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Forget everything you know about group buying

Simon Sharwood
01 February 2012 5 minute readShare

The group buying industry has evolved rapidly and says 2012 will see fewer companies offer deals that are very different to those that worked in 2011.

Dean McEvoy’s not especially hirsute, but in early 2011 he became an expert in laser hair removal.

Dean McEvoy

“Back then we did a lot of beauty deals,” says McEvoy, founder of group buying site Spreets.

McEvoy famously sold his site to Yahoo!7 last year and isn’t quite as interested in hair removal these days, as the group buying landscape has evolved fast.

“This market is so responsive to the market by its nature,” he says. “We run a deal and it sells or it doesn’t. The feedback loop in terms of what works is very quick.”

That feedback loop means that 201swee1’s hot categories of beauty and restaurant vouchers remain constant, but the hot action is now in travel and sales of physical products.

“We are learning more about the types of deals consumers are after,” says John Beros, a General Manager at Scoopon. “Selling an overseas travel deal for $1000 was not something we thought possible in the early days, now we do it regularly.”

The swift evolution of the industry means a feedback loop also operates for group buying start-ups, many of which are quickly disappearing.

“In early 2010 the industry did experience incredible growth,” Beros says. “Barriers to entry were low and at one stage there were 70 or 80 players in the market. In the second half of 2011 we saw a lot of consolidation.”

Steven Noble, a Senior Analyst with Forrester research, says some of that consolidation was not exits or acquisitions but “acqui-hires”, transactions in which established players buy a startup in order to get experienced people. “We’ve seen this particularly when big players come in from overseas,” he explains. “They need people with experience,” and buying them is easier than hiring or training new recruits.

More consultation

Experience is important to group buying companies because during 2011 the leaders learned that they needed to become more sophisticated and consultative salespeople. One reason for the greater rigour was to distinguish themselves from start-ups that sometimes played fast and loose.

“Responsiveness of deal companies became an issue for vendors,” says Chris Jones from deals site JigoCity. “Often sales reps are compensated in ways that mean they want your signature and then they are gone. But vendors want someone who will be more responsive – it’s important because if the customer has a poor experience it rubs off on the vendor and the site.”

Spreets’ McEvoy says Spreets is therefore all about “a business conversation with the merchant.”

“We know that the volume of response can overwhelm a merchant. We know they have to answer the phones.”

Those experiences have seen Spreets become more flexible with its revenue sharing arrangements, while it now ensures that merchants sign up after a consultative process. This style, he hopes, will help the industry to mature and deepen merchants’ understanding of how group buying can assist their operations.

“Our focus this year is proving value for consumers and merchants.”


Merchants need the extra help, says Jo Ucukalo, Chief Executive Officer of Handle My Complaint, because not all were happy with the outcome of group buying deals.

Indeed, Ucukalo says she noticed a spike in complaints about group buying midway through 2011.

“Some businesses said they were pressured by group buying companies to discount more or give more in a deal,” she says. Some struggled to deliver on deals, and she is even aware of some who needed to run a second deal to generate cash flow to fulfil their initial foray into group buying.

Customers weren’t always happy either. The group buying industry established a code of conduct in 2011 and while it has generated fewer than 100 complaints, others are seeing more unhappy buyers.

John Beros, Scoopon

A spokesperson from Consumer Affairs Victoria (CAV) told My Business that “Between January and October 2011, CAV received nearly 530 calls and complaints. Enquiries and complaints peaked in September and October with nearly 100 calls and complaints each month. This is in comparison to 2010 when CAV received around 22 enquiries and complaints in regards to group buying.”

The organisation says many of the complaints it has received “are a result of businesses experiencing difficulty in being able to meet the demand created through group buying. The most common complaints about these offers include non-supply or delay in supply of goods or services, difficulties obtaining refunds and difficulty in booking services and redeeming vouchers.”

In some cases, group buying sites have gone out of business before consumers have been able to redeem vouchers.

Concerns about the industry were taken up by politicians, with every Consumer Affairs Victoria now leading “a new national project by Australian Consumer Law regulators to work collaboratively to address the growing number of consumer complaints received about group buying and daily deals.” Every State and Territory has signed up for that project, as has the Commonwealth of Australia and even New Zealand.

The group buying industry’s response to customer complaints is to point out a very low ratio of complaints to deals sold.

“We sell a million coupons a month as an industry,” says Spreets’ McEvoy. “The percentage of issues or complaints is quite small. Spreets had fewer than ten complaints and we resolved every one of them.”

Scoopon’s Beros also feels the industry has responded well to consumer complaints.

“We have a very low barrier to entry,” he says. “Some companies paid a few thousand dollars for a website and they were in business. The point of the code of conduct was to publicise the way we go about everything because we want to create an industry that is around for a long time and not tarnished by the people who are in it for the wrong reasons.

More start-ups, more marketing

Group buying start-ups are, however, still emerging. Paul Serra runs one called SweetBusinessDeals, but will operate as an aggregator not a sourcer and spruiker of deals.

“We were going to be a deals site but the next thing could aggregating business-to-business deals, rather than competing with other deals sites.”

Serra believes the market for business-to-business deals is in the same state as the consumer deals market at the end of 2010 – ready to explode. He also believes specialist deals sites are the next wave.

“We’re seeing niche sites emerge,” he says. “Now there are just deals on travel, newborns, or for mums and dads only.”

Serra hopes that by aggregating those deals into a single site he can create a business which thrives on affiliate marketing fees from group buying sites. The dominant players will always be there and they have the massive databases needed to succeed,” he says. “But last year revenue from group buying was $450 million,” and he feels some crumbs can surely fall from the table.

Serra’s plans may be dashed by the sophisticated marketing machinery now at the disposal of larger rivals.

McEvoy explains his company’s alliance with Yahoo!7 means he now sits atop a database of 1.5 million email addresses. That collection continues to grow and as it does Spreets uses Yahoo!7 data to better understand its members desires.

“We are cross-matching data. Yahoo!7 is really good at behavioural targeting and we’ve used that define a target we call the ‘gung-ho achievers’. They’re about 12% of the internet market and are high achievers who pack so much into their lives and are also highly socially influential.”

Deals targeting that market, he hopes, will snowball into the wider community.

“If we run a deal and then those people have a great experience they will tell the world,” he says. “That’s what our focus has been – being more relevant to customers. If we do it right, it solves problems and merchants get get folks who are more likely to become repeat customers and influence others.”

And when that happens, McEvoy feels it will only re-enforce group buying's reputation.

"85% of merchants say group buying is the best value advertising they have ever done," he says. "This is the first medium that gets new customer, on their bum, in their business and they only pay for it when it happens."

Forget everything you know about group buying
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Simon Sharwood

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