Voucher sites and group buying – too good to refuse, or too good to be true?

Group buying and voucher websites have been one of the recession’s major success stories, attracting sky-high user numbers with their discount deals. But are entrepreneurs wise to embrace the trend if the deal appears too good to be true?

Everyone likes a deal and in a time when consumers are buying cautiously, value is key. Group buying and discount voucher sites have thrived, with retailers large and small flocking to them. What they offer is quite familiar: typically, a discount on goods or services for a limited time. Retailers see them as useful if they are looking to sell off unwanted stock or boost footfall during quieter periods. However, the publicity the sites offer is also of interest to small outfits looking to gain the attention of the wider public.

BIG CROWDS

The market for vouchers and online deals has boomed, now counting users in their millions. Groupon, generally regarded as the global market leader, has over well over two million users per month in the UK and over one million users in each of 10 other countries (in the US it has over 10million users). The site will soon be floated on the stock market and is expected to raise $750million – impressive for a company only founded in November 2008. Internet giants such as Facebook and Google are realising the appeal of discount voucher and deals, as are major retailers. Some sites allow anyone to post voucher codes and offers – one of them, HotUKDeals, has about 400,000 members. Other discount sites focus on particular sectors, unlike Groupon’s broad-brush approach. For instance, toptable, which operates in 16 countries, focuses on the restaurant sector and boasts a million reservations per month. Meanwhile, Chiconomise, a site run by Michelle Dewberry, winner of the second series of The Apprentice in 2006, provides deals in the female fashion and luxury goods markets. Her business, which also includes Likebees.com and The Daily Chic, provides the design and content for the deal and operates on a revenue-share basis.

Mobile technology is also key to the growth of these sites and offers. Internet-enabled smartphones allow users to browse for deals and make purchases and bookings while on the move. Apps are the gateway for many – touch screens are helping customers make savings in ways which are similar to using old paper vouchers. The difference is that the technology allows deals to circulate much faster.

THE REAL DEAL?

So consumers feel they are benefiting and the voucher dealers look to be on a winner. But is this a profitable arrangement for those who provide the goods and services for the deal, and should entrepreneurs be adopting the practice? Celia Pronto, VP of marketing for Livebookings, suggests that competition means companies like hers cannot be ignored. “The market reality is that consumers have become used to deals and offers, a trend exacerbated by the recession,” she says. “While many restaurants would prefer not to have to run promotions, the truth is that they do have a role to play in helping restaurants fill their tables.” Michelle Dewberry argues that bringing in customers has always cost money and that other options, such as direct advertising, are often more expensive. “If you think about advertising in a local newspaper, maybe you’ll spend a few hundred pounds, but you can’t be sure of the outcome,” she concludes. “With this, if they don’t make money then we don’t, either.”

When it comes to providing discounts, price is key, so entrepreneurs must think carefully about the types of deals they are creating. Stewart Hunter, operational director at Somo, a full-service marketing firm, works with major brands to create promotions and offers. Previously, he was at Tesco and was instrumental in creating its online service. “It is all about price,” ” he says. “Your margins are going to be seriously impacted, but you can create a loyal following. You might want to roll out the deal on a regular basis, so you need a deal which you aren’t going to lose money on.” Essentially, the initial deal isn’t always where you make your profit, but it is about getting attention, getting customers into your business and, ideally, not making a loss in the process.

HONING THE DEAL

The most successful deals tend to be simple and involve a large price reduction. You should aim to give customers something which they regard as highly valuable, but which you can provide fairly easily. “You have got to give the customer a deal which is almost too good to be true,” suggests Hunter. “The deals can be very niche, but if they are targeted and relevant, then they should work. A safe option might be to offer a service rather than a product, as a service cannot run out. For instance, a hotel might offer customers something like a massage.”

PREPARE FOR THE BEST

One size doesn’t fit all and it is important that entrepreneurs thinking of using these types of deals find the right partner and offer the right deal. There are many sites out there, some specialising in key industries, others offering a broader approach. Always be sure you understand what the deal will entail and what its parameters are. Crucially, you must be prepared to deliver the deal when the customers start phoning or emailing as a result of the offer. In this case, the sensible policy is to expect the best result and not the worst – that in a very short amount of time you will have hundreds or even thousands of expectant customers at the door. “The deal will create a short, sharp spike in demand and you’ve got to be able to get through to the next stage,” says Hunter. “The worst thing would be if your service and delivery is affected, there are some PR disasters waiting to happen.”

THE MEAL DEAL: A CASE STUDY

Ristorante Semplice opened in 2007 and gained a Michelin star in its first year. Co-owner Marino Roberto opted for a Groupon deal to give him the edge in a competitive market, offering a half-price deal to fill the restaurant during quieter times. He sold 2,500 vouchers. “The deal was for a five-course taster menu, usually worth £85,” Roberto says. “It sold out in seconds and there was much more demand left.” The restaurant made little money out of the food sold, but some customers were prepared to spend extra money on wine, traditionally the area where restaurants make their profit. However, the deal was also about gaining publicity and new customers who would hopefully return. “The restaurant business is very competitive and, although we know we are good, there are new restaurants opening in London all the time,” explains Roberto, who admits the offer was a learning curve. “It is really important that each customer has a good experience,” he says. “When you have that many people, it can be a bit chaotic. I would do it in a simpler way. Maybe a three-course meal, as there’s a lot of work involved in a five course meal.”