Does Online Group Buying Hurt Small Business?
There is a recent consumer craze sweeping the internet in the form of social media coupon sites. These group buying sites harness the power of group buying in order to drive prices down for consumers and, supposedly, to drive new business to small businesses and large businesses alike. The idea is that businesses will benefit from the attention such deals give them, even if they take a slight loss in selling their products and services at reduced prices.
Impact on Business
However, research reported on by The Christian Science Monitor shows that these group coupon plans don’t actually drive new customers to businesses. In fact, most customers use the coupon once, and then never return for repeat purchases.
Essentially, those who use group buying programs and deals aren’t in it to find new businesses to patronize, but rather just want a good deal. The author of the study, Utpal Dholakia, a professor at Rice University, told The Christian Science Monitor, “Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal.” That customer base does not make for a very loyal one.
Extreme Example
The greatest example of how group buying can harm businesses comes from the Gap and Groupon mega-deal that swept the nation this summer. Although Groupon deals are usually smaller, the company and Gap partnered to offer the deal concurrently in many different cities. This led to over 400,000 sales of Gap merchandise at half-price. Groupon looked to take half that revenue, but Mashable suggested that Gap may have lost nearly $8 million on the deal due to the above characteristics of an extremely unloyal customer base.
Buyer Beware
So what does this mean for small business owners? Ultimately, it means that small business owners should be wary of entering into any program that would make them a part of group buying deals. If such a program offers you membership, and you choose to do it, insist that there be some way to protect your business. For example, if there isn’t a clause in the contract that allows you to cap the number of discount sales, then a sudden run on your business could spell disaster.
Track Your Results!
If you still decide to go through with a group buying program just to try it out, be sure to track your customers. If they make a purchase with a group coupon, ask them if they are a returning customer or a new customer. Ask them if they would return in the future. Track the amount of money they spent on the purchase. Was it above the coupon price? If so, how much? If not, then you can count that as a loss. Above all else, having good records will help you decide as to whether or not such a partnership could help or harm your business in the future.
About the Author: This guest post is contributed by Kate Willson, who writes on the topics of best online colleges. She welcomes your comments at her email Id: katewillson2@gmail.com.
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not sure, this would work well for us.
This is well written advice and makes some good points, the only thing I might add is if you say your going to do something, stick to it lol !
Well, I know that I will ALWAYS go out to look for new coupons when I need to buy something online (which is why I always shop online), but 9 times out of 10, it’s usually for a website which I’m a return shopper. And, I find myself sometimes finding a business that offers something better and I also become a new customer of theirs and continue to lookout to see if they have offers, too.
So, for me anyway, I can say these types of sites have helped me discover various businesses that I return to again and again.