Social media and ‘group’ coupon deals are making a huge splash for savvy start-ups like www.Groupon.com in the United States and local copies such as www.ourdeal.com.au and www.jumponit.com.au (to name a few). There’s also a new ‘evil’ eCommerce model which I’ll discuss shortly.
While traditional eCommerce models continue to be profitable, these new ‘group buying’ online models are being created to help local businesses get a real boost in sales and revenue.
So how do they work?
Groupon started the phenomenon back in November 2008. They offer businesses a system to promote heavily discounted offers. If a certain number of people sign up for the offer, then the deal becomes available to all. On the flipside, if the offer is not subscribed to by enough people, then the deal is off, which helps reduce the risk for retailers who need a minimum threshold of sign ups to make the discount profitable.
Groupon makes its money by taking a cut of each coupon sale.
For businesses, they often see an explosion is customers, and for many it’s hugely successful. But the success of sites like Groupon with large subscriber bases can also cause real headaches for a handful of businesses who participate with offers.
As Groupon’s blog post discusses, there was a recent situation for one retailer (Posies cafe) where the discounted offer completely backfired, simply because they received too many customers and weren’t able to meet the demand. They also didn’t do their sums properly and made quite a loss on the coupons. In any case, this created a LOT of very angry and disgruntled customers!
The lesson to be learnt from all this is that if you’re going to participate with an offer, make sure you cap the offer to only the amount of customers you can handle (and be realistic).
Another new, (and what I consider to be truly wicked) eCommerce approach is www.swoopo.com which is a cross between the auction site, eBay and a pokies machine. They call it “entertainment shopping”; I call it downright dangerous.
If you haven’t stumbled across Swoopo before, it’s basically an auction site with a twist; you have to buy bids to participate in the auctions. Each time you bid against other people, two things happen. The price of the product goes up a few cents and the time before the auction ends also increases a few more seconds.
You’ve probably heard of the term ‘auction sniping’ where people try to make a last second bid at the very end of an auction to try and snap up an item cheaply. Swoopo takes all that adrenaline you feel when an eBay auction is coming to an end and milks it with their system perfectly.
Swoopo makes an absolute fortune with this model. Each time someone bids $0.60c, the price of the product increases by $0.01c. I’ve seen iPads receive over 4,000 bids before an auction closes, meaning they’ve made 4,000 x 0.60c per bid = $2,400 on a product which retails for $700. In addition to all the bids a successful ‘winner’ has made, they also have to pay the auction price (in an iPad’s case, usually $40 or $50 + shipping).
For bidders it can be utterly addictive; you need to keep investing in ‘bid books’ to stay in the auction if you’re being outbid by other people all the time.
Tread carefully with Swoopo. If you’re lucky (and disciplined) you really can snap up a bargain, but if you’re the kind of person with an addictive personality, stay well clear!
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Chris Thomas heads up Reseo, a search engine optimisation company which specialises in creating and maintaining Google AdWords campaigns and Search Engine Optimisation campaigns for a range of corporate clients.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
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