Group Buying Models: Finding the Sweet Spot

Any profile of a group buying website details both the positives and the negatives of utilizing the method. On the one hand, you have to offer a deep enough discount to attract a sufficient number of customers. On the other hand, you want to make sure that enough of those customers come back to buy products and services at regular prices after the group buying deal has expired, particularly if you offered items at or below cost. Getting them back has proven to be the big challenge. Consider the following when analyzing whether this is a model for your online retail business.

Group Buying Models

Acquisition Cost vs. Lifetime Value

Divide the total cost of the group buying deal by the number of customers you expect to attract to determine the acquisition cost per customer.

Then, decide what percentage of customers will repeatedly return for your products and services when you offer them at full price. When lifetime value exceeds acquisition cost, group buying becomes a profitable proposition. Make sure you have a system in place to measure the number of deals purchased and how much customers spent per transaction.

Leveraging Social Media

Advertising your group buying deal through social media will increase participation, particularly when customers virally share deals with friends and family. However, if the customer experience does not meet expectations, you will risk significant brand damage. Make sure that you are staffed to handle the volume influx that comes with a group buying deal, and make sure that you are providing the type of interactions that will make customers return when the deal expires.

Choosing a Group Buying Partner

Examine websites to see how many deals were purchased in the past from retailers with similar volume. If possible, contact clients to see how satisfied they were with the group buying website’s partnership. Also, don’t hesitate to negotiate items like payouts, contract limitations and percentages. If the group buying website does not offer that kind of flexibility for high-volume clients, look elsewhere for a partner.

Group buying can offer a good influx of cash and generate many promising leads. Just make sure you’re actually making money instead of losing it. Volume, unfortunately, does not necessarily equal profit.