Online group buying—what’s the big deal?

group-buying sites on computer screen

Groupon launched quietly in Chicago in 2008, offering a one-day-only deal for half price pizzas from a local store. Its daily deal model changed the face of online marketing. In just 18 months, thousands of entrepreneurs have jumped on the bandwagon, launching daily deals to millions of bargain-hunting online consumers out for a good time or a cheap buy. The benefit to the consumer is obvious, but what can a small business get out of selling its product or service at a loss?

Why jump on it?

“The beauty of it is that it allows a business that’s never advertised before to hit markets and expand its business with virtually no risk and pretty low cost,” explains Adam Schwab, managing director of DEALS.

Businesses can tap into collective consumer buying power and grow awareness of their business without a big financial outlay, says Patrick Schmidt, managing director of Groupon’s Australian subsidiary Stardeals. “If you don’t sell any vouchers you don’t pay anything to us. There’s no risk.”

Don’t be fooled⎯it’s not no-cost advertising. You will pay commission on deals sold to the host site, and group buying isn’t about delivering profit. “We generally get our merchants to give away their profit on the first visit so they can get the customers in easily,” says Colin Fabig, CEO of Jump On It. “That extra revenue, that give up of profit, is usually wasted in advertising and other mediums. So you’re not giving anything away. You just stop advertising in the Yellow Pages or your local newspaper.”

Schmidt describes the costs involved as a “reallocation of your marketing budget”.

You are paying the host site to take on the costs and labour of promotion, explains Jon Beros, general manager of Scoopon. “We pay for all the email blasts that go out to members and the promotion on Facebook and Twitter.”

The true value of a group buying deal is in the volume of customers and exposure your business receives. “You get huge amounts of people buying the deals in one day because it spreads virally through people’s social networks,” says Dean McEvoy, CEO of Spreets. “When you spend on a group buying site you can guarantee you’ll get customers who will come in, become your advocates and be repeat customers. There’s still no better marketing medium [than word-of-mouth] and I’ll stand by that until I’m blue in the face.”

How do you make it a star deal?

Your ability to turn deal buyers into repeat customers will dictate your success. Schmidt says the responsibility lies with the merchants to prioritise customer service.

“If a restaurant provides great food and great service, even a bargain hunter will come back.” Beros agrees. “You need to make sure they’re treated like a first class customer, not a second class coupon holder.”

Businesses do get a branding benefit, Schwab says. “But the real value is that you get customers through the door, and if you give them a really good kind of service they’ll hopefully come back.” Prioritising customer service is the easiest way to ensure your business gets value out of the deal.

  • It’s a great post. I appreciate the post. Shareon is also a day by day growing online group buying site in Australia. Please go through the link http://www.shareon.com.au/ . I would also like to add the name of shareon in the list.

  • Kerry

    Thanks for the very well written article Jennifer. Appears to be well researched, with plenty of solid content and useful insights.

    I particularly appreciated hearing comments from actual business owners who have already used these services, and the feedback regarding different deal companies. I’m certain this will save me time and money in the long run.

    One thing I would like to know is who are the current market leaders in the group deal industry?

    Thanks again and I look forward to reading more articles by you in the future.

    Kerry.

    • Hi Kerry,
      Thanks for your feedback!
      The market is constantly changing and I wouldn’t feel confident picking a market leader. Lots of the daily deal companies are trying to specialise and capture niche markets.
      Catch of the Day/Scoopon have just secured an $80 million investment from James Packer’s consortium, so they have a fair bit of capital to play with at the moment!
      You can read all about that in the July issue of Dynamic Business, out next week.

      Jennifer

  • Thanks for a brilliant article Jennifer. Your thorough research has confirmed what we believe at Silver Lining Marketing and your article will serve as a valuable resource when dealing with our clients. We have launched Townsville’s first group buying website, http://www.kandji.com.au, and North Queenslanders (business owners and consumers alike) are jumping on the opportunity!