For those of you new to Group Buying, deal sites such as Groupon and LivingSocial originally charged vendors (i.e. the local pizza place) 50% of the discounted sale price. For example, if the deal was $15 for a $30 voucher to ABC Pizza, the deal site would keep $7.50 of each sale as commission.
Luckily, with the flood of ‘Groupon clone’ deal sites, it is possible to do a Group Buy deal without having to pay the hefty 50% commission or be constrained to other restrictions.
So how does a vendor go about choosing which deal site to partner with? Things to consider:
1.Size - You can bet your deal will be seen by more people via Groupon vs. a clone site due to Groupon’s large email database. The flip side is, do you want millions of people seeing your deal? i.e. Can you afford to give away thousands of discounted vouchers? Or is your goal to simply sell a couple hundred to give your business a small marketing and sales boost? As a rule of thumb, roughly 0.5% to 2% of email subscribers will purchase any given deal. Therefore, if a deal site has a local database of 100,000 emails, the vendor will likely sell between 500 and 2000 vouchers.
2.Long term contracts - Some sites require vendors to sign a contract stating that you will do multiple deals with them and/or that they can re-post your original deal on a later date.
3.Communication - How personable is the deal site? Are they easy to get a hold of? There are numerous horror stories of group buy sites posting deals (without warning) leaving vendors unprepared for the spike in demand.
4.Queue - How many deals are in line before yours?
5.Attention sharing - Group Buying started as ‘one deal a day’. Now most websites post multiple deals a day, which means each vendor is competing for attention against other deals (sometimes even direct competitors). Some sites even post up to a dozen deals a day on the same page!
6.Deal length - Is your deal featured for one day? Or for multiple days? Can you choose (based on your needs)?
7.The fine print - As a vendor, when will you get paid? Originally, the vendor received up to 80% of the voucher proceeds (after commission) up front (the other 20% was reserved for returns and paid out later on). This was one of the main perks of doing a group buy. Unfortunately, there are some deal sites out there that only pay out once vouchers are redeemed (received by the vendor) and sent in to the deal site. Up front it seems reasonable, but when 15% to 30% of voucher go unredeemed, that’s a lot of money the deal sites are keeping instead of the vendors.
8.Ask around - Sometimes it’s as simple as asking friends and colleagues that have done a Group Buy on how their experience was.
9.Ask an aggregator - Ok ok, this is a little biased, but aggregators like my website (www.groupbuyunited.com) have a lot of insight into most deals sites as we constantly deal with them (and get feedback from vendors and group buyers on which ones they liked or disliked).
All in all, it goes without saying, but it is always important to ask questions and thoroughly read the contract. If you get a bad feeling about a deal site, just remember that there are dozens of others that you can partner with. Do not get pressured! It is a competitive industry and every Group Buy salesperson is on commission. Be sure to take your time when making a decision.
Now that Group Buying has been mainstream for at least a year now, I think it’s time that someone enacted some Voucher Redemption Etiquettes.
Unfortunately, there really is no way to enforce these ‘rules’, but here is a list of common courtesies that are needed by people redeeming vouchers. Note that a list of ‘Vendor Etiquettes’ will be a separate post (just to be fair).
1. Follow the rules! If the fine print says, ‘reservation needed’ or ‘1 voucher per table’, be sure to follow these. You’re already getting a great deal so trying to negotiate a better deal is just tacky.
2. Be patient. Because some deals are REALLY good, you may have to wait a bit to get your appointment or get served. Especially when it comes to restaurants, Group Buying brings in a huge influx of customers so there’s no need to get fussy if the food is a little late.
3. Tip well. For any services that require a tip, be sure to tip on the regular price (not the discounted price) and also tip between 15% - 25%. Since you’re already getting a good deal, an extra $5 in tips will go a long way in making someone’s day!
4. Alongside #2 and #3, if possible, go to the vendor during non-peak times. For example, go to a restaurant anytime other than 12pm - 1:30pm and 6pm - 7:30pm. Vendors will appreciate this and you will also get served faster.
Other than these, the most important thing is to have fun! Really take it in and if you enjoy the experience, be sure to go back and support the vendor!
So on January 22, 2011 I made a list of my predictions for this industry. 3-months later, here is where they stand:
1. More Groupon clones will flood the market, only to fade away just as fast as they entered. The ones that will survive will be the ones with a lot of funding or have the ability to cross pollinate. i.e. sites owned by established firms like newspapers, magazines, and other popular websites. Examples include Wagjag and Torstar, National Post and Swarmjam, Dealfind and Menupalace, etc.
Well, so far a lot of clones have flooded the market. There have also been cases of numerous Group Buy sites folding - Goodnews.com being the most notable as they had a heavy financial backing. From my perspective, as more Group Buying sites flood the market, the margins on each deal will become smaller and smaller making it tougher to stay in the game (unless you’re one of the established sites).
2. Businesses that have resisted doing a Group Buy deal will give in once they realize that they are losing clients to their competitors that are offering deals.
Hard to prove that I was right or wrong on this one, but I think it’s safe to say that A LOT Spas and Restaurants have jumped on the Group Buy bandwagon.
3. More established names will offer group buying discounts (similar to how GAP and American Apparel did a deal on Groupon).
General Mills and Groupon; need I say more?
4. Group Buy websites will be an inferior product when the economy ‘double-dips’ making each site that much more valuable.
Sorry, this prediction was a little too vague… but I think most people will agree that mainstream society is getting more and more addicted to ‘deals’ in general, making these sites more valuable.
5. Niche Group Buy sites will become more popular (like those that focus on men’s products or maternity products).
Numerous sites have entered the market, but we will have to see how successful they become.
6. Group Buy sites will recognize the importance of aggregator sites and form partnerships with these firms to control the supply chain.
I know this is a little bias, but part of this is coming true. Many of the new sites are leveraging the email lists and visitors of multiple aggregators to make up for their limited email lists. Some sites are even offering up to 30% commission to aggregators. In my opinion, most new sites would be dead in the water without the aggregators.
7. A market place will form where unused vouchers can be sold or traded.
Dealgoround.com is one of my favorites! ;)
All in all, I think I’m doing pretty good on my predictions! Thoughts?
Thank you again for your support with purchasing and spreading the GoodNews.
Kevin Ham, CEO, GoodNews.com
Is this a sign that the group buy boom has taken on so many Groupon ‘clones’ that the market is now saturated? Regardless, it is unfortunate news as Goodnews.com was the pioneer in the ‘local cause’ donating feature (where partial proceeds from each sale would go to a local cause) that is now found on many different group buy sites.
One of the many advantages of a vendor doing a Group Buy is that the vendor receives the proceeds from running a deal upfront (also known as unearned revenue for those accountants out there). There are documented cases where a single deal brought in over $250,000 to a single location vendor (it was a meat shop) AFTER commissions and fees from the deal site. So now one must ask, if a vendor ever needs to improve their cash position, is it better off to run an attractive group buy deal instead of borrowing money from the bank?
Points for consideration:
Both are technically liabilities. The bank will want ever cent back, while voucher holders will want what the voucher entitles them to IF and WHEN they are claimed. Remember, anywhere from 15% - 30% of voucher go unclaimed, which essentially means FREE money!
It is impossible to determine how much money a Group Buy deal will bring in, while a bank loan is always a predetermined amount.
Bank loans incur interest, while proceeds from a Group Buy deal will gain interest.
Bank loans must be paid back in cash. Group Buy vouchers are redeemed for services/products (including any markups).