Group buying: is it worth it?

Group buying sites like Groupon, Living Social and KGB Deals – and the B2B equivalents Huddlebuy and SME Discounts* – have grown dramatically in popularity over the past months. With their extraordinary reach, the consumer-focused sites like Groupon can put your business in front of an enormous number of potential customers in a very short space of time. That sort of reach is tantalising, and an advertising holy grail for the smaller business. While some herald these websites as the next big thing, I have my reservations. I concede that they represent a new sales channel worthy of investigation, but are they worth the effort?

The fantastic discounts offered by these sites are enough to draw in the audience, but are they of value to the suppliers? I’ve been working with a client in the hair care field recently. She says the hairdressing offers she’s seen are over-discounted and can’t be making money; or they come from companies that just don’t seem reputable. Another contact, a photographer, echoes the sentiment, saying the outcomes simply can’t be of a high enough standard when the price is so low.

Recently on Huddlebuy – supposedly the B2B answer to Groupon – I saw someone offering to write a press release for £25, which represented a 50% discount off their normal price. Either the offer came from someone who has no clue what they are doing, or it represented a massive loss leader. I just don’t believe you can supply a good product at that price. How you can research and write a meaningful press release for just £25 is beyond me. I’ve always believed that you get what you pay for – and discounting something like a PR/copywriting service by that much shows me that it wasn’t worth much in the first place. Or else that the advertiser is desperate for business. Both of these are red flags for me. I wouldn’t want a half-price service. I would suspect I was getting “half-service” if I paid “half-price”.

Actually, I looked the company up. From what I saw of their own copy, it confirmed my opinion that they couldn’t be trusted to turn a business’s messages into compelling text. Perhaps I shouldn’t be so disparaging about someone trying to make their way in marketing, but it does annoy me when people discount their service offering. It devalues them, and devalues their services. Why do it? If you’re worth what you advertise your services to be worth, then when you discount, you are devaluing yourself. You’re cutting your experience and expertise in half if you discount by half. It’s something you can do when you’re selling products. A volume offering may be able to be sold at a discount, but when you are effectively selling your time for money, then you can’t do it without cheapening yourself. It’s like going for a job paying £25k when you’re worth £50k – why would you do it?

Another aspect that a seller needs to look at closely is one of scale. Groupon may well be able to put your brand in front of more than 8 million UK subscribers, but it’s exactly those figures that you have to consider. If the deal is really successful, would you be able to fulfil it? (Remember the Hoover promotional fiasco in the ‘90s anyone?) Do you have enough staff? Do you have enough inventory?

Of equal importance is the question of margin. Groupon, for example, requires first off that you offer at least a 50% discount. It then takes 50% of the sale price for itself. So if the usual price of your product is £100, you offer it via Groupon at £50 and make £25 in revenue per sale. That’s a quarter of your usual revenue. That’s a big chunk of your margin gone, and if your cost of sale is higher than that, then patently Groupon is not for you.

Group buying may be a great channel for some businesses, and certain business models will be able to use it to great effect. But before you rush headlong into it, make sure you do your homework. Ensure that you can accommodate it in the first place – both financially and with sufficient resource – and make sure you cap your offer at a sensible level. If you’re still unsure, just Google “Groupon horror stories”.


* SME Discounts seems to no longer be a group buying site (as at July 2012).