Nowadays, the name of the company that is synonymous with the concept of group buying is Groupon. Everyone seems to be jumping on the bandwagon – both the business vendors using the site’s services and the competitor sites coming up – and the concept is still picking up momentum in Malaysia.
I like the concept of group buying and it’s here to stay.
But to be frank, I’m not too keen on Groupon.
I have someone close to me who tried using their services as a business vendor and from what I can see, the system they use can do far more harm than good to the business signed on.
Firstly, they usually ask you to provide at least 50% discount on your existing prices.
Secondly, on the remaining revenue, they take around 50% of the gross sales. This means the business vendor only gets 25% of what they would have originally received from the usual sale of a product or service. Many times, this will not even allow the business to cover their cost.
Thirdly (and this one I find the most absurd), with each sale, there will be instances where (maybe 20 or 30%) of the time, coupons aren’t redeemed and the buyer just forgets about it or lets it burn. In this situation, Groupon keeps 100% of the money and does not share a cent with the business vendor.
Fourthly, when the sale has been made online, Groupon only gives 50% of the money collected to the business vendor so that, in the event coupons are not redeemed, they get to keep 100% of the money from these coupons before passing the remainder of the fee back to the business vendor.
This is as cutthroat as it gets, folks, and my prediction is that this business model will not work in the long-term because the vendors don’t feel that there is any fairness. So many competitors are still coming out for Groupon, and some of them are offering to take as low as 20% of the sales instead of 50%.
There are many models for group buying sites and Groupon will eventually have to reduce their margins and treat vendors better if they are to sustain their success. The main reason why they are successful at this point of time is because they are still the most popular site and businesses still find it attractive to have an immediate access to a big pool of customers (even for very low margins or sometimes negative margins).
This is reinforced by the slowdown in the economy where struggling businesses feel that low margins are better than none, or that even if it’s below cost, at least some revenue is coming in. Some businesses may absorb it under marketing and advertising budget, and treat it more as a marketing exercise to get their name out. Some businesses may just need to keep their staff whodepend on commission happy during slow months.
Whatever the reason, Groupon continues to be successful but I’m just waiting for the day when other sites offering fairer deals take over. Until then, my sympathies are with business vendors who still have to rely on Groupon for a quick, short-term increase in their operations.
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