I have participated in group buying or deal sites as both a consumer and a merchant. Here's my experience and observations from both perspective.



Consumer

Have you been subscribing to a bunch of deal sites? Probably you have unsubscribed from some of those, as it started to look like familiar, boring marketing / advertising messages bombarded during the pre-group buying era.

Bought some of the deals but never / forgotten to redeem it, sounds familiar? You then slowly realize that those were impulse buying, unnecessary spending - buying things that you don't really need it.

Redeemed some and disappointed by the product or service? One of the reasons, the merchant couldn't cope with the sudden surge of customers.

The merchant might not be aware of the capping (maximum number of orders allowed). It is not the priority of deal sites as their objective is to sell as many possible and earn more commissions!

Merchant

It's touted that group buying is a saviour to small to medium businesses. It supposed to be a viable and "affordable" channel for them to advertise and market their business.

Well, not really (with some exceptions of course).

You need to offer steep discount in order to feature in deal sites. And in most cases, it's hurting the merchants' baseline as they might be offering deals on cost price or even making losses. "Marketing cost" as group buying operators will tell you.

For those uninitiated, local deal sites take an average of 30% commission. For example, if you are buying the deal at RM 10, RM 7 goes to the merchant and RM 3 goes to the deal site.

With so many impulse buying, and many of them bargain hunters, how many customers does merchant expect them to come back? Near to zero repeat customers is not marketing cost.

Group buying operators only care about acquiring new members, sell as many as they can. Whether you get quality, repeating customers is not their business.

Alright, those new customers you acquire stands little chance to become your loyal fans. They might not even like your offerings because they are just not in the right target group you hope for. To make things worse, they share their "bad experience" because it's not the right product / service for them. It might even hurt your brand for all your "marketing cost".

Conclusion

Don't get me wrong, it's not all doom and gloom about group buying, and there have been some successful deals. It's just people (consumer and merchant) started to realize it's not always the best deal for them.

Furthermore, many deal sites including Groupon have not made profit yet. This is because they have invested substantially in acquiring especially the members and merchants, as well as international expansion.

Many players are looking at this long term, but can they survive until that point? Perhaps only those strongest will stay, staying as hot is another matter.

Image credit: http://startagroupbuy.com/features/overview/