Group purchasing sites;a flash in the pan or a game-changer?

An interesting article on the Le Post (France) site from Romain Blachier predicting the 'death' of group purchase websites such as Groupon, Social Living and many others. He puts forward a number of good arguments to support this theory.

Firstly, while the deal may look attractive at first to a merchant to generate new customers, the reduction in margin is steep - particualrly as the group purchasing 'agent' (e.g. Groupon) takes anything upt to 50% of the customer's spend. How sustainable is this for the merchants offering the deals?

He also asks what it might do to the margin of whole sectors. If customers get used to the idea that a massage 'should' only cost 25% of what it usually does, with expectations changed by the special offers, then there could be consequences for the whole market sector.

In terms of the market, he also feels this is reaching saturation - too many players in the market, too similar in their approach, un-differentiated and with very similar business models.

I would add one other issue. When I look at some of the offers, I can't see how the merchant has the capacity for everyone who has bought the offer. I saw an offer for afternoon tea at a nice London hotel and worked out that for the period of availability, they were going to need to accommodate around 70 people a day given the number who had bought the offer!  Unlikely to be feasible and certainly wouldn't leave much room for full-price paying customers.  I suspect they rely on lots of people just not getting round to using their purchase.

And in the US, lawsuits have started around this, particularly as time-bound special offers are illegal in some States.

An unsustainable business model? We'll see. But if I'd been a Director of Groupon, I'd have bitten Google's hand off when they came along with their $6 billion offer!

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Voices (2)

  1. romain blachier:

    Thank you for the mention. I think this kind of sites will stay but with a lot of deads in the game.

  2. Adam:

    Being a regular user of these sites I think they are here to stay. As an example, my other haf regularly snaps up the offers on discounts at West End hair salons. From the suppliers point of view, if they can convert some of these customers into regulars it is definitely worth their while.

    Conversely and as long as you don’t mind getting your hair cut in a different place every time, as a consumer you can jump from offer to offer getting a great value deal.

    Most popular offers like the afternoon tea you mention, will have their validity period extended by a month or two to accommodate demand.

    And from our experience of asking the “is this worth your while?” to the supplier, while it is not something that is sustainable all the time, offering say 4 deals a year is something that works for them.

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