Wangari Kamande is a Research Analyst at Social Media Group.

If you’re an avid group buyer, you are all too familiar with the lure of buying trips to those random vacation spots in the middle of winter as the deals role in on an early, gloomy Monday morning, or buying that dinner deal at 4pm in the afternoon when you could eat a sack of potatoes or better yet, that massage deal on Friday after a long work week and you just want to get pampered because you DESERVE IT!  These are the moments where I stare at my credit card as if it were a person and say to it, “Are you going to hurt me for buying this?” the answer is usually “most likely”…so I take a deep breath and let it slide…

So how is group buying working out lately?

State of the Industry in Canada

There are a number of group buying sites. I personally subscribe to Groupon and TeamBuy; other popular sites are: Dealfind, WagJag and LivingSocial. Here are some interesting facts from GroupBuying Canada:

  • Canadians spent approximately $400 million through daily deals sites in 2011
  • Group buying in Canada has a current market size of $415 million
  • There are about 140 daily deal / group buying sites in Canada and over 40 aggregators (more than the US on per capita basis)
  • In any given city or province, there are different leading sites e.g ,Tuango completely dominates in Montreal and the province of Quebec
  • Over 50% of all group buying sites have been launched from Toronto
  • The majority of deals and sales are also from Toronto
  • Niche sites are not as popular in Canada in comparison to the US where niche sites for golf, pets, kids, food are popular

Source: Canadian Coupon Saver

Given that the industry is ripe with opportunity, is it all fair game for small businesses?

Pros

  • The model appears to work best for attracting new customers as many discount seekers purchase what they would normally not try because they are getting a good deal.
  • Creates an awareness and provides exposure for businesses, especially small and medium sized ones.
  • While customer loyalty is not promised, if customers get a good experience they are likely to provide repeat business and thanks to the Internet and social media, word of mouth recommendation is limitless.

Cons

  • Customers are spoiled for choice, there is a new deal every day and customers are likely to go with the best deal of the day, so customer retention might be somewhat of a pipe dream.
  • Some small businesses are not always prepared to deal with the influx of customers as a result of the deal; this could harm your brand’s image in the eyes of customers and negate any positive results you hoped to gain.

According to dealassessor.com, the list of questions below are useful for businesses who are considering using group buying sites as a marketing or selling strategy:

  1. What are your goals and objectives that make group buying sites a good strategy for your company?
  2. Can your business afford it?
  3. Can your company meet the expense of offering products or services at a discounted rate?
  4. Do  you have a high profit margin?
  5. Can you up-sell or cross-sell other products and services for potential profit?

Outside of Canada, the industry in general appears to be facing some challenges. Recently there have been articles surrounding consumer fatigue on daily deals, according to a New York Times article, when Groupon reported its second-quarter results this week, it said that active customers grew just 3 percent, a significant slowdown from previous quarter-to-quarter customer growth rates. While traffic to Groupon was higher at the beginning of 2012 than last year, it was down almost 10 percent in May and June from the same months in 2011, according to comScore.

Further, groupbuyingcanada, has been reporting a number of acquisitions in this space with Teambuy purchasing Fabfind and Wagjag and Tuango just announced the acquisition of the assets of DealoftheDay from the Yellow Pages. While other Daily Deal providers seem to be shrinking or selling and investment firms and groups want nothing to do with the Daily Deal business, it seems that for Tuango and Wagjag that is all great news. They, unlike others, are growing and on a buying spree.

What do you think about the future of group buying sites?

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2 Comments

  1. I think there are some valid points here. I wonder if it will be the small businesses that slow down the Daily Deal market. I know consumers love the deals and can’t really loose out (unless of course they are buying deals and not using them before they expire). Who really knows what is going to happen?

  2. Thank you for the mention Wangari. The deals business, rather the Group Buying or Daily Deal business, is certainly a powerful marketing tool for businesses IF DONE RIGHT. The retail industry has not seen another promotional vehicle that produces the amount of consumer interest that daily deals do. However, they are not for every business. Like any other form of marketing or advertising, they should be evaluated based on costs, return on investment and above all compared to other advertising vehicles, not sales vehicles.

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