Excerpts from Social Media: The Perils of Group Online Buying

Groupon and Google Battle for the Group Online Buying Bonanza

The End Result: The Local Businesses Will Lose…Big!

Question: Why would local businesses give away products & services for 1/2 the retail price? What kind of buyers are drawn to those incentives?

Answer from Facebook Friend: I don’t know, but after Groupon’s take it’s more like 25% of retail price. It’s good for Groupon, hence their now $15 billion valuation (Google was trying to steal it at $6 billion). However, I don’t know how good it is for the small business in reality. Bottom line is it’s free to start, and that’s not a hard sell (even if they lose money later on – Groupon doesn’t mention that).

My Response: The pitch to local businesses is suspect and the type of customer/client the local businesses will draw is the one looking for a ridiculously low price. The local business is being sold on the idea that once they get the client through the door that first time, they have a shot at building a list, being able to make them future offers, and being able to get them back again for a more profitable transaction…and a lasting relationship.

My questions are myriad but the number one issue here, and the thing the local merchant will never be able to recover from, never be able to turn that clock back from again, is the discount…that ridiculously low price and margin!

Ask a GM executive if they were able to sell vehicles as consistently, and at the kind of margins they once were able to, once rebates and incentivized financing were introduced. Yes…and no!

The fact is, once the incentives were introduced, buyers were conditioned, very much like Skinner’s pigeons, to buy only during incentive periods!

When incentives were not in play, either rebates or financing, sales plummeted and vehicle sales at the MSRP, with the expected margin, disappeared.

Beware the Sirens’ Call!

By introducing this sort of sales platform, complete with incentivization?

With the local merchants’ already close to the bone margin?

In the hope that there will be some magical carryover?

Ridiculous, foolish, and extremely short-sighted!

The local merchants are betting on the “come,” as in future income.

And Groupon, Google, LivingSocialDealsSuch a deal for you, you won’t believe!and the rest of the online deal brokers (read: sharks) rushing in to get their share of the profits during the feeding frenzyI mean offer…will be the real winners!

Who is going to be aced out of the transaction when Groupon becomes the local Amazon…or Google for that matter?

Think about it!

The local merchants that got the entire thing going, that’s who!

Who is also building that shared list of all of those bargain seeking clients?

This smacks of the same sort tactics companies have used since, well, since Christ left Chicago, to build businesses on the backs of others.

Take the franchise model companies have used, and still use, to build a huge regional presence when capital was lacking or nonexistent.

Who managed to pull those franchises back into the fold?

The parent companies gobbled them up once it had built the necessary infrastructure, along with the capital, on the backs of the franchisees.

And who was left out in the cold? It happened again, and again, and again! Even a certain hamburger company pulled this in the mid-70s and into the 1980s!

It will happen again, in one way or another, because regardless of the setting, people fail to learn from history!

Mark my words, I will say it again…it will happen again!

Final question:

What does it cost Groupon or Google or whomever to offer merchandise offered by, inventoried by, the local businesses?

Even the “affiliates” are paid on the “come!”

Great deal for everyone BUT the local businesses!

The Pied Piper is selling the Emperor’s Clothes, so get on board! The Sirens’ Call says it all…

Nope, nothing wrong here!

Right Cujo?

More to follow!

John Zajaros
The Ultimate Internet Image
Lakewood, Ohio
440-821-7018 (mobile ~ call anytime)

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Comments

  1. Sandy says:

    Hi John
    I couldn’t agree with you more. A lot of vendors are drawn in with the promise of sales, but like you said-is this the right customer? Or just one who is looking for a deal?
    I’ve actually experienced cases where smaller vendors are not able to handle the load, and consequently just makes them look bad. I actually wrote a post about it as well, talking about the disadvantages and advantages-http://www.sandyksidhu.com/2010/11/05/social-buying-and-business-advantages/, would love to hear your thoughts!

    Sandy

  2. admin says:

    Very well done Sandy, the comment and your articles on the same topic.

    My main concern, as you can tell, is not for the buyer; and, it’s certainly not for Groupon, Google, LivingSocialDeals, or Ace’s Used Ford Pickup and Social Deal Mecca! My concern is for the local business. Most businesses can run on a tight margin for a while. And most local (read: small, brick and mortar, mom and pop, etc) businesses are happy with the increased activity and traffic for a time, as you pointed out. But most businesses cannot survive on the incredibly tight margins and the type of client who is only interested in “the deal!”

    Like the old discounters joke:

    We lose a little on each sale but we make it up in wolume!

    Read what a fellow Bay Village, Ohio resident and world renowned direct marketing and copywriting expert Dan Kennedy has to say about price as the driving force in the success or failure of a business.

    Wanna bury the business right now, today? Simple! Allow someone to broker what you offer, your inventory and/or services, with virtually no out of pocket investment of their own, at incredibly low prices, and allow them to take a significant portion of the profits while you wait for the “ifcome!” That’s called betting on the come and no one worth their salt in business, accounting, management, business law, or banking will advocate it as a long term growth or survival strategy for small businesses. It just doesn’t make sense!

    Incredibly, I see inbound consulting firms here in Cleveland and elsewhere posting prices. How can a supposed expert in the field allow their own business to be price driven, even if they are at the top of the scale, much less advocate such a strategy for a client?

    WOW!

    BTW, I am not sure if Dan is still in Bay or not but it is a small world and there are also some very smart marketing experts in and around Northeast and North Central Ohio…but it takes all kinds!

    Mark my words, this will create havoc and it will not take all that long. In the short run, and with billions at stake, the companies with the most to gain will prop this thing up and hype it to the heavens! However, it will end and when Groupon or Google or whomever becomes the Amazon of the local scene.

    A direct quote from Andrew Mason, Founder and CEO of Groupon:

    “We’d like to become what Amazon has become for products, we want to become this for local… 2011 is the year when Groupon become much more of a technology company, and a lot of that is personalization….We’re not a discounting service; I think of us as local e-commerce…. It’s one of the original things that people wanted to do on the Internet…. With Groupon it’s the first time in history that local businesses have been able to pay for what really matters, and that’s customers at the door….”

    Read between the lines here! Who do you think will ultimately be selling to those customers? An e-commerce business? Really?

    I feel like we have, in a very real and scary sense, invited a vampire into our homes…our businesses! Interestingly, they couldn’t have made entry if the victims, the very people seeking their help and an opportunity, hadn’t let them in. And now they will be sucked dry!

    Sorry for the graphic analogy! Or metaphor? I’m a marketing consultant and a physical anthropologist, not an English professor. But the writing is on the wall and it is not that tough to decipher the message. It isn’t an ancient Transylvanian dialect!

    Remember when small towns thought Walmart was such a super idea? You know the ones I’m talking about, the ghost towns across America! Can it happen to local, brick and mortar businesses after allowing Group Online Buying to take hold? You betcha!

    Remember when everyone was sure Amazon would fail? Where are those experts now?

    This has a while before it plays out. There are billions to be made and myriad local businesses to be artificially inflated on their way to collapse. Gosh, I hope I’m wrong!

    Either way, it should be interesting.

    And sad!

    Thanks for getting me going again Sandy! Great comment!

    John Zajaros

  3. Nick says:

    A business that is price-driven alone will not survive. Especially for a small local-type business. The increase in traffic seen when a price-crasher sale is advertised simply is not sustainable. Those customers that are attracted for that sale are not necessarily the repeat customers the business needs all year-round.

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