It seems that every week there’s a new group-buy consortium that springs up, offering the next crazy bargain for discount hunters. In Vancouver alone, there are no less than 10 groups which publish deals ranging from spa services to eateries to go-karting. For the customers, few would complain about using these services to get steep discounts on something – but what about the retailers? How many of them have actually found value in paying for such traffic harvesting?

The Wallstreet Journal reported last month of a study conducted by Rice University regarding retailers’ satisfaction with the reigning king of group-buying, Groupon. According to the poll they conducted with 150 retailers from across the U.S., 40% of the respondents said they would not run their promotion again with Groupon, which is a stark contrast to the 97% claimed on their website.

Among other findings, restaurants reported the least success for their promotions, while salons and spas fared the best.

My take on all this is that businesses who are considering group-buying need to see this strategy as another type of marketing expense. It’s to generate  foot traffic and awareness for your products and services – and in doing so, should not expect to make very much profit, if any. You need to ensure that your gross margins are wide enough to offset the discounts being given out as your fixed expenses (rent, wages, cost of goods, etc.) still remain, deal or no deal. Most importantly, you must realize that the majority of the people who buy your deal are bargain hunters – so keep that in mind and don’t expect them to be big spenders from the outset. Your ability to convert even one of them into a loyal customer will depend on the quality of goods sold – the role of group-buy programs is simply to get them through your doors. The rest is up to you.

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