Going with the crowd

0

Does a 90 per cent discount sound too good to be true?

Not since the meteoric rise of group-buying sites.

The latest craze to sweet Ireland has been herd buying with services like City Deal (Citydeal.ie). This is a local operation of the international firm Groupon but the business model has been applied by various local offerings. Dealpages.ie shows you just a few.

Harnessing the power of collective buying has seen the websites grow with frightening speed. Even the Isle of Man, my second home, with a tiny comparative population is not immune from “me2” offerings – a new venture isleofdeals.com is successfully testing the water albeit in a smaller pool.

Consumers are offered deal-of-the-day discounts to their inbox on products and services. There is a catch before users can benefit from the 50 to 70 per cent discounts. Offers are only valid if a minimum number of people make the purchase. The site collects card details and once the tipping point is reached the deal is activated, payments processed and consumers are sent a voucher to redeem their purchase.

Obviously, Groupon doesn’t do anything that a few dozen of us with a phone couldn’t do but whether its the atmosphere of perceived scarcity that encourages spontaneous purchases, the convenience of online shopping or the simplicity of offering discounts of 50 per cent plus during the depths of a recession – these services are extremely popular. Groupon has 70 million mail subscribers in over 500 active markets while LivingSocial has 24 million and rising. Fast.

Groupon was launched in November 2008 and by December 2010 was the subject of a $6bn (£3.75bn) offer by Google. Now its value has been quoted at an obsence $25m. Clearly there is something to the proposition despite the number of clones (to be joined by Facebook and Google in the coming months).

 

Where is the value?

Is there profit in it? With the Groupon-clone often taking a 50% cut, there cant be much profit in it for the vendor. Would a retailer cutting out the middle man by offering 50% off advertising ploy be as successful? Probably not. People are tired of window signs with little behind them. A vendors own site would also be less likely to gain so much brand loyalty – and these offers give peripheral brands, niche firms or startups a real chance at getting into consumers line of vision. Also, with each group activated coupon, the merchant is guaranteed volume. This isn’t a guarantee traditional advertising or old fashioned coupons can offer.

Does this devalue these periphery services? What if consumers pick a product and simply start to wait for it to come up? Teeth whitening, weekend breaks and laser seem to be a staple offering.  That may be evidence of a market taking a distinct hit for its fleeting exposure. Also, is this only a service for building repeat business? When will one off deals like cars and electronics that are less likely to benefit from repeat custom begin to feel the pull of the group-buy limelight?

With the power of locality, fixed costs and the ability for targeting based on previously declared preferences – I see a big market for group buying in restaurants in particular. By forcing people to pay for their Groupon ‘right now’ before they ‘miss their chance’, restaurants lock in new customers in a way that old-fashioned coupons/adverts never could. Also, an intelligent offer would be a somewhat profitable proposition that is pitched in such a way as to encourage a slightly greater commitment at some other point. For instance, who goes to dinner and doesn’t buy drinks?

With no barriers to entry the other issue group buy sites must consider is proliferation and the subsequent fatigue this may bring. Who needs emails from all 50 services in your area (this is ultimately how the vast majority of these services currently reach their markets). They may have hit the curve first but group buy sites will need to work hard to retain ‘must read’ status in a cluttered inbox. The key to this must be quality control in the execution – few will go back to a group by clone which offers a cheap bad experience.

A new way for the old market

Would these services be a better function for local or national newspapers instead of paywalls and the old reliable fallouts and coupons?

With an established  marketing sales force,  geographically distinct and often loyal market – such a venture would be no surprise. I noted with interest a story that fell very much below the radar of Irish media. Recently, the Irish Times was ordered by The World  Intellectual Property Organisation (WIPO) to give up the domain groupon.ie. WIPO, the dispute-resolution agency of the United Nations, found the newspaper’s explanation for taking the name “lacked credibility”. Since December 2009, groupon.ie has been registered in the name of Digitalworx (who run the digital advertising arm of the Irish Times Group). I don’t think I’m alone in spotting the potential but we’ll see how well the old guard can adapt.

Leave a comment