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Group Buying Sites Presents More Bad than Good for Consumers especially Entrepreneurs

The very fundamental idea behind ChopChop is helping consumers to digitalise their loyalty cards onto their smartphones. No more missing cards, no more losing out on loyalty promotions. They are reminded of cards that are about to expire, or rewards that they are yet to claim. Our users love our product.

ChopChop wouldn’t have any users if there weren’t any merchants that are willing to adopt our product. When we started, it was quite a tough sell for us. Merchants did not see the value of customer loyalty in increasing sales. Merchants asked why weren’t we more like group-buying sites, why couldn’t we reach out to new customers which could boost their sales almost immediately. If you are a business owner, probably you should read this to understand why customer loyalty is so much more important than customer acquisition. Fast forward to today, ChopChop’s acceptance by businesses is growing. Businesses are beginning to feel the group buying fatigue and starting to realise the long-term, sustainable value of cultivating customer loyalty. Many of our partner merchants have offered group buying deals and most, if not all, of their experiences weren’t positive.

The logic behind using group-buying is that we discount our prices heavily to attract a mass of consumers to give our brand a try, hope that you will be able to up-sell and cross-sell to them when they visit your outlet to cover for the deeply discounted prices and revenue-sharing with group-buying companies and then also hope that some of the customers will be converted to regulars, bringing in more sales in the future. Unfortunately, a large part of this logic has proven to be untrue. It is easy to understand how attractive and tempting it is to do group buying deal for your business as it gives nearly an immediate boost to your sales and how it helps your brand to reach out to massive number of consumers.

The customers that are attracted to group buying deals are usually low value bargain hunters. They go where the best (cheapest) deals are.  Value to them is perceived in price, not product. They only consume what the group buying deal has to offer. Many merchants told me that it is hard to cross-sell other products, and usually the only thing these customers bought were plain water! No more group buying by your brand, and you don’t see them anymore. Tough chance in converting them to regulars. Not saying you can’t, but probably the wrong customers to aim at and convert.

I am not writing off group-buying completely. As a one-off marketing tool, it could be an effective channel. If you are a new brand and have just started out your business, group-buying deals could give you greater brand exposure in the shortest period of time by reaching out to a large pool of consumers.  Beyond that, by thinking that group-buying could enhance your brand and boost sales is detrimental to your business. Yes, group-buying does boost sales. It boosts poor quality sales, it brings in sales that aren’t profitable but also potentially creating losses which could have been avoided, it is sales that aren’t sustainable, attracting the wrong customers, and could potentially damage your brand as these bargain hunters could easily amplify their less than pleasant experience at your premise.

The writeup here by New York Times clearly captures the essence of what I described above. It isn’t just the merchants that are having a hard time when doing a group buying deal, but also customers themselves are undercut in terms of service and product quality. I have heard of similar experiences in Malaysia, but yet to see any merchants or consumers that are vocal enough about it to gain the attention of mainstream media.

By doing it too frequently, deep discounts will dilute and degrade your brand. Consumers perceive the value in your brand as a discounted brand. I have merchants that have done  group buying too frequently that they had customers telling them that they will be back  only during the next group buying deal. And by doing more group buying to ‘revive’ your brand is simply exacerbating the declining value of the brand.

How would your loyal customers feel when the customers (chances are they are new, bargain hunting customers and might not return) beside them are paying way less than what they are paying for, despite always being a regular? This will have some impact on your customer goodwill. Worse still, when a regular who is willing to pay RM 10 a product, now comes in with a group buying deal and paying you half the price for the similar product. You are cannibalizing your sales, losing out on quality sales that you could get without the group buying deal.

To think about it, for businesses, if they really need to offer deep discount, why not offer it directly to their regulars for their next visit use rather than going through a third party (ie. group buying sites)? You might not reach out to the number of consumers as these group buying sites can offer, but at least you are ensured of bringing in profitable sales, and making your regulars happy. Even better, you don’t have to share a cut of the sales with the group buying sites. In fact, loyal customers can be a great marketing agent for your brand. As we all know, word-of-mouth marketing is the best marketing channel. Make your customers happy, and they will be more than willing to spread the good word about your brand – for free, effectively.