What is group buying?
Group buying originated in the United States but has taken Australia by storm with a plethora of new group buying websites emerging. Group guying websites enable consumers to search for discounted products and services in their local area. The deal sites often vary in their concepts. Some sites require a certain number of participants for the deal to go through, while others reward customers based on how many others they persuade to participate. Qoop, for example, makes their deals cheaper when more customers purchase the deal. Ultimately, group-buying deal sites make a certain amount of money by charging businesses a commission, businesses are guaranteed a certain number of customers, and customers get deep discounts.
Pros of group buying
a) Group buying sites have developed a large database of customers. Jump On It, for example, recorded 410,000 unique users in December, according to Nielsen. Such impressive figures guarantee your business exposure to great new customers and drive sales.
b) In the first quarter of 2011, 6,000 deals were published across group buying sites in Australia. A large chunk of these will have been offered by businesses that wouldn’t normally be visible to such a large base of potential customers. As great as your website is, it’s unlikely that it has the breadth of a group buying site. Not only do you get a larger quantity of your target customer, you also expose your business to new markets that you normally overlook.
c) Group buying sites can also help your business earn extra revenue. For example, if you offer cooking classes, it won’t cost you extra to have a few more people join in for a slightly reduced price.
d) Group buying websites are the perfect tool for businesses to use if they want to get rid of excess stock. Rather than bear the cost and inconvenience of letting underused stock clutter up your business, group buying sites enable you to offer those products to the masses at a reduced price whilst reaping the rewards of increased awareness.
Cons of group buying
a) Group buying sites make it difficult for businesses to build customer loyalty because many customers are in it just for the deal. Customers do not have any intention to come back or to purchase more than the coupon is worth so there is no added value for the business in the long run.
b) For many businesses it becomes very difficult, once consumers get use to the habit of receiving a steep discount with any product and service, to offer items at regular price.
c) The overuse of promotional deals puts companies on a downward spiral toward erosion of operating margins that eats into profits. Mom-and-pop shops, who dominate the group-buying scene already, have fairly small profit margins, so a broad shift downward in the perceived value of their products could cause many of them serious problems.
d) Group buying sites can be costly for businesses. On average, group buying sites take a 30% revenue cut from each deal, making the margins impossibly slim for some start-ups.
In Australia, the top 10 group buying sites include: