Caution urged over group buying deals

Start-ups are being urged to act with caution when advertising deals on group-buying sites, as small businesses start to feel the pressure of the daily deal phenomenon.

According to Scoopon general manager Jon Beros, the craze has swept through Perth more than any other Australian city, with one in five residents signing up to Scoopon and Catch of the Day.

Beros says Perth has averaged two or three deals per day, compared to one in other cities, while Perth-based businesses are also re-featuring on the site at a higher rate.

Many businesses have indicated they use group-buying sites as a cheaper form of marketing, which can result in new customers from further afield.

However, many are buckling under the pressure, unprepared for the massive influx of consumers who take up their offers.

The owner of a Perth-based beauty salon says she had to cancel a deal after staff were abused for being unable to accommodate all the voucher holders in a timely manner.

Another Perth beauty salon says it was forced to take extreme measures when 1,500 people took up a Scoopon deal after it made the mistake of not limiting the number of vouchers available.

The salon has been forced to extend trading hours, hire three new staff and add another month to the voucher expiry date, all the while jeopardising the existing customer base.

“Scoopon told us not to cap it but that’s one mistake we made. [Scoopon advised] it’s better to uncap it and let it go wild [because] the amount of people who actually redeem what they purchase isn’t high but we’ve found the opposite,” salon manager Cheri Hodgson says.

According to Adam Schwab, co-founder and managing director of niche deals site Deals.com.au, some of the larger group buying sites are inclined to disregard their clients’ capacity constraints in favour of a more attractive deal.

“One of the problems we’ve come across is some of our competitors don’t always treat businesses how they should and that can adversely affect the whole industry,” Schwab says.

“It’s very easy to contract a deal that sells a lot of deals but that might not work for the business.”

“The last thing we want to do is sell too many vouchers, like a lot of our competitors do, and cause the business to suffer a loss.”

“There’s always a relationship between making sure the deal works so the customers come back, but also is good enough to make them want to buy it in the first place.”

Beros denies claims that Scoopon has been irresponsible in allowing some deals to get out of control, saying each business is consulted beforehand and is advised to consider their capacity.

“We don’t want the business to be hurt. The one thing we really do is make sure that we hold their hand to work out capacity so that we don’t get into a situation where too many people have got [the deal],” he says.

“We’ve had a couple of issues but having said that, we’ve got over 2,000 small businesses around the country.”

Beros says Scoopon has refunded about 1% of vouchers nationally, mostly after businesses had closed for unrelated reasons.

He says all responsibility cannot lie with group buying sites – it’s up to each business to create a good impression for the deal to be a success.

“When [customers] come through the door, it’s [the business’] job to win them over and turn them into repeat customers and full-paying customers,” he says.

According to the Council of Small Business of Australia, the group-buying concept is bad for business.

“The model is set up so that the small business gets absolutely nothing except a big loss out of it,” COSBOA says.

“It’s not viable; we’ve seen nothing to say it’s worthwhile for businesses to do it. Consumers change – they don’t hang around with the retailer [who offered the deal].”

Schwab agrees there is a degree of consumer churn within the industry, stating: “Someone might buy one or two deals and forget about the site or move overseas.”

The news comes on the back of an announcement by Scoopon co-founder Gabby Leibovich that Scoopon is the most profitable eCommerce business in Australia, claiming its earnings are significantly higher than the number estimated by its rivals.

“Our earnings are much closer to $20 million [than the $12 million industry estimate],” he says.