Group buying

Group buying is big.

Groupon.com has $800 million in revenue, and recently rejected a $5.3billion dollar offer from Google.  In Kenya we have rupu.co.ke and zuku.co.ke which seem to be fairly successful by the number of sold out deals they have. Rupu has about 5800 facebook likes, while Zetu has 6800, if that’s any indication of the number of people who actively follow daily deals.

Group buying seems to be one of those models wherein one player will emerge as the dominant – people go where people are. So it will probably shake down to one group buying website per country/region.

This type of monopoly is unnerving, especially because the website shares the revenue with the business putting up the offer, rather than take a small cut as traditional advertiser would do – which you could argue is what a group buying website really is.  For example, if a supermarket had product x that it usually offers for sh 500, a marketing idea would be to advertise coupons in the local newspaper for sh 100 off. The money it would take to publish the coupon is probably only a very small expense compared to the discount price, say sh 10 per product sold.  However, group buying sites like Groupon have a 50/50 share with the business. So instead of a business taking in sh(400-10) = sh 390 per product, it would be taking in 50% of sh 400 = sh 200.

This seems like a raw deal because usually the intended effect of traditional advertising is that the attention leads to new customers who spend on other products and increase overall revenue to the business. So even if you offer a product for FREE! the subsequent new/repeat business will cover the costs. But for group buying, the coupon is not a hook to create sales, but seems to be the point of sale. The people on the group buying websites are chasing the deals. The deal is the rule not the exception. So a business is popular for a day but doesn’t retain the new customers. Slate has a good article on this very effect. http://www.slate.com/id/2289087/

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