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Jul 7, 2011

To Group Buy or Not to Group Buy (Or is it Even a Question?)

Group buying is one of the latest consumer trends on the web these days. It grew in popularity very quickly in only a few years, bringing together consumers and their local businesses in countries around the globe and generating billions of dollars per year in sales. But this model has also aroused its fair share of critics - some say it is a rip-off for customers; over at TechCrunch, Rocky Agrawal had an entire series about group buying and how small businesses get screwed; and you often hear that the model is generally just unsustainable in the long term, leaving customers, merchants and investors disenchanted. These criticisms are generally directed at North American businesses, but in Australia there have been hits and misses as well. So how valid are these criticisms?

"Valuable New Customers, Guaranteed"

The group buying model is supposed to attract new customers and bring in extra revenue, but many organisations have reported that customers using these daily deal vouchers are not exactly the valuable customers businesses were hoping to attract (and turn into repeat customers). Instead, they are often only looking for a quick bargain and aren't interested in returning or buying more products/services while using the coupon. And unlike other marketing methods, you don't know why customers have signed up to a group buying site or what they are looking for, preventing your business from targeting new or potential customers with personalised communications and offers. (This mostly applies to general group buying, less so with niche daily deals sites.)

Gain Exposure - or Bad Reviews

There are some success stories cited by Groupon and others, such as businesses that brought in customers using a group buying deal and then receiving positive online reviews, website hits and opportunities to up-sell. Of course, this also leaves a business vulnerable to a wave of poor reviews when a company can't handle the influx of customers - and there are plenty of horror stories to back this up.

Simply implementing a group buying deal won't turn the upsurge in customers into a loyal fan base, and it's up to the local business to provide an experience that will encourage repeat visits. Bad business practices are amplified when combined with a daily deal. In addition, many SMEs don't understand the terms of a daily deal when working with group buying sites and are jumping on the bandwagon without considering what it will take to deliver a great experience for the large number of customers.

A Code of Conduct - and a Big Improvement

In an effort to level the playing field, Cudo and Spreets have recently established voluntary codes of conduct to protect merchants and customers: "The code lays out pledges to merchants, saying companies will help SMEs package and price the right deals, manage the increase in demand by capping an offer as necessary and help bring back customers after the deal has ended", along with helping companies handle the increase in customers, especially when they may be operating at a loss. This sounds like a big improvement for all those involved and may prevent those small businesses from getting "screwed" by signing up to something they don't completely understand.

The Main Lesson

If daily deals really are here to stay, many more SMEs could start seriously considering if this model is right for their business. But no matter how many success stories you hear, don't jump on the group deal bandwagon right away. Do your research and figure out what type of deal would be best for your business (if group buying is right for your business in the first place). As an example, check out these best practices for group buying.

Some of the highlights of the article:

  • Don't be pushed into a bigger deal than you can handle (or risk being overwhelmed and generating negative reviews).
  • Understand what you're signing up for and the terms of the agreement.
  • Train and prepare your staff to not only handle the influx of new business, but also remember to treat them like regular customers - you're trying to get them to return!
  • But...Remember your regulars: While treating your new customers like the new business prospects they are, don't forget about your loyal clients. If you can't give your regulars the same level of service because you're catering to new people, you could tarnish a good reputation you've built up for yourself.
  • Collect information from new customers - email addresses, if possible - or give out your details (i.e. Facebook page, Twitter account).
  • Follow up! Don't' put in all the work to woo new clients and fall short at the end. Engage with your new social media followers or send a newsletter with updates.

I think one of the most important lessons to learn is: If you think new coupon-carrying customers are of less value than other customers and you aren't willing (or able) to treat them like your regulars, then avoid the daily deal model.

Next week, I'll be posting a blog on an alternative to group buying and what your business can do to get (some of) the benefits of a daily deal - without the risks. Stay tuned!


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