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Opportunities in the Gold Rush

By Steve Scheidecker -- Get free updates of new posts here

Most anticipate 2011 to be the year of Group buying.  Just as location-based services took off last year, it seems that local daily deal websites have become all the rage.  With a multitude of websites carving out their own niche against the two major competitors, it is going to be interesting to see what evolves in the space.  After some reflection on my own experiences purchasing Groupon and LivingSocial offers I have determined four major opportunities for entrants to group buying.  What opportunities do you see in the space?

More Education!

The witty write-ups of group buying sites have gained much attention from the get-go, but do these benefit the local merchant?  They are often comical and are always well-written, but do they benefit anyone other than Groupon?  We don’t think so!  These write-ups showcase the personality of Groupon, not the personality of the retailer.  We feel that a greater emphasis should be placed on educating consumers about the business through the offering.  The offering itself should have the effect of educating the consumer about the business.  What does a gift-card alone tell about your business? Additionally, the process of educating the consumer about the featured business should begin at the moment of first contact and continue even after voucher redemption.  When a voucher is purchased an email should be sent immediately to the purchaser to educate them about the offerings of the local business.  A person will always be most receptive to information about a merchant immediately following a purchase.  Businesses should build excitement about the experience consumers can expect when they redeem their voucher.

Lack of Followup

When a Groupon is redeemed there is no followup offered to the local merchant.  The merchant is unable to followup with consumers about their experience to ensure it was satisfactory.  An immediate followup by a merchant could often curtail venting on Yelp or other review websites.  Instead current group buying sites exclude themselves from the marketing process and instead focus purely on the act of selling discounted coupons.  In order for a group buying site to showcase their devotion to building loyal customers they must be involved even after the purchase and redemption.

Lack of Business Promotion

LivingSocial has made strides towards getting people to actually promote businesses, Groupon has not.  Groupon offers users incentives to promote Groupon, but no incentive to promote merchants.  Groupon offers $10 referal bonus one-time for anyone you get to signup for Groupon.  If I tell 10 friends about the great products of a merchant and urge them to buy a Groupon there is no reward for my effort.  LivingSocial does offer an incentive to users in the form of getting the offer for free if 3 people are referred after a purchase.  I feel this would be a good form of business promotion if they improved the tracking system currently in place.  (I’m positive I have referred 3+ people on several occasions yet still had to pay for the deal…)

Inability to control flow

This is really only a problem that has plagued the enormous deals — the deals that sell 10,000 Groupons for a small bake shop.  Businesses are hit with spikes and dips throughout the period for which vouchers are valid.  These spikes create problems for a small business that is not designed to handle large influxes of traffic.  Empty shelves and poor customer service creates a negative effect on the potential to convert first time buyers to loyal customers.  In addition, loyal customers are left alienated by the deal and often become disgruntled.  I don’t think this can be considered a flaw of Groupon or LivingSocial, it’s usually a flaw in the structure agreed upon by the merchant.  With this said, most merchants could handle a large number of sales if they were able to anticipate the flow of redemptions.  If they knew when the traffic would hit they could have sufficient staff and product on hand to meet customer demands.

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