Social buying sites offer promise
By Harvey Meyer
BOWLING ALLEY PROPRIETOR Jimmy
Poole was, well, bowled over at how a promotion offered by his Raleigh, North Carolina,
enterprise sparked a humongous infusion of
fresh customers. Through the online site
Groupon, about 1,000 people last fall purchased the $19 bowling-for-four coupon for
“I was extremely satisfied,” says Poole, a
Costco member, who launched his
15-employee company in 2008. “It was strate-
gically perfect for us.”
Similarly, Stefanie Hare was taken aback
when 1,200 customers signed up in March for
an innovative, $22 wine-tasting-and-painting
promotion through another online site,
LivingSocial. The co-owner of Seattle-based
Corks and Canvas Events says her website tem-
porarily crashed because of the boost in online
traffic her 2.5-employee company garnered.
“We hoped for greater awareness” for the
fledgling business, says Hare, a Costco member, “and that’s exactly what happened.”
Groupon, LivingSocial, Facebook,
Google and a growing number of other so-called group, or social, buying sites that offer
online daily deals and other promotions represent a new—in some cases game-chang-ing—marketing vehicle for businesses. The
instruments are particularly popular among a
potpourri of small companies.
Consumers who subscribe to these deals
via email can purchase vouchers for a firm’s
deeply discounted products or services (often
50 percent off or more) that are featured on
the sites. In return, companies can reap sizable sales and local, regional and even national
exposure, depending on the deal. Another
frequent outcome: many new customers.
Unlike the upfront payments required
for, say, radio or Yellow Pages ads, companies
using some group buying sites incur only
marketing costs if a set, minimum number of
customers sign up for the promotions. Sites
such as Groupon and LivingSocial process
the online purchases and send companies
checks, minus a significant commission fee,
soon after the transaction.
“We hoped for
and that’s exactly
Mossler and Maire Griffin, spokesperson
for Washington, D.C.–based LivingSocial, the
second most popular site, with more than 26
million members globally, claim nearly all merchants who’ve used their sites would do so again.
Moreover, Griffin, a Costco member, says
LivingSocial customers spend well over the
voucher price when they shop at the companies.
Yet these sites are no panacea. If a business is not prepared for a batch, and sometimes a flood, of customers, the online offers
may backfire. Customers could become dis-
AUGUST 2011 ;e Costco Connection 29
satisfied with backups in service or product
availability. Furthermore, too many discounted promotions may devalue a company’s brand, attracting bargain hunters and
irritating established customers.
Small companies should consider the following factors when it comes to group buying
Understand your business. For firms
with established brands and loyal customers,
participating in group buying sites makes little sense, contends Utpal Dholakia, a Rice
University associate marketing professor who
last year surveyed 150 companies using
Groupon. On the other hand, many younger
businesses may discover the sites deliver what
they most covet: new customers.
Dholakia’s survey of mostly small firms
showed that many higher-margin service
businesses, particularly spas and salons, fared
best using Groupon. In fact, the survey
showed two-thirds of the Groupon deals were
profitable. Meanwhile, restaurants, many of
which sport lower margins, did worst, according to his survey.
Adopt the proper attitude. While some
online promotions may indeed end up producing profits, it’s best to view them as a marketing expense, says Sally Witzky, a Costco
member and Richmond, Virginia, small-business, social media and marketing consultant.
Don’t count on these promotions as short-term revenue generators, let alone devices to
save struggling businesses, she advises.
Prepare, prepare, prepare. Lack of preparation is why most companies flop with group
buying opportunities, says Witzky. Talk with
other firms, preferably in your industry, about
Chat with the group buying sites’ sales
reps. Ask for best-practices reports, case stud-
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