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Group Buying Sites: The Pros and Cons of Listing Your Products or Services

Should your business use group buying sites?

By Oliver Milman
Wednesday, 18 May 2011

The launch this week of BizzBuzz.com.au, a site that offers deals to small businesses, indicates that the onward march of the burgeoning group buying sector isn’t slowing down.

 

With more than 20 group buying sites already in Australia, and niches rapidly being filled by the likes of BizzBuzz and Liquid Deals, saturation point was arguably reached some time ago.

 

However, is the explosion of group buying sites good news for small businesses looking for a sales boost? The merits of listing a product or service on a group buying site is a consideration that increasing numbers of start-ups have to ponder.

 

To help you make up your mind, or maybe procrastinate further, here are five pros and five cons of diving into the group buying space.

 

Pros

 

Numbers

 

The plethora of group buying sites in Australia may be relatively new, but they already command a significant audience.

 

According to analyst firm Telsyte, the group buying market is set for revenues of more than $400 million this year, with industry leaders Scoopon, Spreets, Cudo and Jump On It accounting for 80% of this.

 

Jump On It, for example, recorded 410,000 unique users in December, according to Nielsen. Such impressive figures mean that your deal is likely to have a decent number of eyeballs peruse it.

 

Expanded reach

 

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.

 

There are plenty of options

 

Scoopon, Catch of the Day, Jump On It, Spreets, Cudo, Ouffer, Star Deals – the list of group buying options available to vendors is seemingly endless.

 

We are already seeing consolidation in the market – witness, for example, the acquisition of Crowdmass by Star Deals – but there still remains a vast choice on offer for small businesses to utilise.

 

It can add extra revenue

 

If you run a fixed-cost business, group buying can provide you with handy extra income. 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. If you don’t have to produce a product that you then may make a loss on, group buying is a winner.

 

It can shift stock

 

Inexpensive goods that are hard to shift are tailor-made for listing on group buying providers. Rather than bear the cost and inconvenience of letting underused stock clutter up your business, why not offer them to the masses at a reduced price and reap the rewards of increased awareness at the same time?

Cons

 

It can prove costly

 

The exposure you get on a group buying site comes at a cost. On average, group buying sites take a 30% revenue cut from each deal, making the margins impossibly slim for some start-ups.

 

This loss can build up significantly over time. Indeed, it’s possible for your products or services to become too popular on group buying sites – if consumers are snapping up your offerings en masse via Scoopon, why would they come to your site and pay top dollar?

 

It may devalue your brand

 

The cut-price nature of group buying offers can not only damage your bottom line. It can also harm something more intangible – your brand.

 

A high-volume, commoditised business may be able to get away with merrily shifting stock through Cudo or Spreets, but what if your start-up is built upon an image of high-quality exclusivity? Flogging wares in the bargain basement doesn’t exactly do wonders for the brands of many start-ups.

 

It erodes customer loyalty

 

If someone buys from your site or even at your store, there’s a good chance that you will be able to capture their data and incentivise them to make a return visit.

 

With group buying sites, it’s likely that once the coupon has been sold, you will never see that customer again. No repeat sales. No insight into who makes up you customer base. Nothing.

 

Which site to choose?

 

The PR operatives of the various group buying sites are quick to push their respective clients’ claims to being the number one site in Australia.

 

You can slice and dice the figures anyway you like – unique visitors, email database, number of vendors, etc – but, ultimately, there isn’t one dominant group buying site like Groupon in the US. Which begs the question – which group buying site should you use? Experiment with all of them in turn, or several at once? It’s a pretty laborious exercise in order to find the best fit for your business.

 

Why not just use Facebook?

 

Some industry observers argue that you can achieve similar results from group buying without using a specialised site. You could run deals yourself by using Facebook, for example. You would be able to set your own terms and prices and launch deals whenever you like.

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