Online Group Buying, Phase II

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When they first emerged onto the discount shopping scene, group-buying sites like Groupon offered discount coupons for a range of merchandise and service with one main caveat: The discounts would only be valid if a specified minimum number of customers agreed to the deal. Now that the masses have jumped onto the group-buying bandwagon, these sites rarely have trouble reaching any minimum requirements, and instead the businesses offering coupons are most definitely interested in setting maximums for the number of consumers signing on for deals.

How popular are deals from LivingSocial, Groupon, and other group-buying sites? In a single day last week, Groupon sold 445,000 vouchers for The Gap, in which members paid $25 for a coupon good for $50 worth of the retailer’s merchandise, and in which Groupon pulled in $11 million in revenue during the transactions.

Suffice it to say that most of the mom-and-pop businesses that work with group-buying sites could not handle 445,000 new customers, especially not if each was demanding a 50% discount. What most smaller businesses want via group-buying offers is not an onslaught of one-timers seeking discounts, but exposure to new people who are likely to return as loyal customers after the discounts have come and gone.

A few weeks ago, Groupon CEO Andrew Mason announced the site would be getting into personalized offers, in which instead of seeing every coupon available, female members wouldn’t be subjected to, say, paintball deals and guys wouldn’t be bothered with coupons for mani-pedis. The arrangement seems like it would please customers and businesses alike because members will see deals they’re more likely to want and businesses are more likely to be dealing with customers with genuine, long-lasting interest in their products.

Though the experiment is just beginning, the WSJ explores how “personalized” or “smarter” online coupons are working:

The feature, currently in six of its markets, lets Groupon rotate more deals among its customers in a way that fewer of them will buy at the same time. “With personalization, we are in every way interested in reducing the number of customers we send to a business at once,” Mr. Mason said.

Businesses obviously want new customers—but most of all, they want the right kind of new customers. The hit-and-run bargain hunter is obviously less desirable than the day-in, day-out customer. But as far as I’m concerned, a good business with a good product should be able to turn even the most diehard bargain hunter into a loyal customer. People will always come back for good values, and it’s up to the business to prove its value once it gets a new customer in the door.

Read more:
New Ways Retailers Will Try to Stifle Online Bargain Hunters

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