For disclosure purposes, I subscribe to every group coupon program that is available in Vancouver. I do this, not because I am cheap, but because I like to keep an eye on what is happening in the group couponing industry.
The business model for group buying should be: volume purchases of goods should allow the manufacturer to produce it more cheaply and then pass those savings onto the consumer.
An example of this is books. The book store pays 40% less of the cover price for a book. If the book is $10, the book store pays $6 to the publisher. If a bookstore takes the book as non returnable, they get another 50% off or so.
If the book store is Amazon and they need a million copies of “The Girl with the Dragon Tattoo”, they call Penguin and say we want the book for $3 a copy for a million copies. Penguin then talks to their printer and for a million copies they can produce the book for $1 each copy so they say OK. Amazon then sells the book for $6 and everyone is happy, especially the consumer who did not have to pay the $12 cover price.
Groupon and their imitators, tend to offer group buying on services rather than goods. For the most part the coupons are for spas, laser hair removal, restaurants, fitness classes and local attractions. The deal is “on” when enough people have purchased the coupon. The coupon companies take up to 50% of the face value of the coupon.
Groupon says it is “a city guide, a social tool and the best way to experience your city without paying full price.” It is unlikely that it matters to either the coupon company or the service provider if the deal sells to one person or to 250 people.
The service provider will not be able to benefit from scale of service as they have not been able to produce their service more cheaply and capitalize on volume. The benefit to the service provider is break even, coupons not being redeemed and advertising exposure to new customers. For many of the service providers it is a money loser.
Let’s turn our attention now to you and me – the consumer. If you are savvy enough to have subscribed to Groupon, you have probably signed up for LivingSocial and Grooster and maybe a few others.
At this point however, coupon fatigue is setting in. Another mani/pedi deal? Another Laser Hair removal deal – how hairy do they think we are? More yoga deals in some difficult to get to location? As cheese shop and movie tickets deals get further and further apart, it is likely that we will see people unsubscribing and the sales begin to flatline and then fall off.
Where “service provider” couponing may be this year’s big thing and next year’s “no thing”, group buying is a fantastic opportunity for companies that produce a consumer good.
Let’s say you are a bike company like Norco, Brodie, Kona, Rocky Mountain or the always adorable, CCM from Canadian Tire.
You could offer your own group buying product – a 26 inch mountain bike with cromoly this and titanium that – for only $200 if 300 people plunk down their credit cards.
You can source that volume of parts for a much cheaper rate than you would normally get them for this bike that is specifically being made for this group. 4 weeks later you ship out the bikes to the new owners. The new owners got an awesome deal, you sold bikes that only cost you $50 to make for $200, and you did not have to give $100 to a coupon company.
Now that’s the way group buying should work! It would be nice to see this alternative approach develop in 2011 and offer real value to both consumers and manufacturer-retailers alike.
Make sure to check out Lisa’s last blog post, Retailers and Group Coupons – Should you participate? One Gal’s Opinion, for more information on the Group Coupon Phenomenon.
(Above image from: http://www.letsdeal.se/)
