Korea where there are already powerful local players,” said a Groupon Korea official.
“We didn’t expect big success the first time. We think it’s meaningful that we have survived as one of the top three social commerce companies here.”

The spokeswoman said that the company has confirmed that consumer loyalty toward specific brands has yet to be created within the industry, which indicates more opportunity for Groupon.

The company is concentrating on what it can do better. International deals using Groupon’s global network in 47 branches around the world is one of them.

The website introduces products directly from foreign companies, while helping local vendors find distribution channels abroad. A special Korean Wave package, combining travel schedules with products unique to Korea, is also gaining popularity.

“All the ideas started from the Korean branch as we are seeking more customized services. Other Groupon branches around the world are following suit,” the official said.

Better protection of consumers

According to the Seoul Electronic Commerce Center, complaints from social commerce users have surged almost 50-fold from 35 cases in 2010 to 1,761 cases last year.

Amid growing complaints from consumers, the Fair Trade Commission staged a large-scale investigation into the nation’s social shopping sites last year.

In the highly publicized probe, many companies were found to have exaggerated discount rates by raising the cheapest online prices of products, while some others were selling counterfeit products.

Some websites were also found to be involved in an online fraud scheme, in which they shut down the Web pages immediately after collecting money from users.

“We were just at the starting phase where consumers’ brand awareness is still low. A bad case at one company can affect the image of the whole industry,” said an industry source.

Following the crisis last year, major companies, including the top three, have prioritized consumer satisfaction in their policy directions this year.

In February, the nation’s top five companies also signed an agreement to follow the guidelines for fair trade suggested by the nation’s antitrust watchdog.

They agreed to refund 110 percent of the price when a product is verified as being counterfeit, while the importers are obliged to buy insurance for potential consumer claims.

They also cannot advertise that they offer 50 percent discounts when they give an additional 20 percent discount for a product that is normally sold at 30 percent below normal price.

Companies are also required to raise the response rate of their consumer call centers to least 80-85 percent, with all complaints handled within three days of being reported.

“For the soaring social commerce market to become a new innovative distribution channel, companies themselves should make efforts to protect consumer rights,” an FTC official said.

“We hope other runner-up companies follow suit.”

By Lee Ji-yoon (jylee@heraldcorp.com)