Since Groupon, the big daddy of daily deal sites, launched in 2008, group buying has been heralded as either a revolutionary new way for small businesses to gain exposure or as a sales and marketing disaster.
There is no doubt that small businesses around the world are very successfully using daily deal sites to market their offerings. However, there are enough horror stories out there – most notably the UK bakery that had to bake 102,000 cupcakes at a £12,500 ($20,000) loss after offering a Groupon deal – for businesses to tread carefully when figuring out whether this type of promotion is for them.
Daily deal sites negotiate huge discounts for consumers based on the principles of collective buying: deals are only activated when a minimum number of people agree to buy. In return for massively discounting their products and services, usually between 50-75 percent as well as giving the daily deal site a cut (around 50 percent of the price paid by the customer), businesses are marketed to the hundreds of thousands of local consumers who have opted in to receive the deals.
On the one hand, the concept is fairly risk-free: businesses only pay if the deal tips and they get business out of it. On the other, there have been a number of reports of businesses brought to their knees by overwhelming demand or thanks to making an irrecoverable loss on the deal.
In Africa, South Africa is probably the most developed daily deal market on the continent, although a number of sites have already closed down, including Naspers’ Dealify and Avusa’s Zappon. Groupon, currently boasting a market cap of $12 million, added South Africa to the list of the 46 countries it has expanded to at the end of 2011 when it bought local Twangoo in January 2011.
African Business Review got in touch with Daniel Guasco, Head of Groupon (www.groupon.co.za) in South Africa, to get his views on when it makes most sense for a business to use its services.