Although my inbox is flooded with them every day, I?ve only bought one thing from a group buying site: a package of waxes usually costing me $180, for just $45. What a bargain! This got me thinking, how on earth do the businesses that offer these deals actually make money?
So the time came to redeem my first wax and during my appointment I asked the business owner. She said she was making a massive loss on them but hoped that the people who bought the deal would like the service enough to continue visiting her after their vouchers had finished.
I didn?t tell her that I thought these ?loyal-customers-in-waiting? are probably just seeking the next cheap deal and will be out her front door faster than you can say ?ouch?!
Offering these deals on a small scale is one thing, but what happens when a business underestimates the strength of an offer and doesn?t prepare for the unthinkable?
A case in point? A rather uncomfortable group buying story comes from a small bakery in the UK which last year offered a Groupon deal that almost shut them down. The ?Need a Cake? bakery in Reading offered a 75% discount on their cupcakes (when a dozen were bought), so a $40 package would cost only $10. After a frenzy of purchases the bakery was required to make 102,000 cupcakes, when it usually made only 100 a month. The company had to outsource the work and lost a year?s profit. Needless to say it was not the best business decision.
So prudent businesses should use these sales promotions sparingly, and think them through clearly beforehand. And as for building customer loyalty, well, there are plenty of other ways to achieve that which won?t send you bankrupt.
Have you heard any horror group buying stories? If you were operating a small business would you be prepared to offer a Groupon deal? And do the benefits outweigh the risks?
Karlie Armansin is an Account Coordinator at BCM
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