This post originally appeared on Vistaprint's Micro Business Perspectives Blog.
Here is a general overview of group buying and how small businesses are using it.
If you type “group buying” into Google, you’ll get over 44,500,000 results. The most recognized player however, is probably Groupon, a Chicago-based company that has enjoyed explosive growth over the past few years. The business model is simple: Groupon typically keeps half of the money generated from the deal, and the other half goes to the featured retailer. If, for instance, a $160 dinner is offered for $80 on the site, Groupon and the restaurant split the $80. As we mentioned, Groupon is just one of many group buying sites. Others in the space include LivingSocial, Google Offers and Gilt.
What about my business?
The big question, of course, is how does (or doesn’t) group buying fit into the world of a micro business owner? The first step might be looking at a few pros and cons. Although there are a number of advantages to consider when it comes to group buying, the biggest is likely the opportunity to generate buzz and in the end, reach a deep pool of new consumers you might not have been able to before. According to a Financial Times piece, Groupon CEO Andrew Mason thinks his company is the perfect way for small businesses to do just that: “We’re hands down the best way to get customers through the door,” he says. “Which for small businesses is the difference between success and failure.” And while customer procurement is undoubtedly vital, small business owners also have to weigh a number of important risk factors like potential financial impact, and whether or not they’ll be able to honor the deal if it takes off.
ToMuse takes a hard look at whether or not group buying is cost effective, and ultimately comes to the conclusion that it really depends on the offer. And as for delivering on the deal, one cautionary tale comes in the form of a cupcake. Rachel Brown, who runs a small bakery outside of London, featured what she thought was a simple deal on Groupon (a 75 percent discount on a dozen cupcakes) that would maybe generate a few hundred orders. Instead, she was flooded, finally cutting the orders off at a staggering 8,500 — which, for the record, is a lot of cupcakes. According to the Daily Mail, her business took a massive hit. “Because [Brown’s] deal had been so generous and the demand so huge, she made a loss on every order – wiping out her profits for the entire year,” the publication reports.
In the end, not all businesses are the same, and the decision comes down to you as a small business owner asking the right questions, such as: Is the risk worth the potential gain? Can I afford to offer such a deep discount? Am I prepared to honor the terms of the offer if there’s no limit? We’ve only scratched the surface of group buying, but hopefully you’ve gained a little insight.
Tell us in the comments section: Do you think you’ll consider group buying or will you stick to more traditional methods?