Bulk Buy Sites, Groupon, FanTong.com, Beeconomics, Living Social, Big Deal, and the 100s more I haven't mentioned

February 3rd, 2011

When in northern china, I was on a train when I learnt about FanTong.com. This was a bulk buy site that did pretty well featuring daily deals for meals. How they got the business off the ground was to have 20 employees line in front of each of the restaurants, then enter to speak with the manager about offering 50% discount if enough customers were introduced.

The site has done very well. Some of these Chinese groupon clones have made their owners over night millionaires. Cool 🙂

I later had the chance to speak with some prominent international food establishments in Shenyang City.

These restaurants were quite familiar with bulk discounts. However when faced with the question of repeat advertising on Bulk Discount sites, many restaurants declined to advertise again. It was pretty much a loss when they participated in the "tuan gou" business. It seems the idea of group buy is good for certain types of industry, such as the spa business, or a skating ring where the operator needs the place to be filled on week days…

International restaurants that already have recognition and steady flow of customers tend not to require these big deal services, since its not profitable to run the campaigns.

One way to solve this, is for the coupon site to  take a smaller 7-10% commission, instead of 50% sharing of the coupons sold (which is said to be the commission sharing rate).

Especially for product sales, this can prevent a merchant from coming back. If a merchant needs to sell his product at a loss, then its going to be a 1 hit wonder.

Repeat business is where the big money is at. Its tough on the sales team to keep going out to find new restaurants to join the Groupon sites.

But then, a cleverly phrased slogan..

New things to do in your city daily…

Well, if you read between the lines, the present business model finds that new merchants are necessary to keep the profits coming in since old merchants tend to try this only once, quitting after losses on the 1st try.

I spoke to Groupon.sg that recently acquired Beeconomics to run some products im selling at wholesale price. The sales guy needed a deep discount of 50%. As a product seller, the best way to keep the business going is to take a 7-10% commission. Only then can merchants contemplate using the services.

It isn't a "one size fits all" commission based model. A spa maybe able to offer 50% sharing of the coupon sales, but an international buffet sure isn't going to offer that kind of commission + a 50% discount. Or the customers will feast a big hole into their pocket.

Finding ways to keep merchants coming back and keeping merchants accounts in the profits, as opposed to "finding new stuff to do in your city" (aka finding new merchants who don't know the risk of bulk buy advertising and getting them to try,  is something bulk buy sites need to take note off.

Looking at groupon japan, where the japanese new year sets meals were badly delievered and caused an uproar in japan because the merchant could not deliver while suffering a financial loss. Then there are also the issues where merchants treat Bulk Buy deal seekers as "less important" customers since they paid a much lower price.

Groupon style sites balance on the edge of a knife. Just like employment sites such as Elance.com or Odesk.com, a middle man needs to ensure the safety of both customers as well as provider.

  • Take less commission thereby helping the merchants deliver on such DEEP discounts. (for merchants)

  • Put a cap limit. There's no point selling 1000 coupons and enjoy the sales when the merchant cannot deliver on it. (for merchant)

  • Get mystery shoppers to go down to the merchant store and assess the treatment of bulk buy customers. (customers)

  • Get feedback from customers and investigate/arbitrate the complaints. (customers)

While selling coupons online is a great way to make money, as a middle man that acts as an escrow, its the responsibility of a groupon site to ensure safety of both merchant and customer.

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