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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