Thoughts on Group Buying Sites
I decided to take a look at some of the Australian group buying sites. The ones that offer discounts to restaurants, $20 off massages, cheaper drinks, and the like. There’s quite a few now, and some of them have popped up recently like spreets and Scoopon.
These websites got my attention because of similar product buying sites like woot.com and its Aussie equivalent catchoftheday.com.au. Lately Groupon, a social buying site recieved a lot of press and VC funding with its $1 Billion valuation.
I quite like these websites and the idea behind them. As they offer discounts and better deals than if you bought these products or services directly from the supplier. I have used the Entertainment book for a few years now, and really enjoy the savings that you can get. Ironically, you do need to spend money in order to save money! In addition, it introduces you to new services, entertainment and dining venues which you would have never thought of. It gives you ideas of things to try.
I’ve bought goods from catchoftheday before. Occasionally, I receive emails from friends and facebook updates from my social network about JumpOnIt and Scoopon. Both these sites seem relatively new and tend to have a female skew (well at least within my social network!).
Group buying sites for services
The premise of these newer group buying sites that are emerging is that they focus on services and need a critical mass of buyers. Living social is another example.
Initially these kind of websites focused on products – a supplier or manufacturer may have a surplus of stock which they needed to offload. Hence, they could list on catchoftheday or some other website offering daily deals. It was great for the tri-parties involved. The supplier (seller) could quickly get rid of stock and convert it into cash. The website (deal maker) instantly got a lot of traffic from people visiting the site looking for a deal and a cut of the sales. Lastly, the consumer (buyer) won by buying a product at less than market value (commonly known as a bargain). These websites have proved popular for quite some time, though I’ve only come across them recently in the last year or so.
I love the idea of focusing solely on one product and offering a superior price for it. As these sites have been built up over time with a loyal following and because the products already existed and needed to be offloaded, there didn’t need to be a threshold level that was required to be reached to sell the product.
This brings me now to the service group buying sites. The way that these sites work is that they require a minimum number of people to buy the service before the deal is “on”. e.g. for today’s deal you might need 20 people to buy the massage service before you can obtain the discount. So it encourages people to tweet, facebook, email and generally share it. I think its perfect for today’s social status obsessed environment. People want to share news about a bargain, and encourage their friends to buy it to help them.
I look at some of these daily deals, and I can see that they can easily smash the required number. For example, yesterday Spreets featured a deal @ Doctor Pongs that for $10 you could get $40 worth of food. A saving of 75%. When I checked it with 11 hours to go, there was already 230 people that had bought the service and it only needed a threshold of something like 30!
Behold The Threshold
A key question is whether these service based sites require a threshold number to be reached. Many businesses have multiple coupons and promotions which they use to bring customers through the door. The idea is that these are lead generators. They might take a hit the first time the consumer uses the coupon, however these discounts are more like advertising. What they are hoping for is:
a) an increase in volume in a short period of time (weeks or months during the promotional period)
b) reaching new customers to consider buying their product/service (marketers like to call this “consideration”)
c) however, it really boils down to repeat transactions and selling them more stuff (upsell, cross-sell, monthly or yearly subscriptions, add-ons, etc…)
By having the threshold, it is easier to sell to the business involved i.e. that you need 30 people before the deal is on. This also makes it worth their while to be involved. The more people that buy the product, the more viable and better priced that discount can be and the better the business can absorb that initial hit. What it creates is an economies of scale. It also allows the business to have a crude prediction of demand for that discount.
The other subtle yet important factor is that if you know that you are going to save money in a transaction, aren’t you compelled to spend slightly more? I know I am the type of person that thinks since I’m saving 25%, I might as well spend $40 more!
However, for these websites to be successful, the thresholds needs to be relatively low. Because most consumers like me, will wait til the threshold is almost within reach. In this Scoopon example below, it is tipped @ 20 people. It is within the range where I would consider buying. It is also worth noting that you do not get charged unless the threshold is reached.
Some other Australian examples
The main reason I started writing this post is what I noticed about these sites. So that was Scoopon above and Jump On It above.
Take a look at OurDeal.com.au
Here is Spreets.com.au, a newer site built by Pollenizer and Booking Angel.
Yes thats right, they all look the same!
I showed a friend of mine, who said exactly the same thing. Its like they’ve all been built on the same CMS (content management system), or by the same design team (doubt it on both counts).
However, more likely, they’ve managed to figure out what is the most optimal way to sell these services and some of them may have just borrowed some elements from each other.
I’m out like buying services on my own,
Matt Ho.
