Am I the only one that thinks group buying is a fad?

28 February, 2012 Retail

I’m going to come right out with it: I don’t like the deals space, and I don’t think it’ll be around in the longterm.

It’s hard to take a knock at daily deals without expecting some backlash: the consumer support for the channel, in some cases, is so strong that you’ll quite often see deal customers evangelising the industry – particularly when commentators like Rocky Agrawal and others were leading the charge against deals last year on Techcrunch and other prominent media.

So while I expect there’ll be those that disagree, I want to be clear: I am not arguing that the offers aren’t, in many cases, great deals – for consumers, at least. Neither am I saying that consumers aren’t having great experiences. While a lot of posts argue that consumers are underwhelmed when redeeming offers, I don’t believe that’s always the case.

What I do believe is that group buying won’t – cannot – always be as big as the hype. Nor do I believe that it’s a great business model.

The sites are able to source great deals at the moment, while the interest and media support around the space remains lively, but it won’t always be the case: the benefits, for merchants, simply aren’t great enough in the current format. While deals could work for some merchants, the deals sites have been slaves to the race to acquire and satisfy consumers that are demanding more and more value – thereby butchering repeat opportunities with merchants as they convince them to run deals that simply aren’t profitable.

Many people – myself included – have run deals and sold plenty of stock for very little margin and massive headaches. Actual, returning customers were probably outnumbered by the sales calls from other group buying sites that followed. I soon wished I’d never run it in the first place. I am yet to find a vendor that enjoys a healthy relationship with a group buying site.

The other problem is that the big sites want more stock than most suppliers carry: they want 2,000 of a single popular model and they want it at nearly cost price. No one has that much stock to clear of anything decent and, if they do, it’s because they’ve realised demand to sell it at the price that suits their business and the marketplace: not a price dictated by a group buying site trying to knock off their competitors with the most heavily-discounted deals.

Some of my questions for the industry:

How long are four or five reasonably-large group buying sites going to be able to get great deals on large quantities of products that are actually in demand?

How much longer can they continue to source service-based deals that actually impress their customers? A quick look at some deals sites on Product Review shows the dismal reality.

Daily Deals Reviews

How much longer will these sites retain the attention of deals customers themselves when there is no reason to remain loyal to any one site, and the ‘blast everyone’ email strategy is so ineffective and bound to cause fatigue?

When this same ‘blast-all’ tactic has created the need for aggregators (sites that collect all the deals, like The Dealer or Buyii), how can any one deals site own their own audience?

I may as well sneak in a few of my other gripes with the industry:

  • Anything which survives on being the cheapest in my opinion is destined to fail.
  • I am not aware of many group buying sites that make a fair profit, although plenty have a high turn over. That’s not enough.
  • With no reason for a consumer to be brand-loyal, the acquisition and retention costs of daily deals sites is far too high: it’s just too expensive to be one of the big players.
  • Other than the deal, no one is offering a great shopping experience, which our own experience and observations has proven is the basis for success.

Of course, many of these sites have received huge valuations – and Groupon has also recently floated (whether successfully or not, I won’t judge – but their share price certainly isn’t booming). So, certainly someone in the market sees a future in this space – and maybe with some tweaks, it could become a legitimate channel. For now, I’m still sceptical.

  • Pingback: Pirates and planes: group buying surprises me twice | John Winning

  • Paul

    I concur. Eagerly awaiting the death of same.

  • http://twitter.com/roodave David Caldwell

    Agree. The upside of these services is way over-hyped. At best, true group buying enables a bit of social spread by occasionally turning consumers into your sales team. It doesn’t really add that much value though. It doesn’t fill needs better or faster, or enable a more competitive market, it just enables discovery.
    Definitely a false start on how social will influence buying. My bet is real-time/ proximity based/ buyer-powered marketplaces will be where the real market transformation occurs.