Group Buying Websites - Who, How And Why

What types of businesses can benefit from group buying websites? How can you determine if they will work for your business? How do you make the most of group buying websites? And what are the benefits of using group buying websites?

In November 2008, Andrew Mason started the first group buying website (later known as Social Coupons). He didn't invent anything new: The power of group buying to get a substantial discount isn't a new concept. It's been going on forever.  However Mr. Mason has taken this concept, and built an online platform to facilitate the concept online.

What can we learn from this?

1. One thing is for sure: there is a great demand from consumers, which is evident that even at the peak of the GFC (Global Financial Crisis) people were still looking to explore their local area, go out and enjoy life
   
2. People will always take advantage of a great value offer
   
3. Most businesses can really use a few more customers coming through their doors
   
4. The old ways of advertising are less and less effective, so business owners are looking to get exposure (i.e. advertise) but less willing to take the risk up front. What do I mean by that? The appeal of group buying concept is that the advertising is a performance-based exercise. No sale - no money. I'll explain how this is works later on

To understand this phenomenon, and how BIG this is getting, let's just say there are hundreds of these sites sprouting like mushrooms after the rain, all over the world. Many people saw the huge potential of the group buying market, and clones popped up everywhere. They are (of course!) all different, and have their own POD (Point Of Difference), such as their pricing structure (how much commission they get from the offers), their reach (how many subscribers they have), and some will even go the extra mile, and will distribute brochures around the business area (hard copies! On paper!), or advertise their deals/offers on TV and radio).

Types of businesses benefiting from these services

Let me start by stressing: this is NOT for every business. To be featured successfully on these sites, a business must be able to give a substantial discount, typically over 50%. This means that the business has to have enough margin in their offering not to lose money on the deal.

So how do I know if this is for my business?

• If you're selling a product of which you have excess inventory, and you can't get rid of it any other way, except to massively discount it (as it costs you more to keep the stock) - than this is a great option for you
  
• If you're selling a service, and you have high fixed overheads, but low variable expenses per service rendered - this is a great option for you

Examples:

• If you are a manufacturer, with unused production capacity, you can choose a product you can produce in the "dead hours" and maximise your capacity
  
• If you have a tourist service, such as a cruise around the harbour, any unfilled capacity you do not sell is gone once the ship has sailed. You could sell this unfilled capacity during off-season through one of these sites
  
• If you're selling a beauty, health or wellness service (Hair, nails, massage, chiropractor, physiotherapy, dentistry, optometry, pet grooming, etc...), and you have staff who are not working at full capacity, or have empty seats during the day
  
• Transport services - Limos, water taxis, seaplanes - maintenance and staff costs are high - might as well get them working!
  
• Restaurants - again, fixed costs are high, and the tables aren't full. Fill ‘em! Nothing's more enticing to passers-by, than a full restaurant (with a queue outside!)

How do I make the most of group buying sites?

Let's look at this "discount" issue from a different angle. No business likes to discount their services! There must be some compelling reasons to do so. If we understand that this is not only a discount, but a customer acquisition exercise, we'll have a completely different view of giving a discount.

• Repeat customers
  
  First, the product/service sold isn't a "one-off". You'd need to provide a positive experience, so these newly acquired customers will come back for more (at full price).
  
• Referrals
  
  There is no better form of advertising than word of mouth. Giving your new customers something to talk about, will bring their friends and family to your business.
  
• Up-selling opportunity
  
  Selling one discounted product /service, doesn't mean you have to discount everything! Once you have a customer at your restaurant for a discounted meal, you could still offer (and they will take it!) some drinks and/or desserts, can't you? Selling teeth whitening gives the dentist an opportunity to offer some fillings at the same time.
  
• Cost effective advertising
  
  All other advertising channels (print, TV, radio, banner ads, billboards, Yellow Pages, etc.) will require an initial large investment, which will include the production of the campaign (copy writing, graphic design, filming, recording, printing, etc.) and the fees of the agency. When using the group buying sites, you won't be asked to pay any of the production costs. In fact, everything is done at the company's expense, and their fees are taken as a commission of the deal. This means - your business is getting exposed to 10s or 100s of thousands of potential customers, which some will take advantage of the offer immediately (normally within 24 hours of the feature). If they buy, and the deal is ON (subject to a minimum), then you, as the business owner will pay a percentage of those items sold. No deal - no pay!
  
• Attracting hard-to-reach demographics
  
  The first group buying website has put together some statistical data regarding their members. I would take a bit of a risk here, and assume that most of these group buying sites will have a similar demographic breakdown:
  
  
  • 77% of users are women
    
  • 68% are young (18-34)
    
  • 95% are well educated (with more than a high school diploma)
    
  • 70% have money! (Not bargain hunters, earning in excess of $50k per annum)

If we know these demographics - and they are aligned with our business' desired demographics - then it's another reason to feature on these sites.

Featuring on these sites does these main things

1. Exposing your business and offering to a large, clever, wealthy, young group of people, who are looking to explore their cities, and find new and exciting things to do
   
2. Reducing those people's risk (monetary risk) when trying out a new service
   
3. Reducing the business owner's risk of investing heavily in marketing/advertising channels, which may or may not work

Who shouldn't feature on these sites?

There is also a risk, following such massive exposure. If you think you can't handle such a surge in customer flow, you better be honest about it. If you have a great offer, and too many people take advantage of it, it may actually harm your business. Before making a decision to advertise your deal, you'd need to have an understanding of the consequences.

To handle the exposure, some companies will opt to cap the number of deals sold.

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