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Is group buying worth it for small business?

To a small business owner, the prospect of having thousands upon thousands of new customers walk through the door is an impossibly exciting one. This is the basic appeal of group buying – sites like Cudo and Spreets have immense marketing reach, attracting hordes of deal-seekers daily. If a business is willing to offer one of their services through the deals site at a heavily discounted rate, then they stand to benefit from significant exposure and the possibility of countless new customers.

While many businesses have reaped the benefits that daily deals sites can bring, just as many have been underwhelmed and even offended by the experience. Deals often attract difficult, non-returning customers, and a number of the larger sites have been known to employ disingenuous sales strategies and payment systems. By no means is group buying a surefire way to increase sales, and the use of it as a marketing tool has produced mixed results for many small businesses.

Managing expectations

Hoping to expand its customer base to include more families, photography studio Blueprint Studios put a deal on Ouffer offering ten images and three prints for a reduced price. Although the deal proved to be a success – the business gained some new clients with young children – it also attracted a host of customers whose interest was limited to what they’d already paid for.

“We got a lot of people who weren’t necessarily interested in photography until they saw the offer,” says Katie McKee, an assistant at the studio. “Most of the people just took what they got through the offer – which is absolutely fine, but it definitely didn’t generate further sales.”

Chontelle Stevens, director and owner of massage specialist Pure Wellbeing, also noticed a massive influx of ‘deal-seekers’ with her first foray into group buying sites with OurDeals.

“We found we were attracting a lot of people that were really just after a cheap deal,” she says. “We did convert a few people, but not what we wanted to.”

From this experience, she realised that the people who were likely to become repeat customers preferred to use the deal to trial the business. She decided that the way to make the most of the arrangement was to offer some incentive for them to come back.

“The next deal we ran was still a great deal, but we incorporated into that vouchers towards future sessions as well,” she continues. “They bought the original promotion, but they also then got $25 off vouchers for future sessions. That way, we could actually start establishing behaviour between them and our business, so that if they were coming to us every four weeks, it was just much easier for them to continue to do that.”

The biggest challenge that Pure Wellbeing has been presented with is to manage the expectations of those who buy the deal, so that all are satisfied with what they’re getting.

“Because they’ve already paid for something upfront, the people that buy the deals have a huge expectation about when and where they can get their appointment time,” she says. “A lot of people get very excited about the fact that they may be able to sell 2,000. At the end of the day, they’ve got to remember that 2,000 people buying means that 2,000 people want to get in as soon as possible. It’s about managing expectations. The worst thing in the world would be if you can’t get people in, and then you end up having people badmouthing your business because they’ve bought a voucher and they can’t get in for three months.”

Read the fine print

Although daily deals sites can yield massive exposure for small businesses, some struggle to come to terms with the stringent conditions of payment imposed by a number of sites. Russell Leadbeater, a personal trainer and owner of RL Fitness, tried JumpOnIt on the strength of the potential exposure the site offered his business, and he says that he agreed  to a standard 50/50 split of all returns from the deal.

“They asked us to offer a very heavily discounted rate for our services, and the idea was that we would get this huge influx of people coming in,” says Leadbeater. “We were thinking we’re going to have 50 new clients coming in; I only have to convert 10% of those, and I’ve done really well for myself.”

What Leadbeater claims he didn’t know before he signed up to the deal is that the money he stood to make from it hinged on the number of vouchers redeemed, not those sold. Although eight JumpOnIt subscribers bought the deal, only three redeemed the vouchers they bought, according to Leadbeater.

“Basically Jump On It has kept 75% of the money, not the 50% [I thought] we agreed upon,” says Leadbeater. “Jump On It will not give me those people’s details, so I can’t call the people that haven’t come in and ask if they want to come in and do that training – they say it’s privacy laws. What it feels like to me is that the Jump On It guys are actually limiting the amount of money I can make from this deal, because they actually only gave me 25% of the agreed amount, and the rest of it is on a per capita basis.”

Pure Wellbeing’s Stevens was wary of this type of deal before she agreed to any deals. 
“Cudo are good. They pay everything up front,” she says. “Living Social give you 50% up front and then they only pay you per redemption. When the promotion ends, they don’t give the business the money for outstanding redemptions. They keep it themselves, which I think is really unfair, because it’s people that don’t redeem that help cover the costs of those that do.”

RL Fitness’s Leadbeater concedes that his experience might not have ended quite so bitterly had he been running a larger business.

“If I had a really big gym of a few thousand members, and I already had employees who I’m paying a salary, then any extra money would be fine. It’s no skin off my nose, as I’m already paying their salaries anyway,” he says.

Do your research

The lesson entrepreneurs should take is to do their research before using group buying to market their business.

“What happens is that businesses often get approached by the group buying sites, and then sign up on the day, so they haven’t had a chance to do a lot of research yet,” says Zhen Lim, owner of group deals aggregator Buyii. “We recommend to have a chat with that group buying site and get the information from them, but also approach some other ones that they think could be suitable as well.”

Another thing many small businesses don’t know is that the rates and arrangements laid out in group buying contracts are often negotiable.

“You can negotiate with the majority of group buying sites. It’s not like people cutting interest rates in the banking industry. It is a very competitive industry,” says Lim.

He explains that along with the growth in popularity of the group buying phenomenon, a number of sites have been created to fill a need for businesses that can only afford to pay a 10–25% commission rate.

“Those sites are probably good alternatives for some small to medium businesses,” he says. “The bigger sites get more and more exposure, and a larger subscriber base. It comes down to the business and what they want from this group buying marketing exercise. When it comes down to it, [the appeal of group buying is] marketing and exposure for a lot of these companies.”

At the end of the day, you need to weigh the potential value of massive exposure and increased sales against the pressure that a successful deal would place on your business, and the prospect of the deal not yielding anything beneficial at all.

“I’d advise small businesses like ours to think very carefully,” says RL Fitness’s Leadbeater. “If it really does well, can you handle the on-flow of clients? And if you don’t get that result are you happy giving someone a massage or a personal training session for $12.50, when you actually charge closer to $60 for everyone else?”

Image credit: Thinkstock

The term small business marketing encompasses many strategies and ideas, however the skill lies in knowing which ones are most suitable for your small business. Generating small business sales is the ultimate goal of any business and learning the different ways in which small business marketing can assist will help increase your overall sales. NETT features compelling articles covering all angles of small business marketing from SEO and SEM to email campaigns and social media.