Group buying sites harness the power of social commerce

Digital Chameleon Blog

Group buying sites harness the power of social commerce

Wednesday, March 02, 2011

US group buying site Groupon launched in Australia last week as Stardeals, entering a market already active in group buying with players such as Nine Entertainment Company’s Spreets and Cudo, owned by Yahoo!7. If you’re not sure how hot this segment of the online market is – Facebook and Google are expected to launch initiatives in this sector, as the margins are significantly higher than their current online advertising products. In fact, it was rumoured that Google attempted to buy Groupon back in December for several billion US dollars.

So how do group buying sites work? The sites ask retailers to offer steep discounts on items that would appeal to the local market. For example Stardeals currently offers deals in Sydney, Melbourne, Perth, and Brisbane. The deals would include 50%-90% off spa visits, dinners, cruises, haircuts, etc. There’s generally one deal per day, and some sites wait until a certain number of people sign up for the deal before it becomes official, others make the deal available right away. The group buying site then takes 30%-50% of the revenue generated by the deal. It’s a sweet arrangement for the retailer who pays nothing upfront and enjoys new revenue via a new marketing channel that takes advantage of the power of online social networks and word-of-mouth.

Consumers can be notified of deals via email, Facebook or Twitter. Seven Media’s Spreets emails over 500,000 Australians each day. When someone buys a deal and suggests it to friends, they are rewarded with credits, and the cycle continues. Group buying sites use the power of the web to offer big discounts to volumes of people for things they actually want to buy.

People can also access these sites via iPhone apps. So instead of printing out a coupon which they take into the retailer, they sign in via their phone and show the coupon to the retailer.

How do the group buying sites reach critical mass members? Local players Spreets and Cudo can take advantage of their parent companies’ marketing power including print, TV and online properties. Search engines, word-of-mouth and social media contribute additional fuel.

While group buying tends to focus on local retail and SME’s, with the focus on dining, leisure, health and beauty products and services, bigger brand marketers are starting to move into this sector. It’s a cost-effective way to get traffic in the door compared to other advertising channels. Locally, retailer Harvey Norman has reportedly trialed group buying for its security products. In the US, Amazon and Gap have tested group buying.

The popularity of group buying is tied directly to the growth of social networking sites like Facebook and Twitter. They simply couldn’t exist without them. Group-buying campaigns combine online and social elements, enabling brands and merchants to directly reach consumers, who in turn share product offers with their networks of friends through email, Facebook, and Twitter.