Over the past six years group buying had grown into a multi billion (US) dollar business. Among the many sites focused on group buying around the world, Groupon.com is the largest with global presences in 24 countries or 168 cities, and Woot.com pioneered the concept when it started in 2004.
If you are not familiar with group buy please allow me to explain, the concept is fairly simple. A merchant (shop) subscribes to a group buying site (site). The shop creates an offer for it’s services or products at a discounted price; something that is very attractive (around 50% off or more). The shop specifies a minimum number (tipping point) of sales for the offer before it becomes valid. The site will then list the offer along with customized marketing copy on its site and all channels the site has at its disposal.
The site normally sets a short deadline (1 – 3 days depending on the site) for consumers (end-users) to sign up for the offer. If the tipping point is not reached by the deadline, the offer will be invalid even for consumers who had signed up. Otherwise if it is reached within or by the deadline, the payment for the offer will be immediately withdrawn from the consumer’s account, and any subsequent consumers wanting to sign up will receive the offer immediately upon payment, up until the maximum units sold, if one was set by the shop.
The purpose of having a tipping point is for the shop to receive a guarantee minimum revenue before an offer becomes valid. For the consumers it is in their advantages to spread the word about any offers they have signed up for prior to the tipping point, doing so will help themselves guarantee that the tipping point is reached. The site makes their profits from commissions on the shop’s revenue for the offer.
The shop itself normally write these cost; the commission to the site and the discount, off as marketing expenses. The difference for this type of marketing compared to the more traditional methods are:
- In most other marketing initiatives they are out bound and the target audiences have not shown interests in what the marketer is selling. The exception being certain types of social marketing.
- Group buying brings to the shop customers that not only have shown interests in the products or services offered by the shop, but have committed to a purchasing action by subscribing to the offer through the group buying platform.
- The shop receive payments prior to committing the services or products to the customers who signed up for the offer. Although, this may not be the case it depends on the terms from the group buying site.
There are benefits for all parties in group buying. The customers normally receive a great deal on products or services they normally cannot get. The shop is able to convince vetted consumers into their shop at cost, so they have the opportunity to up sell or cross sell the customers and may be retain them as long term repeating customers. The site is able to build its membership and further secure itself as the final stop for great offers.
In most cases group buying sites are location specific as they are normally associated with physical brick-and-mortar stores. Even for global players like Groupon their offers are specific to localized city sites. It is these localizations and ways offers can be found that draws both consumers and shops to the site. If a shop establish an exclusive offer with a site, this will heighten the offer’s exclusivity making it more attractive to the consumers. While at the same time being exclusive with the wrong site may waste the efforts if no one signs up for the offer, creating a negative image for the shop’s products or services.
As suggested earlier there are differences among group buying sites. Although the basic concepts of group buying are the same. How these sites spread its marketing message for the shop can be quite different. Everyone one of them use social sites like Facebook, but not all of them use it in a way that is ethical. For example, some will require customers to “Like” their Facebook Page before they can take advantage of an offer on the site, or they will require customers to provide email addresses but does not offer a easy method to unsubscribe to mailings.
Although I have not used them all I do have experience with a few of them. I will get into a more detailed comparison of the ones I tried in a subseqent article.