Everyone knows how to search for deals online but I am still surprised at how many people have never heard of group or community buying sites. This form of marketing is growing quickly and the potential is huge. What these sites do is leverage the power in numbers approach. They show a large number of people a great deal valid for a limited time and if a certain number of people are interested then the sale is on. It is a win, win for local businesses as it provides a platform for them to attract a large number of new customers in a short time period. Shoppers get a coupon/voucher that they can use at the merchant to redeem their discount. For the merchant, there is no up front investment as they split the cost of each sale with the group buying site.
Not only does this make sense for the consumer and merchant, but it is a huge business opportunity for the sites and their investors. The market is moving at lightening speed. Recently Groupon was valued at $1.2 billion, after raising $135 million in financing in April. BuyWithMe and Living Social are hot on their heels. BuyWithMe announced funding of $5.5 million in January. Last month they hired a very experienced CEO (Cheryl Rosner ex TicketsNow and Hotels.com) and relocated their headquarters to New York. LivingSocial recently announced a $25 million round of financing. Companies in this space are fiercely competitive and are all carving out ways to differentiate themselves. Although right now they all seem to do the same thing, I think we’ll see some differentiation soon. There are currently about 70 companies in this space.
Discounting is nothing new, but what this does for the first time is create a big resurgence in “mom and pop” businesses. Many of these small businesses were challenged to survive when, either through the recession or lack of marketing budgets, they lost their market share to bigger retailers and malls. Group buying sites allow them to capture market share, ensure customers on typically quieter times/need periods, and attract hundreds, or often times thousands of new customers in their city very quickly. Shoppers love it because not only are they getting a great deal, but they are finding out about new things they have never tried before, and often get better service and a better experience overall than they would have with a big chain.
Opportunities for social media are everywhere in this channel as deal hunters love to tell their friends when they have just snagged a great deal, or tried a new restaurant or spa. I think we can expect to see more social networking used by these group buying sites to lure bargain hunters and those looking for exclusive deals for specific industries. Social media will enable these sites to get very specific and put relevant deals in front of people with those particular interests, increasing the likelihood of a transaction and pleasing the user even more with content that will get them excited enough to buy.