Innovation in the group buying industry

June 29th, 2011 : posted in Commentary by M Bryant

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It seems everyone has an opinion on where group buying is headed next, as with every emerging market; and perhaps moreso online when trends can be even more short-lived or transform overnight.

No one can doubt that group buying is going to change. If you take heed of anything published by Groupon’s scorned enemy, Rocky Agrawal, you’d believe that the industry might actually topple, rather than transform. The latest article describes the potential for fraud, yet fails to offer an example. Isn’t there potential for fraud, and also concrete examples of fraud, in almost any industry?

Anyway, we’re going to overlook that for now, in favour of genuine forecasts for the industry.

1. Mobile

This is an obvious one: everything’s going mobile.

The real-time potential for deals, however, is huge and will mark a significant transformation in the market as it moves further away from traditional buy-and-redeem coupons.

There are plenty of companies already offering deal apps, but they are still very much focused on time-based deals (buy a voucher today, use it when you like), rather than demand- and opportunity-focused deals.

I am referring to a supermarket offering bananas at 50% off until they’re sold out because they’re nearing expiration, or a restaurant offering a discount on dinner because they have a few empty seats.

These are deals that would be located, purchased and redeemed in one session, while merchants can also self-manage their offers. It is, essentially the concept of Groupon Now. The deals apps in the marketplace now are, unfortunately, limited by merchants who prefer offers that can be budgeted for and redeemed over a period of time. Hopefully this will change, as is required to make Groupon Now a success.

2. Tuangou + Social Media

The modern group buying model evolved from the Chinese Tuangou where groups of people, through forums and social media, would combine their orders and then approach a company for a lower, bulk price.

There is significant potential to recreate this concept through a social media rewards program where users must share an offer with their friends and ‘enlist’ them in the group buy to receive a greater discount. As more and more of a user’s network show their intent to purchase, the deal price is lowered for all within that network.

There are many benefits to this for merchants and users, mainly that the total sales numbers are likely to be lower. The model would then feature more merchants and less discounts: resulting in greater opportunity and a reduced risk for smaller merchants to become involved, while consumers also have greater choice.

It’s also fairly agree that social traffic (where a user is liking or recommending a product/business to their friends) is far greater than passive traffic. There is some element of deal sharing at the moment, though there is only limited incentive. With a social rewards platform users are much more likely to share a deal with their friends – offering a business both passive traffic through the deals site and more specific, relevant exposure through social media.

3. Self-Service + Cross-channel Marketing

It seems agreed that one of the greatest challenges of deals sites is sourcing merchants and creating deals that actually work for the business, as well as being attractive to consumers. There are several issues in the merchant relationship that I think could be easily solved:

  • Merchants don’t always see daily deals as just one marketing channel.
  • Merchants often aren’t aware of, or cannot monitor, the customer return rate.
  • Marketing through daily deals often has very few tie-ins with other marketing by the merchant; ie, social media, email marketing – meaning there is little opportunity for merchants to directly capture customers.

I envisage a huge opportunity for a group buying company to acknowledge these problems and build a business portal for merchants, allowing them to re-market to their existing deal customers: giving them the opportunity to reach them directly through the deals operator, rather than trying to capture them in another channel (a database, for example) themselves.

Here’s how it might work:

  • Users who have purchased a deal are included in a merchant-specific database.
  • The merchant can, through a self-service portal, re-market to these customers via email offering news, specials, or even a secondary deal. The merchant would pay per send/subscriber or, again, a percentage of the secondary coupons sold if that was there offer.
  • Merchants can continue to grow their subscriber-base by running new deals or through their own business profile on the operator’s site. This would allow users to ‘follow’ a business and receive their email blasts: new, specials, deals.

This model would draw a tie between business portals like TrueLocal (who are now somewhat offering deals) and Groupon’s self service venture with one major difference: merchants have access to their customers. Obviously they can’t export email addresses, but can reach them directly – considerate of spam laws, etc, of course.

When you stand back and look at what I am proposing here – profiles (plus reviews, discussions – as with any business profile), third-party-controlled databases, recurring deals and self-management – it looks surprisingly like Facebook Places / Offers. That doesn’t dampen the potential at all, in my opinion: in fact, I see at as an opportunity for any of the deals companies to take on Facebook on their own ground – not so much in the fight for customers as for merchants, which will become increasingly important.

What are your thoughts?