Tag: marketing

How group buying can work for a business

Online vouchers can be good for a business when planned well

Online deal finding site The Dealmix has an excellent blog post analysing how daily deals can work for a business.

As the Dealmix points out, “daily deals can either hurt or help small businesses, depending on how they’re structured.”

In figuring out whether a deal will work, Dealmix breaks a group buying deal into four elements; expiration, quantity, terms and price;

Pricing the deal

Of all the areas, the pricing is the most critical. Get this wrong and you won’t achieve your objectives and it could be very quickly drive you out of business.

The Dealmix recommends two ways of pricing an offer – by making a net profit on the deal or structuring it a way that the customer’s total spend  offsets the cost of the offer.

Using Average Customer Spend, or ACS, to estimate how much a customer will spend is problematic with specials and group buying deals as the takers are not going to be your average customers.

It’s likely group buying customers are going to be far less open with their wallets than your regulars. Trying to upsell price conscious is probably what brings cafes and restaurants unstuck with many of these deals.

Both methods rely on knowing the Cost Of Goods Sold and the Average Customer Spend. Notable in the stories of group buying disasters is just how many business owners don’t understand these basics.

If you don’t know what the total cost is to your business in providing the goods or services, you should be talking to an accountant before going near these deals.

Also keep in mind the group buying service is going to take their cut which will be between 15 and 100% depending on the size and nature of the deal. For many businesses the commission is a deal breaker.

Quantity

The biggest complaint from customers about group buying offers is the deals are booked out for months – it’s also how service businesses find themselves overwhelmed by the response to a keenly priced offer.

Again, before launching a group buying offer, understand the spare capacity of your business and ensure there is a maximum limit to the number of deals available – as The Dealmix points out, a sold out deal is a great marketing tool.

Terms

Conditions are probably the trickiest; put in too many gotchas and you’ll scare customers away or find yourself fighting with the 90% of clients who buy the deal without reading the T&Cs.

You can guarantee some of those fights will end up being public and it’s unlikely your business will win the public relations battle. This is not your business objective.

Make sure key terms like what days the deal is available on, maximum limits, types of service are reasonable and clearly defined at the time of the offer.

Expiration

When the deal expires is the key condition, it’s madness offering deals that never expires as they can come back to haunt you for years and it may even affect the resale value of your business.

The Dealmix suggests not restricting it to a month as you’ll be overwhelmed with customers while leaving it too long will dilute the value and any measurements.

Ideally the deal will last three to six months, which is another reason for understanding your business’ capacity at various times of the year.

Timing the expiry is important to, as The Dealmix suggests, the deal shouldn’t finish on a busy day and equally you should consider when your business is the quietest. If things are slow during school holidays, summer or Christmas then that might be the time you want to have the last minute rush of redemptions happening.

Business Planning

Probably the most important aspect of a group buying deal is how does it fit into your business objectives. Are you intending to build a customer base, contact list, pubicise your business, clear stock or give sales a boost? Those objectives are going to determine how you structure the offer.

As The Dealmix’s diagram shows, group buying deals are complex and the merchant has to give some thought on getting the offer right. Those business who do get the mix right can do very well from a well thought out online offer.

Like all business tools, group buying sites can be really useful when done well. The key is understanding what you’re doing with that tool.

We discuss group buying and building your own campaign in e-business, Seven Steps to Online Success. If you need help or advice in building an offer, Netsmarts can help you.

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The world of smaller margins

Many of us are going to have become used to a less profitable market.

“We never get expensive trips anymore,” lamented the IT journalist, “every year we used to get a trip to Las Vegas, London or Singapore.”

The decline of journalist freebies is one symptom of the world of declining margins. In the case of the IT industry, most vendors have seen their profits shaved and the days of flying the press around the world to product launches and parties is an unaffordable luxury.

A recent Time story, When Whenzhou Sneezes, illustrates the problem on a broader scale.

In Wenzhou, a provincial Chinese city, factory owners found their margins were being squeezed and they could make better money in property speculation, which of course rarely ends well.

For the IT industry, we saw the rise of “crapware”, where computer manufacturers started added trial programs that slowed their systems and detracted from the customer’s experience.

That’s madness but Micheal Dell, the founder of Dell Computer, pointed out adding this rubbish allows them to sell computers $50 cheaper.

Assuming margins will always be fat, and then fighting market trends when those profits start to erode, are two serious management mistakes that are being repeated across industries and by entire nations.

Right now the world is changing and there are few sectors that have been profitable for the last twenty years that won’t be affected in the post-consumer society.

It might be worthwhile considering where your margins are and how they are changing, then resisting the temptation to do silly things. Although cutting back on journo junkets might not be a bad idea.

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What business can learn from Groupon

How can businesses use the web to grow like the group buying companies?

Groupon, pioneer of group buying and one the fastest growing companies in history, will have its launch on the stock markets today with an initial public offering (IPO) that’s values the business at thirteen billion dollars, more double the $6bn that Google offered for the three year old company last year.

A recent Business Insider profile of Groupon had some fascinating insights on this unique company and its growth, there’s a number of lessons that most business owners, entrepreneurs and managers can take from this company’s dramatic growth and market leadership regardless of the sector they operate in.

Apply tech to your business

Many people make the mistake that Groupon is tech startup when it’s actually a sales operation.

Groupon’s business model isn’t really new, what they have done is applied various web technologies to the directory and voucher shopping industries and come up with a 21st Century way of doing things.

Bringing together different modern tools like social media, cloud computing, local search and the mobile web makes businesses more flexible and quick to develop new market opportunities.

Prepare for quick changes

Groupon was born out of another business – The Point. As The Point steadily died, Andrew Mason and his mentor Eric Lefkofsky decided to try something different and Groupon was born.

This ability to change focus quickly – often called “pivoting” – is essential in changing markets. In volatile times like today where today’s business conditions can’t be taken for granted we have to be prepared for rapid changes.

Fortunately the cost and time to changes your business focus has dropped dramatically with digital and online tools, which is another reason to embrace tech.

Get a good business mentor

Eric Lefkofsky bought maturity and a perspective to Groupon’s young leadership, having a different and more experienced view of the business helped it develop and grab the opportunity.

An experienced business mentor can be worth their weight in gold.

Back a good idea

In Nicholas Carson’s Business Insider profile he describes Andrew Mason role at Eric Lefkofski’s business before The Point as “an intern, ‘kind of squatting in their offices'”. Lefkofski was prepared to back the geeky kid camping on his premises.

Putting your prejudices and judgements on the shelf to back good ideas, particularly those that don’t cost much to execute, is one way to find where the opportunities lie.

Tell your business story

Regardless of what you think of Groupon’s claims, they tell a very good story which has lead to their amazing growth and the development of the group buying industry.

Being able to tell your story, in your terms, is one of the great advantages the web, local search and social media deliver. There’s no reason why your business shouldn’t be dominating the local market in whatever field you work in.

Regardless of what your business does, it can benefit from applying the online tools that are available to all of us.

We may not be the next Groupon but the web gives us the opportunity to build our business to take advantage of the 21st Century. It’s worthwhile understanding the new tools at our fingertips.

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Technology’s magic pills

How a social media or cloud computing ointment won’t solve your business problems

As railways rolled out across the US in the mid 19th Century, the snake oil merchants selling dubious medicines weren’t far behind.

Communities that had never before seen things that were taken for granted in the big cities were easily fooled by miracle treatments that would fix all their ills. By the time the locals discovered the scam, the snake oil salesman and his shills would be well out of town.

Technological change always brings out hype and over the last few decades we’ve seen a similar thing happen with the tech industries, as products and services were sold on the back of claims that could be described as ambitious, if not outrageous.

The Y2K bug was a good example of this as planes were going to fall from the sky and dams collapse if we didn’t hire an expensive consulting firm or buy a widget that would remind our computers they were now in the 21st Century.

A similar thing is at work with Internet names, where the current push to sell Top Level Domains – a bargain with their $385,000 application fee – is being touted as the fix to everything that is wrong with web addresses.

With digital snake oil it’s interesting how often big organisations sometimes act like 19th Century American sharecroppers – all too often we seen ministers and CEOs announce an outsourcing deal that will save taxpayers or shareholders millions only to later find the only winner was the consulting firm that sold the idea.

A similar trend is at work in the PR industry, Sky News presenter John Kerrison has an entertaining look on his personal website on how social media is being sold as an easy fix for a business with far more fundamental problems.

The sad thing is that there are real benefits behind the grandiose claims; Y2K was a real problem, money can be saved through intelligent outsourcing and social media is a great PR tool.

Eventually hype backfires, consumers are rightly dubious about anything that has the slightest hint of PR spin while the IT sector is viewed with well-earned suspicion by business proprietors, executives and managers.

A good example of this was last week’s Digital Readiness report from Optus that found businesses aren’t particularly interested in cloud services. This mirrors similar studies by Sensis, MYOB and MelbourneIT which all find organisations aren’t too fussed about the online world in general.

The danger with this is there is fundamental shift happening in society and technologies like websites, social media and cloud computing  – just like the railroads in the 19th Century – are part of those changes which businesses need to understand.

In an era where snake oil is a commodity there are two challenges for business people; the first is not to be perceived as one of the charlatans and the second is to see the miracle cures for what they are.

Probably the best tool for dealing with the digital snake oil merchants is turn on your own, old-fashioned bullshit detector and treat the shills with the suspicion they deserve.

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The reverse ambush

Ambush marketing isn’t always a good idea

As the Apple faithful starting queuing outside stores to buy the latest version of the iPhone, in Sydney electronics manufacturer Samsung set up an outlet a few doors up the street and offering $2 Samsung Galaxy phones.

Some in the press portrayed this as “ambush marketing” by Samsung, claiming that the Korean company has stolen coverage from Apple.

In reality, all the stunt has done is emphasise the different market positions of the companies; Samsung have people camping out for $2 phones while a few doors up the street there’s a bigger line for an $800 Apple product.

The message is clear; Apple’s products are more desirable than Samsung’s at even 400 times the price.

Whatever Steve Jobs was reincarnated as – a Bogong Moth or the next Dalai Lama – he’s laughing right now.

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Do you have customers or just users?

Are subscribers, visitors and users really supporting your business?

“I was on your mailing list for general info, for spams and scams etc which were helpful. Suddenly it changed and now the business format is not useful to me” said an lady when unsubscribing from one of my newsletter mailing lists.

The lady concerned had been on one of the mailing lists for over ten years and, once upon a time, had been a paying customer for my old business, PC Rescue. Although we’d only earned a $100 off her and that was seven years ago.

While it’s sad to lose a subscriber – you don’t run a service business for twelve years without caring about those who use your services – the question is was the lady really a customer?

This is an important distinction where many of us are giving away much of our knowledge for free; are our users really customers?

For the social media and web2.0 sites, this is easy; users are the raw material for their aggregated and segmented data feeds and audience, the customers are the advertisers. This is just a modern twist on the broadcast model that sustained the radio and TV industries for most of the 20th Century.

Many of those social media platforms aren’t making much money from that data and there’s a good argument those who are have been wildly overvalued by investors.

The value of user data, whether it’s aggregated or identifiable appears to be nowhere as high as most of us think, unless you intend to rob your users’ bank accounts.

Overvaluation of your customer, or user, database is a common problem for smaller businesses too. If you’re the local plumber, computer repair guy or coffee shop then the value of any mailing list is probably way overstated – the only metric that ultimately matters to the business is how much money you’re making from the customer.

If you care about the people that you deal with, this may be a hard reality to face but those who visit your shop, subscribe to your newsletter or download your free e-book aren’t your customers, only those who are prepared to pay are.

This is something we have to understand in this era of abundant free information and online services. The challenge for most of us is how many users we can convert from being window shoppers and freebie seekers into customers.

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Group buying sites explained

Are big Internet discounts right for you or your business?

Fancy half price seafood dinners, deeply discounted electrical goods or 80% off personal fitness training? Thousands of people who’ve signed up for group buying websites certainly do and hundreds of businesses are prepared to make big discounts to attract those customers.

What are these services? Are they worthwhile and how do the businesses make money from them? Should customers be wary of advertised big savings and are merchants cutting their throats when they enter the world of deep discounting?

What are group buying websites?

The idea behind group buying sites is that merchants will offer cheap deals to take advantage of bulk sales, clear inventory or as loss leaders to attract new business. The products offered can be anything from a cheap haircut through to discounted whitegoods or a cheap meal.

Customers subscribe to the group buying websites and receive a daily email detailing the deals in their areas. If they like an offer, they can choose to be part of it and if it goes ahead, their credit will be debited and they’ll receive a voucher for the deal.

The group buying websites usually approach businesses to take part. For the privilege of having their businesses featured, the website takes between 20 and 100% of the offer price as commission.

What are the consumer benefits?

Naturally the main attraction for consumers are the cheap deals on offer. Some businesses are offering 80% off their list prices for products, so there can be substantial savings to be made.

There’s also the opportunity to try out products or outlets you wouldn’t normally try for instance you might not usually be interested in Zumba classes, canoe hire or replacing your TV at normal prices but an 50% discount could tweak your attention.

Are there risks for the consumer?

There’s no such thing as a free lunch so there are a number of risks when using a group buying site.

Impulse buying is probably the biggest risk, if you’re a sucker for a deal then these sites will love you. It’s an opportunity to sign up for a lot of things you don’t really need, probably will never have used and maybe can’t even afford, but fact you saved 80% makes you feel good.

There’s also the risk you’re not really getting the full discount. A lot of canny merchants inflate the list price to make the amount off look greater. Many also reduce the size or quality of the discounted product to recover their margins.

A big risk is that you may never get to use your voucher. Either you’ll forget about the voucher you received or the merchant is so overwhelmed by the offer’s response that they can never get around to catering for all their people who took them up.

Finally there’s the spam factor. Many merchants see a group buying offer as an opportunity to build their mailing lists, so you may find yourself being spammed for fitness classes and restaurant offers for a long time after you take up a deal.

Business Benefits

These sites wouldn’t have taken off if there weren’t businesses to advertise on them and hundreds of merchants have taken up the opportunity. So there are clear benefits for the outlets that use these services.

The most obvious one is they get to promote their businesses. All of these sites claim to have subscribers numbering in the hundreds of thousands, so it’s an opportunity to get your products in front of a large audience.

Clearing excess capacity has been one of the main drivers for these sites in the United States where many businesses have found themselves with too much inventory or staff sitting around. These sites are a great way of clearing inventory or smoothing demand cycles.

Business downsides

The first problem is that excess stock. A business can’t afford to be carrying stock that requires big discounts to clear, if these offers become a regular feature then your business is in trouble.

Even if your business isn’t in trouble, these offers risk devaluing your brand. As the major retailers have found, offering frequent discounts trains your customers to expect lower prices.

Offering these bargains may alienate existing clients. Those customers who are prepared to pay full price aren’t only going to be irritated to find they could have got your products cheaper, but may also be unhappy with your business being overwhelmed by cheaper, price conscious clients.

Those price sensitive shoppers aren’t really your customers either; they are loyal to the buying platform and cheap deals, so if your competitors have an offer later on another platform, those customers will go there. There’s a lot of work to be done converting these bargain hunters into repeat clients.

One of the most misunderstood parts of group buying sites is the commission structure, most of the services charge a commission of between 20 and 50% – with some going up to 100% – on the advertised price, so that 50% discount to the customer is actually 60 to 75% off the merchant’s selling price. This can be a massive hit to a business’ profit.

Is group buying for you?

For businesses group buying sites can be a good idea if they are used as a part of a well thought out marketing strategy or to clear occasional excess stock. But they shouldn’t be seen as a quick way to attract new customers.

Customers are the big winners from group buying sites, as it’s the opportunity to pick up some great deals. But users have to use a bit of judgement instead of just jumping for the best looking deals.

It’s an old saying, but if anything looks to be too good to be true then it probably is. In the Internet age, that saying is probably truer than ever. Group buying sites can be good for both businesses and customers, but watch the wallet.

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