What is Group Buying?
Group Buying refers to a collective effort to receive a reduced price on a product or service. It is also known as social buying. Group Buying has captured the imagination of Australian consumers and businesses and is changing the face of small business marketing. Businesses can use Group Buying to attain dozens, hundreds or even thousands of of new customers.
Originating in China, Group Buying has exploded in popularity in the US since 2008. Groupon is the market leader in the US and is on track to be the fastest growing American business of all time. In December 2010 Groupon knocked back a $6 billion offer from Google. That’s right – $6 BILLION for a 2 year old company. There must be something to this Group Buying thing, right?
The great advantage to businesses who engage in a Group Buying campaign is that it is a pay-for-performance model. The business only pays if a target number of customers comes through the doors. This means the merchant knows what their minimum return on investment will be and can measure performance down to the last dollar.
How it Works
Consumers visit a Group Buying website such as Cudo or Spreets. They generally need to sign up and can follow the daily deals in their town via Email, Facebook, Twitter or website. If they find a deal they like the consumer signs on but the deal only goes “live” when a minimum number of people have joined in. The minimum number would be 10, 50, 100 or more. The consumer then pays the Group Buying website and receives a voucher. The consumer presents the voucher to the merchant to buy the discounted product or service. The merchant receives a check from the Group Buying website.
The merchant is required to offer a deep discount, usually in the order of 50% to 75%. The Group Buying website will take a commission (the average is 30% but could run higher) and the business receives the balance.
Who Offers Group Buying
There has been a sudden emergence of Group Buying websites in Australia over the past year. Some very big names have invested in the category and competition for customers is energetic. In the US there has been a similar surge of new Group Buying websites but already 3 clear market leaders have emerged. It is likely that only a few of the current crop of Australian Group Buying websites will survive. The challenge for business owners is to pick the winners and avoid the inevitable unwind that is bound to hit the industry at some stage.
Some of the leading lights in the Australian market include:
Cudo launched during the winter of 2010 and is owned by Microsoft and Nine Entertainment (owners of the Nine Network and ACP Magazines). A true media behemoth. Cudo enjoy the support of their Nine stablemates including A Current Affair and Woman’s Day. As a rough guide to popularity, Cudo has 19,705 Facebook followers.
Our Deal is owned by the Ten Network. It has been lagging competitors in terms of website visits but with the firepower of TV advertising and PR on its side OurDeal has the potential to become a major player in the industry. OurDeal has 5,886 Facebook followers.
Spreets was one of the first to launch locally and is backed by early Facebook investor Klaus Hommels. Spreets has 10,351 Facebook followers.
Jump On It are growing very strongly and have received a $5 million investment from Living Social in the US. Jump On It will get access to technology and expertise from Living Social and will also run the Living Social brand in Australia. Jump On It has over 400,000 fans on Facebook.
Zoupon is currently active in Sydney, Melbourne, Brisbane, Adelaide and Perth. Zoupon has about 3,000 followers on Facebook.
Scoopon is owned by Catch of The Day founder Gabby Leibovich who took the idea of a ”daily deal“ and turned it into a business fast approaching $100 million in annual revenue. Scoopon has about 15,000 Facebook fans.
Stardeals is just launching in Australia but is notable because it is owned by US market leader Groupon. Any business that can knock back a $6 billion takeover offer from Google is worth watching.
Other Group Buying websites in Australia include Ouffer, Good News, Offerme and Deal Me.
Benefits to Businesses
The potential benefits of engaging in a Group Buying program to a business include:
- Huge sales boost
- Turn new customers into repeat business
- Free advertising, if the revenue generated exceeds the costs
- Big PR opportunity
Pitfalls for Businesses
There are also some pitfalls to consider:
- Can create a flood of business. Can you handle it?
- Requires a deep discount. What is the true cost if full paying customers cannot get access to you due to Group customers?
- Is the Group Buying consumer really part of your target market? Is there a true opportunity to retain their custom?
Like all forms of promotion, a Group Buying program needs to be carefully considered and planned. A poorly executed program can damage your reputation and bottom line. But, If managed properly, a Group Buying program can be a great boost for local businesses.
Have you had any experience of Group Buying as a business owner? Tell us about it.
Update 20/1/11: Spreets has been acquired by Yahoo7 for $40 million.