Why Group Buying Is Leaving Local Businesses Behind

I agree with the basic idea - large brands shouldn't have to pay the usual Groupon-style 50% margins, but they probably don't - LivingSocial/Groupon likely offer large brands heavy discounts, like a cross-promotion. And I'm sure Groupon is happy to run custom promotions for large brands.

Anyway, this annoyed me a little:

   2. Brands that need a quick shot of cash can capture that
      demand with a great deal and the right social commerce
      middleware

coming on the heels of this:

   Chris Treadaway is founder and CEO of Lasso, the
   social commerce middleware solution for brands

I don't know of any other companies pitching "social commerce middleware", and nowhere does he define said middleware.

I'd prefer he go ahead and just pitch his solution instead of using this circuitous "large brands should use middleware"-->"what is middleware?"-->"middleware is lasso!".

"Group buying"? I don't think I'd call a bunch of individual customers a "group" just because they visited the same site on the same day. I also don't think I'd call the site a "group" because the site didn't buy anything, they just arranged a deal for the individual customers.

"Group buying" would be people coming together as a "group" and buying a LOT of 1 thing, then splitting it up.

If we're going to call Groupon "Group buying", every newspaper in the US (and possibly the world) has been doing it for decades.

Whether the term is semantically correct or not, "group buying" is how most people have been referring to those types of sites (either that, or "daily deal site" -- though even that, one could argue, is incorrect, since many of these sites have deals that last more than one day or present more or less than one day or present multiple deals in a day).

Your point is valid, I suppose, but the accepted nomenclature is the accepted nomenclature.

It is unfortunately accepted nomenclature, but still off and there exist models that are truly "group buying". This model is quite popular in China. Hundreds of people will show up in front of a big store in China in the morning and demand a 10% across the broad discount or else none of them will go in the store. That's group buying.

This guy is missing the point. Small businesses have to buy exposure because they don't have the capacity to generate it. Big brands that have exposure, fans, advertising, etc don't need Groupon & Co - it's one of many options they have for acquiring new customers.

Also, as Groupon and Living Social do customer acquisition deals where they cover the discount in order to get people to sign up (Groupon has done it too, although I'm not sure I'm allowed to say which deals we did it for), then big brands enter the picture as audience vendors to the deal sites.

So LS pays $10/customer for Amazon's brand equity. The local spa doesn't have brand equity so they buy customers from LS or G for 75% (in practice more like 30-60%) of that customer's bill.

He's also WAAAAYYYYY off when he says local businesses are being left behind. Groupon has done a couple dozen national deals, and while there are more and bigger ones to come, there are some large number, call it 1,000 for round number purposes, deals a day, spread over ~500 cities, almost all of them from local merchants. Amazon was the first national deal I've heard about LS doing so I assume they're about the same.

I'm not a group buying user, but I think this article clearly shows the separation between journalist and entrepreneur.

Ignoring the question of if group buying makes sense for large brand, the desire for local businesses to leverage group buying capabilities is a recognizable issue with the explosive growth of the business.

If groupon and livingsocial are no longer filling the need, those companies will adapt, if they need to, or another company will fill their shoes.

This article points to the issue of group buying not working for the consumer. But I question how it really works for the businesses. Good on groupon and LivingSocial for being able to extract the huge $$ from businesses to run deals. I suspect we'll see a drop in the amounts businesses are willing to pay to run a campaign with either of these businesses.

This article doesn't only say that 'local businesses are being left behind', but that 'the consumer is the big loser'. If consumers are truly losing, doesn't that mean the marketers are loosing too? Ergo, the company running the campaign is loosing. It is WAY to early to make these calls on this sort of environment. All 3 parties are still figuring out what works.

I think his larger point is that it may not be working for anyone in the future, and that all of this stuff is about to change quite a bit.

Group buying has been around for eons starting in China known as tuangou. Although there are lots of new competitors in the space, there is clearly a great deal of pent up demand from local businesses in the marketplace. I doubt that this form of consumer purchasing will die anytime soon.

One should ask themselves why there is so much pent up demand for group buying in the marketplace?

Some critics focus on poor efficacy rates for repeat business from Groupon customers. Others will claim that it is a fad. Still others will argue that the business running a Groupon campaign will not make money from the deal.

But what is the alternative?

The alternative for most businesses is to purchase ads in local print newspapers, create print flyers, and other more traditional means of marketing, which all require upfront costs from the local business. Most small businesses do not use online SEM.

The great advantage with Groupon is there are no upfront costs. (1) Businesses get thousands of impressions from the email marketing campaigns showcasing their deal. (2) If a deal gets executed the business gets guaranteed foot traffic and revenue from customers, which is trackable. (3) There is the potential to acquire a percentage of new customers as repeat customers. All of this with no upfront costs.

The reason I am very optimistic on the continued growth of this model of purchasing is that the market is validating it. You can see this from the explosive revenue growth numbers of group buying companies. And businesses recognize that it is much more cost effective and measurable to launch a Groupon than invest in the alternative.

So the analysis should not be what is the best or perfect solution for local businesses to acquire customers, but what is a marginally better alternative for customer acquisition. Group buying is.

For large businesses, I see a similar value. I would make an educated guess that Gap and Amazon spend a great deal of money on customer acquisition. Thus the group buying economics probably work in their favor. I would have a hard time believing that they lost money on their Groupon campaigns. Even if they broke even, it is a campaign that successfully drove millions of paying customers to their site, broke major headlines, and was great PR for both companies. Just because you are a big company doesn't mean that you do not appreciate this kind of attention.

We are witnessing the nascent stages in the evolution of group buying. Larger companies like Groupon and LivingSocial will build an incredible amount of data to mine for new initiatives like determining their customers' preferences and targeting them for secondary purchases. This is just the beginning.

Group buying has been around for eons starting in China known as tuangou. Although there are lots of new competitors in the space, there is clearly a great deal of pent up demand from local businesses in the marketplace. I doubt that this form of consumer purchasing will die anytime soon.

One should ask themselves why there is so much pent up demand for group buying in the marketplace?

Some critics focus on poor efficacy rates for repeat business from Groupon customers. Others will claim that it is a fad. Still others will argue that the business running a Groupon campaign will not make money from the deal.

But what is the alternative?

The alternative for most businesses is to purchase ads in local print newspapers, create print flyers, and other more traditional means of marketing, which all require upfront costs from the local business. Most small businesses do not use online SEM.

The great advantage with Groupon is there are no upfront costs. (1) Businesses get thousands of impressions from the email marketing campaigns showcasing their deal. (2) If a deal gets executed the business gets guaranteed foot traffic and revenue from customers, which is trackable. (3) There is the potential to acquire a percentage of new customers as repeat customers. All of this with no upfront costs.

The reason I am very optimistic on the continued growth of this model of purchasing is that the market is validating it. You can see this from the explosive revenue growth numbers of group buying companies. And businesses recognize that it is much more cost effective and measurable to launch a Groupon than invest in the alternative.

So the analysis should not be what is the best or perfect solution for local businesses to acquire customers, but what is a marginally better alternative for customer acquisition. Group buying is.

For large businesses, I see a similar value. I would make an educated guess that Gap and Amazon spend a great deal of money on customer acquisition. Thus the group buying economics probably work in their favor. I would have a hard time believing that they lost money on their Groupon campaigns. Even if they broke even, it is a campaign that successfully drove millions of paying customers to their site, broke major headlines, and was great PR for both companies. Just because you are a big company doesn't mean that you do not appreciate this kind of attention.

We are witnessing the nascent stages in the evolution of group buying. Larger companies like Groupon and LivingSocial will build an incredible amount of data to mine for new initiatives like determining their customers' preferences and targeting them for secondary purchases. This is just the beginning.

"Group buying", etc [Groupon, Living Social, etc] are marketing expenses. The best way for any merchant to think about it is that by being featured on a group buying site, they can have a Black Friday. Huge buying potential, lots of customers, a chance to upsell or convert. You get the same benefits and risks as every retailer does the day after Thanksgiving.