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The pros and cons of group buying sites

The pros and cons of group buying sites

Group-buying sites can help local retail and service businesses quickly generate an influx of new customers – but will those customers help your business grow? Or are they simply bargain hunters with no real brand loyalty?

Group-buying sites like Groupon, Scoopon and LivingSocial are more popular than ever, with Australians purchasing over 10 million group-buying vouchers in the 12 months prior to April 2014, according to research firm Telsyte. We go over the pros and cons of group buying to help you decide if it’s an approach worth considering for your business.

How it works

A group-buying site – also known as a coupon or voucher site – allows a business to advertise special discounts on their products and services to a large audience. It can bring you more customers and improve brand awareness. It can also be a good way to sell excess stock and get extra sales revenue during quiet periods.

Prepare your staff and processes

While a group-buying discount can generate a sudden surge in customer demand, it's not all good news if you haven't planned for it. Customer-service standards can slip under pressure, jeopardising client relationships and the company's reputation. To ensure your small business is able to cope, it's a good idea to bring in additional staff to process the extra bookings and deliveries and check that your systems – such as your website and voicemail – can also handle the extra demand.

Find your break-even point

Before you sign an agreement, check that the deal won’t leave you significantly out of pocket. When calculating your break-even point, remember to factor in the site’s sales commission and any other fees. A good approach is to offer high value at low cost. For example, you could add an inexpensive but attractive bonus to the coupon, such as free shipping.

A useful strategy is to think of the group-buying discount as being primarily a marketing exercise, and accept that it’s unlikely to be highly profitable in the short term.

Choosing a provider

Take time to understand all the terms and conditions, and seek legal advice if needed. It’s also a good idea to check the group-buying site’s reputation through news outlets and social media, and ask if they can provide case studies for businesses similar to yours.

Other things to check include:

Payment schedule: Do they pay you on purchase, or at the end of the redemption period?
Fee schedule: For instance, do they charge a listing fee?
Policies: What are their refund and cancellation policies?
Unredeemed coupons: Do you still receive a percentage if a coupon isn’t redeemed?

Create a follow-up strategy

Ideally, you would want all the sales you make from group-buying sites to be converted into repeat business and referrals. Use it as an opportunity to collect customer information, and ask them to sign up to your contact list.

While these customers may have initially been bargain hunting, a good experience with your business could turn them into a repeat customer. See if you can get them to book another appointment on the spot, and look for ways to sell other products and services to them (just be careful not to scare them off with any high-pressure sales tactics).

Most importantly, treat your group-buying customers just as well as your regular ones – it can pay big dividends in the long term.

Want to grow your customer base without spending a fortune or slashing prices? Here are five tips on how to optimise your marketing budget.

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