Groupon and similar group buying sites (a.k.a. collective buying sites, social buying sites) are sweeping the nation to help local businesses offer customers killer daily deals and big savings coupons for products and services. Also known as collective buying sites, group purchasing websites like Groupon are fairly new and many consumers and businesses aren’t aware of how group buying works or how to compare group buying sites. In this group buying guide we’ll discuss details like how to use Groupon to harness collective buying power, daily deal tips for local businesses and customers, and frequently asked questions (FAQ).
Basic Group Buying Info
- What is Groupon?
- What are group buying sites?
- How do group buying sites work?
- What if the minimum number of sales isn’t reached?
Group Buying For Businesses
- Why would businesses be willing to do this?
- What’s in it for the collective buying sites?
- Is this a good investment for a local business?
- How soon do businesses receive payments from collective buying sites?
- Do local businesses get email addresses of customers that sign up for their deal?
- Why don’t collective buying sites share email addresses with the local merchants?
- Can any local business use group buying sites?
- Are there types of businesses that are better suited for group based promotions?
- Who is responsible for creating the advertisement/coupon for your business?
- Group buying tips for business owners
Group Buying For Consumers
- How do I find out about other great daily deals?
- Do I need to use the coupon voucher the same day?
- I purchased a deal, now what do I do?
- Can I purchase daily deals as gifts?
- If my name is on the voucher can I still give it as a gift?
- Do I have to use the entire voucher all at once?
- Can these daily deal vouchers be combined with other coupons or discounts?
- Can I get a refund if I change my mind?
- What happens if the voucher expires?
- What happens if the merchant goes out of business?
- Why should I share these daily deals with my friends?
Basic Group Buying Information
What is Groupon? – Groupon is one of the more popular group buying (a.k.a. collective buying, group purchasing, group coupon) sites.
What are group buying sites? – Group buying sites partner with merchants to offer consumers incredible savings on products and services.
How do group buying sites work? – The merchant agrees to offer customers a specific product or service at a greatly discounted rate (usually 50% off or more) if the group buying website can generate more than the specified minimum number of sales chosen by the merchant. Once the minimum number of sales is reached, the deal becomes activated and all the customers that signed up for the deal become eligible. Eligible customers’ credit cards are charged for the purchase and they receive an email for a printable voucher that is used to redeem the deal with the merchant. For example, a typical daily deal may include $100 worth of services from a merchant for only $50.
What if the minimum number of sales isn’t reached? – If the minimum number of orders isn’t reached then the deal is canceled, no one is able to take advantage of the deal, and the customers’ credit card isn’t charged.
Group Buying For Businesses
Why would businesses be willing to do this? – Group buying promotions are able to generate a ton of sales for the merchant in a short period of time. Usually these deals are only posted for a 24-hour period and the viral nature of this promotion means that sales can be on the order of hundreds to thousands of orders in a single day. For many local business owners this equates to an entire month’s worth of sales that are obtained in just a single day. While the business owner is only making 25% of the profits (Groupon takes 50% of sales) he/she would normally earn for a typical sale but they are willing to take this short-term loss for the following reasons:
- Cash flow boost – Payments for vouchers are processed by the collective buying site within 24 hours and the local merchant will soon receive a very large check and a quick boost in cash flow for that month. If you consider that the number of sales for many promotions on prominent group buying sites in large cities can reach over 5000, that’s a big shot in the arm for a small business.
- Not everyone will redeem their voucher – People are lazy and not everyone will show up to turn in their voucher to the merchant and take advantage of the deal.
- Inexpensive, effective advertising – Businesses spend a lot of money on advertising and yet it’s often very inefficient. Daily deals promoted by group buying sites are fairly inexpensive and they are much more effective at generating real sales rather than just increasing brand awareness.
- New customers – Local businesses are always looking to expand their client base and new customers are a necessity for doing so. Daily deals are able to attract many new clients by offering discounts that get the first-time customer in the door.
- Return customers – Businesses that use group buying site for marketing their products or services are hoping that the new customers that sign up for their deal will like what the local merchant offers and become a return customer.
What’s in it for the collective buying sites? – Group buying sites typically take a 50% cut on each voucher that is sold.
Is this a good investment for a local business? – Most businesses will break even with this kind of promotional tool because they are only earning 25% of the normal sale. That is, deals usually go for 50% off of a particular product or service and then the collective buying site takes 50% of that. This leaves the merchant with the remaining 25% which may or may not cover his/her costs. To estimate the cost of using Groupon or some other group buying site to promote your business, see our group buying calculator. The real value for using group buying sites to promote your business seems to be in the effective means to gain new customers, the opportunity to convert them into return customers, the fact that many customers will not redeem the voucher (~40-50%), and that some customers that do redeem their voucher will purchase additional products/services at that time (~40%). There’s also the long-term effect of word of mouth advertising that results from these types of promotions that are able to attract new customers.
How soon do businesses receive payments from collective buying sites? – Group buying sites usually send three payments to the merchant over a two month period. The first payment is usually sent the week of the deal and the second and third payments are sent 30 days apart.
Are local businesses given the email addresses of the customers that sign up for their deal? – No, this is one clear disadvantage for local businesses that utilize this marketing tool.
Can any local business use group buying sites? – Yes, you just need find out which group buying site(s) serve your area and then contact them to verify that they can indeed assist you.
Are there types of businesses that are better suited for group based promotions? – Traditionally, local businesses that partner with collective buying sites have been, for the most part, service oriented (i.e. restaurants, bars, spas, salons, classes, health gyms, ticket based events, tours, etc.). However, it seems like a reasonable possibility that certain products may fair well with this kind of promotional opportunity depending on the merchant.
Who is responsible for creating the advertisement/coupon for your business? – The collective buying site will usually speak with you to create the copy for the promotion.
- Calculate how much this is worth to your business – Be aware that you’ll only make 25% of what you’d normally make on a sale. Use this to calculate how many sales you need to generate in order to make it worth your time.
- Set a limit to the number of coupons you’re willing to accept – It’s not unusual for popular collective buying sites like Groupon to generate over 5000 coupon sales and if you don’t set a limit you’re going to be in trouble.
- Prepare for the coupon promotion – Consider setting up a scheduling calendar if your business requires appointments to be made so you can immediately begin booking your new customers. You might also need to hire extra workers to handle the large influx of business and calls for appointments.
- Choose the promotional date carefully – If your business experiences seasonal changes in sales you’ll want to take that into consideration when choosing the date for offering the promotional coupons. In that case, scheduling it during those slow times of the year when sales are expected to be down would be optimal.
Group Buying For Consumers
How do I find out about other great daily deals? – Visit the group buying sites to sign up for their email service that will notify you of any upcoming deals in your city
Do I need to use the coupon voucher the same day? – No, group buying vouchers usually have an expiration date on them
I purchased a deal, now what do I do? – After your credit card is charged, you’ll likely receive the voucher in an email or a link to where you can obtain the voucher and print it. The instructions for redeeming the voucher with the local merchant will most likely be included.
Can I purchase daily deals as gifts? – Some but not all group buying sites offer this ability. See our group buying sites comparison chart to find out which ones allow you to do this.
If my name is on the voucher can I still give it as a gift? – Most likely, but you should verify that with the group buying site that you purchased the voucher from and the merchant just to be safe.
Do I have to use the entire voucher all at once? – Most group buying sites and participating merchants require that the voucher is redeemed for the full value when you present it.
Can these daily deal vouchers be combined with other coupons or discounts? – Unless otherwise specified, the vouchers usually cannot be used in combination with any other offers.
Can I get a refund if I change my mind? – Don’t count on it. Most sales are final. But if for some reason you have a problem, you’ll want to contact the group buying site you bought the voucher from as well as the merchant.
What happens if the voucher expires? – This depends on the agreement between the merchant and the group buying site as well as the applicable state laws. Most deal vouchers may be redeemed for the value of the deal for up to one year after purchasing it. After that, some states require that the voucher be redeemable for what you paid for it (not it’s value) up to 5 years after the original purchase date. Again, however, this timeline depends on what your state’s gift certificate laws allow. Contacting the group buying service that produced the voucher may also provide you with other specific restrictions related to the deal you purchased.
What happens if the merchant goes out of business? – Check with the buying site you purchased the voucher from as they may be able to work something out.
Why should I share these daily deals with my friends? – In order for you to obtain the deal, the minimum number of sales needs to be reached before it can be activated. Moreover, group buying sites provide other incentives for users to share and invite their friends. Such things include the ability to earn $10 in credit for each friend that signs up and buys a voucher within 24 to 72 hours as well as earning points and other bonuses. Each collective buying site is different and you’ll need to check with them to find out what kinds of incentives they offer to users. Again, you can find out this information by checking with our group buying comparison table.If you liked this article, please take this time to share it with your Facebook friends using the Facebook button (see Facebook post button to the left) or retweet it using Twitter (see retweet button to the left). You may also want to follow us or subscribe to the site to stay up-to-date with this article. If you'd rather follow us from your Facebook account, join our Facebook fan page or subscribe to our NetworkedBlogs profile.
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