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Should My Small Business Use Group Buying Sites?

Updated on October 30, 2012

Group buying sites (such as Groupon) are very popular with consumers. It’s a great way to get a good deal on a local purchase. In fact, as a buyer it’s a pretty cut-and-dry decision to use these sites since they offer savings at no cost. However, the situation isn’t nearly so cut and dry for small business owners. As a business owner, you have to determine whether the benefits of advertising on a site like this are worth the drawbacks that come along with it.

Benefits of Using Group Buying Sites

There are a lot of great things that small businesses can gain from advertising a deal on a site such as Groupon. And notably, there are a lot of different group buying sites, including many local one-city-only sites, so a business could potential gain a lot of benefits when working with multiple sites. Some of the benefits for businesses who use these sites include:

· Major advertising opportunity. The best thing about these sites is that they offer a major advertising opportunity for you. These sites work because users spread the word about the deals that you’re offering to their friends and associates. That social word of mouth is very powerful and really strengthen your brand name.

· This is local advertising. Small businesses that operate in specific locations (rather than online or nationwide) need to make sure that they focus their advertising efforts on local customers who can actually come to their place of business. These sites are set up to feature businesses in a specific city, easily targeting the customers that you most want to target.

· You can announce a popular or new product. The way that these sites work, of course, is that you offer a good deal on a specific product or service. This is a great way to let local customers know about a very specific product that you have available. If you have a product with a high profit margin that isn’t getting a lot of sales then this is an ideal way to get some attention for it.

· You get a lump sum payment. Customers make their payment to the group buying site. The site then pays the small business in either one lump sum or a couple of payments. This means that you can generate a lot of money at one time, something that can be very good for a business. This is particularly beneficial sometimes for tax purposes if you make the sales in a particular tax year even though the actual products or goods aren’t obtained from you until the following year.

Drawbacks of Using Group Buying Sites

So there are a lot of benefits for small businesses that use these sites but there are things to be wary of as well. Some of the drawbacks that businesses report when using these sites include:

· Loss of profits / income. These sites work because they offer really great deals to customers. For example, you may offer a common service for 50% off. However, you don’t actually get the 50% payment because you have to pay out a portion of the sales to the group buying site. The sites sometimes take as much as 50%, which means that you can be giving away products and services for as much as 75% of their usual cost. This not only significantly cuts into profits but can even cut into income and cost you money if you aren’t careful about what you’re advertising.

· Overwhelming traffic. Sometimes these deals really take off and businesses are flooded with both online traffic and foot traffic. This is a wonderful thing but it can be really bad if you aren’t prepared for it. If your website goes down because there are too many people visiting it on the day of the deal or if you aren’t able to allow customers to easily cash in their coupons because you run out of product then you’re going to anger a lot of people. This results in negative advertising, which is very bad for your business! Even if that doesn’t happen, you can find yourself overworked and stressed because of the flood of traffic.

· Suggests that you offer great deals. The people who use these websites are people who are looking for a great deal. The fact that you are offering a good deal is a great thing … unless you don’t usually offer great deals. If you are a luxury brand then you probably don’t want to attract people who are looking for a deal because they aren’t going to be good customers in the long run.

· Doesn’t necessarily translate into more customers. That’s another important point to consider … although you may get a lot of traffic for the deal itself, the use of these sites may or may not translate into a long-term increase in business. Many deal-based customers buy only the item offered with the coupon and don’t buy other products or become return customers. This can be a waste of advertising effort if that is the result.

So what’s the answer?

Small businesses that are thinking about using group buying sites for advertising should weigh the decision carefully. If you are a local business that is prepared for the traffic and have a good product to offer without cutting into your own income to do so then this can be a very useful advertising tool. If you’re an online luxury brand willing to pay for other advertising then this may not be the right option for you. Ask yourself what your customers would think of it and that will give you a good idea of whether or not to go forward with this option.

Comments

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  • profile image

    groupbuyingsite 

    7 years ago

    Small businesses with hard costs associated with their products have to be very careful. I think the biggest issue with a small business is not being ready for the traffic and looking bad.

    When done right, group buying sites can be very win / win.

    Now there is a site for businesses to buy as well. B2B opportunities are coming soon to www.marketblitzdeals.com. I think this is going to be a great opportunity for all small businesses to buy and sell to each other. Again...win / win.

  • Hello, hello, profile image

    Hello, hello, 

    8 years ago from London, UK

    You have raised a lot of good thoughts and suggestions.

  • dallas93444 profile image

    Dallas W Thompson 

    8 years ago from Bakersfield, CA

    Answer depends on the entrepreneur; their resources, their wants, needs and "mantra." Growth for growth's sake is not a panacea...

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