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Groupon and Beyond: How Group-Buying Sites Are Transforming Business

By Sara Bedal |

It's a tempting proposition: new customers, "free" advertising and a cash-flow boost. What business owner wouldn't want to consider promoting their goods and services on a group-buying website?

There are certainly plenty to choose from. Groupon, LivingSocial and are just some of the sites that have cropped up in the last few years.

The nuts and bolts of group buying

In case you're new to this trend in social media marketing, here's how it works: Group-buying sites scout out local businesses willing to offer deep discounts online. Frequently, these are service-oriented enterprises, such as salons, restaurants, yoga studios and lawn care companies. Each site features a daily deal and a description of the business offering the deal.

Subscribers to the site receive a daily email announcing the deal, sometimes the minimum number of purchasers required for the deal to "pass" and the time remaining (deals typically run for 24 hours). If enough people opt in, the deal is "on" and purchasers print off their coupons for redemption.

Do the math

Business owners who are thinking about offering a discount on a group-buying site should take a hard look at the numbers to determine how many vouchers they must sell to make it pay.

 "This is not for every business," cautions Lei Huang, assistant professor of marketing at Dalhousie University's School of Business Administration in Halifax, Nova Scotia. "A business must be able to give a substantial discount," he says.

Typically, this is 50 per cent or more off the regular price of the item or service. Factor in the percentage that the host site takes from each voucher sale and the discount could be much, much deeper than you'd reckoned.

But for businesses with excess inventory, offering a deal on a group-buying site can be a great option, says Huang. This is particularly true when it costs more to stock the excess inventory than to massively discount it. Similarly, service businesses that are not operating at full capacity, such as restaurants with empty seats, may want to consider this option.

What about Canada, eh?

Not surprisingly, group-buying sites have a stronger presence in the United States with its larger consumer base. In Canada—especially outside of Ontario—it may be more difficult to offer deals on a group-buying site if your business is not in a major urban centre.

Taking the plunge

If you've decided to test the group-buying waters, Huang offers the following tips to help you minimize your costs while providing top-notch customer service:

1. Choose a reputable site.
Contact business owners that have run promotions on the site. Most sites feature a "recent deals" section.

"If they don't have very many recent deals listed, the past deals didn't bring many sales," says Huang.  "Or, if it's a niche daily-deals site that doesn't cater to your business category, you [will] probably want to choose another site."

You might also want to do quick online search of the website to see what user reviews turn up.

2. Monitor the "Comments" section of the site.
Huang recommends that you set aside a few hours on the day of the promotion to answer the online questions of potential buyers.

"Doing so ensures that buyers are aware of all the restrictions," he says, and you won't be taking calls "answering the same question over and over again," he says. And don't forget to check your business's Twitter and Facebook pages for questions, too. "Your interaction with potential customers is just as important as the deal itself," Huang adds.

3. Follow up with superb customer service.
This where most businesses founder because they're unprepared to handle a surge in customers. "If you have a great offer, and too many people take advantage of it, it may actually harm your business," says Huang. So, make sure you have sufficient staff in place and consider capping the number of vouchers for sale. The last thing you want is a disgruntled customer posting negative comments about your business online.

4. Track the response to your deal.
Huang recommends you be clear about the number of deals sold and vouchers redeemed, the average total purchase by voucher holders, whether or not voucher holders bought additional products or services or became repeat customers. This information will help you determine whether or not to run such a promotion in the future.

He also suggests you ask these customers to complete a brief survey (and provide their email addresses) in exchange for another discount, such as a free drink, while they're on the premises. "This is particularly important because daily-deal sites don't share buyer email addresses with merchants," says Huang.

The next step? Consider continuing the relationship with a customer newsletter. "A consumer newsletter that features discounts and other specials is one of the most powerful tools for increasing customer loyalty and rewarding long-term clients," says Huang.

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