How Group Buying Websites (Daily Deals) works 2 ?

In the last post I presented some information about Group Buying ( Daily Deals ) websites like:

Group Buying websites (Daily Deals) definition and How does Group Buying ( Daily Deals ) websites really works, In this post I'll talk about the businesses that are better suited for group based promotions, a nice Buying websites (Daily Deals) revenue Calculator and present a Group Buying ( Daily Deals ) infographic from lab42.

let's start with what types of businesses that are best suited for Group Buying ( Daily Deals ) promotions?

The most common Daily Deals vouchers are about :
-Dining spots, such as restaurants, cafés, coffee shops, and other similar businesses.

-Spa , Hotels , Arts & crafts , fitness , Parts and Accessories. 

The calculations of Group Buying ( Daily Deals ) revenue is easy if the local merchant keeps a good track of his costumers, this link includes a very nice Daily Deal revenue calculator, the calculator highlights some important elements the local merchant should consider it while evaluating is Daily Deals a profitable rewarding way of advertising for his business or not.

Example of the important elements : 

- Voucher actual value.

- Voucher price.

- Voucher sales expected.

- No. of Redeemed before voucher expiration date is reached.

- Sales with additional purchases.

- Average additional purchase amount (beyond voucher value).

- No. of Redeemers that become regular customers.

- Your revenue per voucher sale.

- Daily Deals website share per voucher sale.

The sheet includes some important elements & will help the local merchants a lot in considering all related factors while calculating their revenue from Daily Deals promotions.

Also the Lab42 "What's the deal with Daily Deals?" Infographic highlights some statistics for the local merchants to take into consideration before deciding whether to use Daily Deals website to promote his business or not , Lab42 asked of 500 daily deals users ( in USA ), determining which sites they use the most, how diligent they are at checking for new deals, and how much money they’re spending on them and found the following:

1- Most purchased vouchers are for Restaurants, comes next Spa & Hotles vouchers. 

2- 82% have returned to a business (at least one time) after purchasing their deal.

3- 61 % have let a deal expire before redeeming.

Lab42 says there are more than 660 deals sites online today, The most well known is Groupon, with 115 million subscribers, but saw a 50% dip in its web traffic since July, 2011, according to Hitwise, this dip will raise an important question, is Group Buying ( Daily Deals ) websites here to stay or soon will drop one after one out of the market ?

The Facebook leaves Daily Deals market news was chocking as it's just entered the market, Facebook started making offers in five cities starting in last April, including San Francisco, Atlanta and Dallas, and had a small sales team arranging deals with local merchants. But the company also ran offers that were set up by 11 other daily deal companies, including ReachLocal, GiltCity, HomeRun.com, PopSugarCity and Zozi.

“After testing for four months, we’ve decided to end our Deals product in the coming weeks, We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.” said Annie Ta, a spokeswoman for Facebook in California.

Facebook’s exit means Groupon has one less major competitor as it prepares for a $750 million initial public offering later this year.

The Deals project was introduced because the daily discount market has been predicted to bring in $3.93 billion in 2015 – a huge leap from $873 million last year.

“It is surprising that Facebook ended their deals product after just four months,” said Vinicius Vacanti, co-founder of Yipit.com, which aggregates daily deals and tracks the industry. “On the other hand, Facebook Deals had been an underwhelming product and experience.”

Facebook’s decision not to pursue the business may mean the company thinks the approach lacks merit.

“The Groupon group buying phenomenon is a commodity. There are no barriers to entry. It’s just not going to work because everybody offers it and therefore the margins go down,” said Jeremiah Owyang, a partner at research firm Altimeter Group.

But Facbook leaving the market & Groupon 50% dip in its web traffic aren't quite perfect indicators to determine wether the Group buying websites ( Daily Deals ) will end soon or will see a growth as it is still new market and it's hard to predict what is going to happened.
At last you can check  Agrawals blog as its a great source of evaluating the Daily Deals Market provided by my friend Ahmed Tarek Elasra 

Resources :

- lab42
- arabian gazette
- CNN
-Hitwise
- Tomuse

How Group Buying Websites (Daily Deals) works?

Group Buying Websites (Daily Deals)  is one of latest trends in Web commerce, it's a way to use the Web to get a volume discount, Groups of consumers will band together to buy a particular good, and local Merchants will be forced to offer wholesale prices to these groups.
I'll try to gather all important information in a series of posts to explain all about Group Buying (Daily Deals) websites .

Group Buying websites (Daily Deals) definition:
Group buying ( Daily Deals) websites partner with local merchants to offer consumers products and services at significantly reduced prices on the condition that a minimum number of buyers would make the purchase.
Many of the group buying (daily deals) websites works by negotiating deals with local merchants and promising to deliver crowds in exchange of discounts. The group buying (daily deals) websites differ from other buying websites in how they work and what they do to reward users who share deals.

How does group buying ( Daily Deals) websites works? 
The merchant agrees to offer customers a specific product or service at a greatly discounted rate (usually 50% off or more) if the group buying website can generate more than the specified minimum number of sales chosen by the merchant. Once the minimum number of sales is reached, the deal becomes activated and all the customers that signed up for the deal become eligible.

What if the minimum number of sales isn’t reached? 
If the minimum number of orders isn’t reached then the deal is canceled, no one is able to take advantage of the deal.

How does group buying (daily deals ) websites really works ?
Group buying promotions are able to generate a large number of sales for the merchant in a short period of time. Usually these deals are only posted for a 24-hour period  ( but here in Egypt it may take longer, sometimes the offer is posted for a week) and the viral nature of this promotion means that sales can be on the order of hundreds to thousands of orders in a single day/week.
For many local business owners equates this to an entire month’s worth of sales that are obtained in just a single day/week.
While the business owner is only making 25% of the profits (Grouping websites takes 50% of sales) business owner (local merchants) would normally earn for a typical sale but they are willing to take this short-term loss for the following reasons:


1-Cash flow boost:
Payments for vouchers are processed by the collective/grouping buying website within a very short period after the deal is closed, and the local merchant will soon receive a quick boost in cash flow for that month.

2-Not everyone will redeem their voucher:
People are lazy and not everyone will show up to turn in their voucher to the merchant and take advantage of the deal ( a very true fact, me myself bought some vouchers & never redeemed them, I will refer to the exact percentage of customers that never redeem the vouchers in the next post)  .

3-Inexpensive, effective advertising:
Businesses spend a lot of money on advertising and yet it’s often very inefficient. Daily deals promoted by group buying websites are fairly inexpensive and they are much more effective at generating real sales rather than just increasing brand awareness.

4-New customers:
Local businesses are always looking to expand their client base and new customers are a necessity for doing so.
Daily deals are able to attract many new clients by offering discounts that get the first-time customer in the door.

5- Return customers: 
Businesses that use group buying (Daily Deal) website for marketing their products or services are hoping that the new customers that sign up for their deal will like what the local merchant offers and become a return customer.
In the coming post I'll provide more information about:
- Types of businesses that are better suited for group based promotions.
- How to calculate a daily deal revenue?
- Group buying ( daily deals ) websites listings worldwide.