Group Buying: how your daily deal could succeed

Is group buying still a thing?

The fad that Groupon started in 2008 inspired a flock of fast followers also getting in on the so-called daily deals business and soon enough inboxes everywhere were flooded with 50 per cent discounts for spa treatments and meals at exotic food restaurants. The media has reported on some deals gone wrong for businesses using group buying sites, and the overall enthusiasm for the industry may have cooled in the past year.

But there are still a host of group buying sites offering daily deals out there, and consumers are still snapping them up. Using these discount sites the right way can help a business with zero to little online presence suddenly grab a lot of attention and even nab some new customers. But it’s important to embark on a group buying deal with the right mindset, and it doesn’t work for every business.

A panel of group buying site operators and their customers shared tips last week at DX3 Canada in Toronto.

Top group buying sites in Canada

There are more than 150 daily deals sites in Canada and 50 aggregators of those deals. It’s a $350 million dollar industry, but the number of players is likely to shrink soon according to Albert Bitton, strategic consultant at Group Buying Canada. “They’re calling me and saying ‘please help me sell.’”

Here are the top five group buying sites used in Canada:

  1. Groupon
  2. WagJag
  3. Dealfind
  4. TeamBuy.ca
  5. Living Social

When group buying works

Although about half of merchants who use daily deals turn a profit, up to 80 per cent of merchants consider their deal a success. That’s because they see it as a chance to promote their business for a low cost and retain new customers.

The best way to approach a deal with a group buying site in Canada is an advertising boost, says Bill Heilmann, the CEO at Fabfind. The idea of using a daily deals site to turn a quick profit is the biggest misconception in the industry.

“It has to be looking at an acquisition tool with an ear towards retention,” Heilmann says. “The idea is if we bring you 1,000 new customers, if you retain some of those as returning customers, that’s a success.”

That’s how Rajiv Chenney, the operator of Bombay Palace, approached daily deals after taking over management of the Indian food restaurant in June 2010. He wanted to draw in new customers to the restaurant, but found TV advertising prohibitively expensive. So he tried a deal with Groupon and saw 1,200 vouchers sold in 24 hours.

“We knew from the beginning it wasn’t profitable,” he says. “It was a promotion.”

Daily deals can be profitable for retailers with high fixed costs or low variable costs and no expiring inventory, Bitton says. “It’s like crack cocaine for these businesses, they can’t get enough of it because it gets them cash to pay for their $50,000 machines.”

Still, only about quarter of businesses that use a daily deals site become repeat customers. But those that do run an average of three deals a year.

When not to use group buying

If you’re in a business making low margins on your goods, group buying may not be for you, says Bitton. Group buying sites typically want a deal that is at least 50 per cent off the regular price, and then take a 40 to 50 per cent cut on your revenues, leaving you without much profit on your sales and possibly in the red.

While it might be tempting to use group buying sites to stir up a one-day influx of customers, don’t do it, says Omar Aboya, proprietor at Toronto Harbour Cruises, a regular user of daily deals sites.

“Don’t do it to increase your cash flow, because I’ve seen it ruin businesses,” he says. “Do it only to save money on advertising.”

Also don’t try and run a discount deal if your product or service isn’t bought impulsively, advisesPaul Baggio, senior product manager at Deal of the Day. No one is going to suddenly be inspired to get their plumbing fixed because of a discount, for example.

Brian JacksonBrian Jackson is the Associate Editor at ITBusiness.ca. Follow him on Twitter, read his blog, and check out the IT Business Facebook Page.

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