Who doesn’t love a good deal, even when it involves a spa session we didn’t know we wanted? Thanks to the proliferation of group buying sites, bargain-hunters no longer have to wait for special holiday promotions or end-of-season sales to snap up a good deal. All they have to do is check their e-mail.
Sounds great, right? Well, not really, say critics who are concerned about whether merchants can turn a profit using the group buying business model. As recent reports in the US and Japan have shown, being the hot ticket of the moment isn’t always a good thing. The sudden surge in demand can sometimes be overwhelming for merchants, resulting in unhappy customers and employees.
In Singapore, DEAL.com.sg felt the heat from angry customers recently when a 4D/3N Bangkok travel deal ended up offering less than what was promised.
The Bangkok deals on DEAL.com.sg.
Among the complaints: hidden costs in the form of high airport taxes and weekend surcharges, and late arrival and early departure flight times.
According to DEAL co-founder and CEO Patrick Linden, the company is currently in the process of refunding customers their money and has implemented “a much more rigorous screening process for all merchants.” He talks to us about what went wrong and whether he thinks this incident proves that there are flaws in the group-buying business model.
You mentioned that the merchant spelled out the T&C incorrectly and overestimated their capacity. Can you elaborate on this?
We don’t want to put too much of a bad light on the merchant. The main reason which upset customers with the Bangkok deal (2600+ sold, featured in early January) was the very long appointment dates given to our customers by the merchant. Some had to wait around one month for an appointment. Also, some customers didn’t get their preferred choice of hotel and airline (there was a list of three each to choose from). It was clearly spelled out in the T&C that choices are subject to availability. However the long appointment time was something we have not been aware of.
One of the concerns a lot of people have about group buying sites is that this business model isn’t financially viable for small businesses. Would you say that the Bangkok deal is an example of this?
Generally it works out well for most merchants to get new customers and get their business into the spotlight – through our combination of newsletter, site visits and partners such as Yahoo, we reach more than 250,000 people on a daily basis.
This is also reflected in the number of incoming featuring requests (passive sales) we get from merchants (currently 10-15 a day.) It works extremely well as a marketing channel for them. We see it as the next evolution to local search marketing such as AdWords.
Only in very rare cases does the merchant sell below cost price. For food for example, the cost factor is on average only 30% of the USP. So if you subtract the discount and our commission, the merchant still makes a small cut. Plus, most people order additional items at the normal price. So the average “loss” for the merchant ends up somewhere at 20-30%. Plus they get a new customer who will most likely return in the future if the experience was positive.
For the Bangkok deal, the merchant also had a small profit cut above his cost price.
Previously, did the company allow merchants to cap deals?
We always allow merchants to cap deals and generally our sales people will actively advice a merchant to implement caps if they see their customer support staff could approximately only support x number of people in a given time period.
Also in the case of the Bangkok deal, our sales manager saw the number of customer support staff at the merchant’s office, that’s why we went ahead with the merchant’s request of no cap.
Do you think that in their haste to attract publicity, merchants sometimes neglect to consider the logistic implications of a group buying deal?
For some of that this might be the case. As I mentioned, if logistic issues are visible to us, we advise the merchant to cap and/or only put the deal as a special deal (on the side) which generally doesn’t sell as well.
Can you give us an idea of how many repeat merchants you have at Deal? Following the introduction of your new screening process, has the company ever turned a merchant down?
We have F&B outlets which we featured more than three times in the past nine months. If they sell well, they’d generally always want to re-feature. If sales didn’t go so well, they might not.
We’re turning about 50% of the deal offers we receive down due to a variety of reasons such as capacity issues, not appealing to the mass market, not being an established brand et cetera.
You mentioned that the new process will “evaluate the capacity of any merchant and calculate the deal structure accordingly.” How does this work and will this affect the discounts on the website?
It’s a formula which basically results in a recommended cap. The main components are estimated sales potential for the deal (attractiveness of brand, location and price point), capacity of the merchant, validity period, and track record. According to the result, we put a cap on every deal. It will not affect the general discounts (30-90%) on the site.
Image credit: tanvach
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