Most good ideas are the ones that make consumers wonder why they hadn’t thought of them first, and group buying is one of them. Last year, there were about 63 000 deals in the US through group buying sites. In the first quarter of 2011 alone, there have been an estimated 40 000. It’s understandable: group buying is social marketing at its finest, and a model that generally benefits everyone.
Buyers have an incentive to spread the word – they want the deal to go through, therefore they want as many of their friends to commit as possible. It creates viral marketing by utilising the power of group buying along with other innovative marketing techniques, such as social media and display marketing, to drive huge brand awareness.
Retailers gain new customers, and the group-buying companies perform their mediating function.
In order to ensure that vendors hold to the contracts as well as comply with the credit act, group buyers only pay the retailers once the customers redeem the vouchers, allowing the group buyer to facilitate between vendors and customers.
The success of the largest of these companies, Groupon, named by Forbes recently as the fastest growing Internet company in history, as well as the simplicity of the business model, has meant that it is easily copied. In 2010 there were already over 500 group buying companies worldwide, a number which is growing at an exponential rate.
As a way to compete, many of these smaller companies springing up are offering a cheaper alternative to the established group buyers. Some take 10% from the deal as opposed to the larger percentage that the established group buyers generally require.
“What many seem to forget is the huge amount we invest in our vendors. Groupon is currently the 22nd biggest site in SA after only being in the country for six months,” comments joint-CEO of Groupon SA, Daniel Guasco.
“Of the 50% commission we take, the majority is put straight back into advertising the deals to ensure they reach the ears and eyes of more customers, as well as towards other considerations, such as increasing our staff capacity to assist the vendors.
“The commission ultimately enables us to invest a huge amount back into marketing our vendors’ deals, and giving our vendors and customers as much assistance as possible. For many copy cat companies, their 10% goes straight into their pockets with no consideration for their vendors.”
The myriad of copy cat businesses also argue that having a smaller consumer base (most of them have much smaller customer database than the likes of Groupon) benefits the retailer because they will deliver smaller amounts of customers, which can be better serviced by the merchant.
But Guasco counters that the benefit to retailers of participating in group buying is precisely because it has the potential to deliver significant numbers of new customers.
“People often don’t consider that; even without the deals themselves, quite possibly the best thing that we do is in fact give retailers access to our extensive database. Groupon literally accelerates the growth of the businesses who partake in our offerings,” says joint-CEO of Groupon SA, Wayne Gosling.
Sandwich Baron is a case in point. “Groupon explained the impact the campaign would have far better than their competitors, who also approached us. Generating new traffic into our stores was very appealing to us, and this has been the result. There has also been a dramatic increase in hits on our Web site because of the deal,” says Sandwich Baron franchisor, Sally Jarlette-Joy.
“You have these smaller group buying companies telling retailers that it’s better to gain a few customers and not ‘flood the market’; which is really a bit mental when one thinks about it. Groupon is a marketing activity, and compared to traditional media it is the most cost effective and risk free form of marketing available.
“Groupon gets ‘feet in the door’ – not the promise of customers as many other forms of marketing do. If, for example, a vendor was to take a print ad, you hand over a large sum of money and can only hope that it pays off. I’m really proud that we are not like that, we offer total measurability,” says Guasco.
“In the end it’s up to you as the merchant whether or not you can handle the service; we put you in the limelight in front of a large amount of new customers – one of the most powerful things about Groupon is this database of ours is completely organic – all our customers are opt-ins – what this means is you get exposed to our entire database but only pay commission on the actual customers we acquire for you.
“Once they walk in the door it’s up to the vendor to provide awesome service and an experience that will knock their socks off and keep them coming back for more,” adds Gosling.
Retailers certainly seem happy with the wider service. Groupon SA has had positive feedback from retailers such as WantItAll and Look & Listen. Look & Listen were selling one music track every 15 seconds through an offering by Groupon.
Look & Listen CEO, Darren Levy, when questioned on a recent Groupon/Look & Listen group deal, states, “There’s no question that the results were very beneficial for us immediately after the coupon broke and we’ve seen since the coupon, a growth in our business as a consequence.”
The Groupon experience has been nothing but positive, says Shahista Osmal, owner of Senses Day Spa. “It’s an excellent business; consumers gain awareness of retailers they didn’t know existed, and they think more about retailers that they’re already familiar with.”