To Group-Buy or To Not?
Suddenly Group-Buying is all the rage online and every website that has any sort of database or email list is suddenly offering discounts to other products/services. With the news that Groupon is preparing for a $25 Billion IPO and there are now 1000’s of clones, group buying is a fad that will stick around for the near future and it could help make or break your business. I’ll cover some of the pros and cons of group buying to help and determine if it would be helpful for your start-up.
Pros
- Performance based Customer Acquisition usually at a very affordable COCA (cost of customer acquisition)
- Millions of Impressions across multiple mediums
- Branded Awareness and Alignment (depends on what group buying partner you work with)
- Mass scale- most large group buying services offer regional and national offers. If your offer works regionally, there is opportunity to scale nationwide. More impressions and customers
Cons
- Heavy discounts necessary resulting in lower margins or even negative margins. This is a huge issues for non-service business that already have fixed costs. I can see this working poorly for goods based service, restaurant, etc.
- Deal seeking customers which may results in extremely low LTV’s.
- Brand Eroding partnership. Working with the wrong group buying site can make your brand appear cheap or as a heavy discounter. Take this into consideration before launching a group buying site.
Group buying can be great opportunities for start-ups and small business because of the reach and the ability to acquire customers with little or no risk. If your deal doesn’t sell, you basically get millions of impressions for free, maybe not what you wanted but certainly not the worst outcome. Be prepared to test with certain partners, and focus on working with some of the higher end partners, including the newly formed Google Offers. (Groupon turned down $6billion from Google and then Google launched their own ‘Offers’ platform, so there is serious money behind this to succeed.)
In summary there are many factors to take into account when running a group buying offer. Be sure to run some scenarios to ensure that your risk is mitigated. Also, read the contracts as there may be some finer language that will allow the group buyer to avoid payment or handcuff you from working with another partner for a period of time.
Chris Kenney is the Director of Online Marketing at Gemvara. Gemvara allows user to customize their pieces to select a design, metal and gemstone. Gemvara offers a wide selection of Rose Gold Engagement Rings, Stud Earrings, Initial Necklaces, Black Diamond Rings and more.