Group buying; good or bad for business?

Group buying sites are flourishing in UAE, but some companies who have run deals say there is a dark side

Tags: 2b Limitless (www.2blimitless.com/)Cobone (www.cobone.com)E-commerceGoNabit (www.GoNabit.com)Group buyingLivingSocial (www.livingsocial.com)United Arab Emirates
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Group buying; good or bad for business? Some businesses that have worked with group buying sites, say the deals do not encourage customer loyalty.
By  Georgina Enzer Published  July 20, 2011

Group buying is the latest money-saving trend to hit the UAE, and it has arrived on a massive scale. The concept, where businesses partner with a group buying site to offer a limited time deal to the site's members, has taken off in the region, with several group buying sites established in recent years, and the notable acquisition of local site GoNabit by global company Livingsocial.

Many businesses have tried group buying sites to help them market their businesses and bring in new customers, but not all of them are 100% happy with the service they have received.

Shane Rutherford, managing director and owner of B2B Fitness in Dubai says his experiences have been varied, with one company offering a great deal and great support and the other one reneging the exclusivity of their deal. The company offered a deal for its ‘bootcamp' fitness training, but believes the attempt to attract and retain new customers was undermined when the same site then carried similar offers for its competitors.

"Our experiences with group buying companies have been generally good. We did experience with one site what we thought to be exclusivity for two to three months on our deal, to then see four or five more deals similar to ours, by similar companies with similar value [running] in a little under eight weeks after our deal," said Rutherford.

Rutherford says that if several deals are run one after the other, it will devalue the market segment overall, and lead to customer disloyalty.

"We know we have a wonderful product, but [with similar deals on offer] if I knew I never had to pay full price and could hop from bootcamp to bootcamp, then I would. It has devalued our industry a bit," said Rutherford.

With so many group buying sites springing up across the UAE, there are guaranteed to be clashes between sites, such as more than one company offering fitness deals, but, according to Dan Stuart, CEO and co-founder of GoNabit, poor business practices are contributing to the clashes.

"We run a deal and then as the deal goes live, five different [group buying] companies will call [our customer] and say why don't you run a deal with us too? They have no concept of the fact that why would that business want to run the same deal with someone else right away, when it is still ongoing?" said Stuart.

It is not just competing group buying sites that try to cash in on deals run on a competitor's site, but competing businesses too.

"We will run a bootcamp deal and it will go really well and the next day we will get a bunch of calls from bootcamps asking to run deals. We are happy to talk about the future but not now," said Stuart.

Stuart says that while the company can only control what it puts on its site, GoNabit tries to ensure their deals feature a good variety of businesses and business sectors to ensure customers keep coming back for more.

"For us to be able to not lose engagement with buyers and not give a poor experience for merchants, we look at our calendar and we open and close categories. So let's say we have signed up four different fitness deals, we will schedule them over the next eight weeks or so, then close that category. That tells our sales staff not to buy any more fitness deals. We need to work to a mix," he said.

GoNabit looks hard at that mix of deals and Stuart says that the company is very picky about the deal mix, and works at creating and maintaining variety.

"If there is a bootcamp deal on our website and one on someone else's website or the same business somewhere else, we cannot control that. We can control the mix we have on our site. So I guess from a buyer perspective, the best idea is to only subscribe to our website, then you will have the ideal mix!" Stuart said.

GoNabit works on the premise that the best business is one that never comes back from a merchant perspective, because it means the first deal went so well that they have retained the customers that were brought in, and have captured their recurring business.

"If someone comes and knocks on our door three weeks later, I am concerned; I want to know what happened to the customers the first time," said Stuart.

CEO and founder of Cobone, Paul Kenny says his company works from a different angle, ensuring that businesses utilise and maintain the customers they gain through their group buying deals, while encouraging businesses to come back and do more group buying deals.

"What Cobone.com focuses on is more of a partnership model, where we work on campaigns that work for the business, where they end up with a net profit. One of the key things is, any form of marketing whether it be billboard, radio or print, gets people to be aware of your product, but this [group buying] gets people in your door. We try and work with the businesses so that if I bring you 500 new customers tomorrow, it is up to you to educate them and give them the best possible experience. If you give them a great experience, they will tell their friends and come back," said Kenny.

Group buying deals in the UAE seem to have two different models, the one where deals are offered for a very short period of time, such as a day or two and the one where deals can stay active for several weeks at a time.

Stuart says that the long-term group buying deal model or businesses that want to run repeat deals will devalue that business, as the longer a deal remains up, the more likely it is that that price will be expected as the normal rate by customers.

"We turn down businesses that want to run promotions too frequently because it becomes their new price. We only put on our deals for a couple of days," he said.

Stuart added that he is shocked that businesses allow group buying sites to run their deals for so long.

"If we run a bootcamp deal for two days, it is a deal I can get in on or miss out on, it is a promotion. When the deal runs for two weeks - and it shocks me that a business will agree to that - they have just agreed that their new price is that discount price," said Stuart. "I think it is absolutely the right way to devalue a business."

There have also been allegations in the group buying industry that group buying deals attract customers that would not normally be able to afford the service on offer. These clients are unlikely ever to become regulars with the business offering the deal, because it is out of their normal purchasing power, but rather they hop from deal to deal and business to business when deals are offered.

Rutherford says this has been the case to some extent for B2B Fitness, but he has also gained some loyal customers from group buying that come back and buy sessions and bootcamps at the normal price.

This is also true for 2b Limitless.com, a Dubai-based life coaching service that does child, adult personal or corporate coaching and training and recently had a deal on GoNabit.

"We have found that out of the 83 people who bought our three trial coaching sessions offer, we have got [repeat customers] who normally would not have thought of coaching and definitely would not have bought it. After going through the process they have seen how it could benefit them and pushed it higher on their priority list," said Adam Zargar, empowerment coach at 2 B Limitless.

"Many have signed up for further sessions whether it is one, three or seven sessions, [fitting] a time period that is affordable and beneficial to them, and others may come back when their circumstances change, or they may recommend it to others in the future. To me it's a win-win for all."

Stuart says that deals that are focused solely on price may attract the ‘aspirational' customers who can't afford to become regular customers, but properly positioned deals will appeal to all levels of customers who are attracted by opportunity and the ease of use of group buying.

Kenny agrees that group buying deals need to be accompanied by proper positioning during the deal and proper levels of service after the deal, but that the responsibility for customer retention lies with the company offering the deal, rather than the group buying service.

Kenny says that a deal such as a reduced-rate gym membership for one month can bring in new customers, but then it is up to the gym to convert those prospects into full annual members, which will provide the real value to the business.

"If we bring 100 new customers into your gym tomorrow and you can convert 25 of them to full paying, that campaign has paid off many times over. Campaigns allow an entry into the business, then it is up to the restaurant manager, the spa manager or fitness club manager to gain loyalty," he said.

GoNabit believes that buying sites can do more to provide guidance to merchants on how to  make more out of deals, and will even help with upsell through the GoNabit promotion.

"We tell them how they can create a better experience," Stuart says. "Even our copy we will say ‘while you are there for a blow dry, why not get a manicure, here is how much it costs'. It seems like we are writing deal copy, but we are trying to suggest things from a customer point of view. We highlight incremental spends, which can make compelling cases for a repeat visit."

While both GoNabit and Cobone have done a lot to develop the group buying segment in the UAE, there are different models of the business, and new sites are flourishing. Customers may be getting a wider range of cheap deals to choose from, but behind the scenes, businesses are only just starting to understand the impact of these types of deals on their customer base and business model.

2217 days ago
Jenna

Stuart makes a very good point. But to expand further on the business model, as a customer, I don't believe the UAE is quite ready for credit card payments, which is why I prefer the "cash on delivery" option so I tend to use Moosavings.com. This allows me to test the websites trustworthiness and customer service before I resort to credit card payments.

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