• by John Kenny , December 15, 2010

Shopper marketers should think long and hard about the chutzpah behind Groupon's decision to walk away from Google's $6 billion bid for the two-year-old online coupon startup.

One key question they need to ask themselves is why pure-play online startups continue to outpace traditional retailers in doing what should be the DNA of any retailer -- generating excitement about buying.

Groupon's success lies in its deft use of behavioral economic insights to drive engagement -- and yes, excitement with the shopping process. We're creatures that don't like be overwhelmed with choices, so it focuses on one deal a day. We are literally drawn by instinct to its one-day sales, because of our tendency to see value in anything that is in limited supply. We fear prices that are too low, but are reassured that the deals are achieved through the mechanics of bulk purchase. Finally, we are social creatures, so we take comfort in the social proof that many others are pursuing the same deal, and pleasure in the ability to connect with friends and family over offers that we share an interest in.

Groupon is not alone. Online retailers have been innovators in using behavioral economic insights in driving excitement about buying. We're more likely to choose what others have chosen, so Amazon showed us what products other people liked. We want to finish something once we've started, so eBay let us spend time bidding before the decision to buy. And we love to express ourselves to our friends, so Foursquare enabled the social currency of sharing your favorite shopping locations with your friends.

Contrast that with traditional retail, where the focus is primarily on being a rational, individualistic, efficient destination for shoppers to collect goods. Efforts to promote "excitement" about buying involve discounting prices with no effort to explain whether the lower price comes at a cost to quality, and loyalty programs are limited to earning points -- which, rather than building an emotional relationship with stores, reinforce the purely economic relationship, where customers get paid to buy.

Three potential opportunities built on behavioral insights come immediately to mind, for how brick-and-mortar retailers can bring meaning and excitement to the buying process.

Step one involves leveraging our bias for choosing products that are popular with other people, especially people like ourselves -- what behavioral economists call "social proof." Retailers like Kroger can build on the success of its data-driven, micro-targeted coupons by explicitly telling people both in-store and in direct communication which products are most popular with other shoppers and among their key customer segments -- be they foodies, value seekers, or health-conscious moms. Leveraging social proof will enable shoppers to more quickly and confidently choose which products are best for them.

Step two involves reframing the shopping trip, from one-off events to a series of small steps toward bigger goals. Our lives have important goals -- be it eating healthier, succeeding at work, or countless others -- and we instinctively love seeing ourselves make progress toward completing these goals. Retailers are in a position to enable customers to track their progress toward these goals with incentives to encourage compliance and reward success.

One leader in this area is Kmart's layaway program, which helps customers save money for large purchases without falling into credit card debt. It breaks purchases up into six biweekly payments and encourages compliance with its "commitment contract," by showing progress toward the goal, and a $20 cancellation penalty.

Finally, step three involves making shopping social again. Customers are not atomized individuals, we seek to express our personalities to our friends through our choices. Levi's Friends Store is enabling shoppers to share their choices with their friends. For other retailers, the secret lies in unlocking their accumulated shopper data and opening it up to social media so that individuals can share the strategies they have used to make progress to the goals that are important to them and their friends.

These are just three ways that traditional retailers can make buying exciting again to shoppers. But at the core of all of them is realizing the strategic potential that can come from the realization that customers are not rational logistic partners, but overwhelmed, social animals that seek progress toward their goals, and become excited when they find partners that can further those goals.