This Wheel’s On Fire

Jun 15

This Wheel’s On Fire

This wheel’s on fire
Rolling down the road
Best notify my next of kin
This wheel shall explode !

Yes I am a H-U-G-E Bob Dylan fan. I am glad that’s now out there, as it says something about my character quickly (8 words in fact). I am currently ‘on holiday’ in Byron Bay where there are many people who share my Dylan fanaticism. I just, (and I am really gutted about this), missed a tributary exhibition at the local gallery by local artists depicting his iconic image.

But enough about Bob, I am here to write about Group Buying (the primary business model of GroupOn etc) and its imminent fall before my two year old shatters my peace. This song title comes to mind because I know the wheels are going to fall off Group Buying soon, if they haven’t already, and roll down the road in a blaze of toxic fumes with a lot of sad and sorry retailers and shoppers sucking up the filthy air.

When I talk with retailers about StreetHawk, they immediately compare us to Group Buying. This is really just because what we are doing is so new, and they ¬†have nothing to compare us to except the latest new and shiny thing. Fair enough. However, they, like me, can’t work out why any retailer would do it – ‘so you advertise a deal that is 50% off, give the Group Buying machine another 40%, and then you, lucky retailer get to keep the last 10% to cover your bills… and all that to attract deal junkies who don’t come back? No way!’

There are lots of stories in the press, here and overseas, about retailers who have handed themselves over to one of the many Group-enstein’s grandchildren and lived to tell the tale. This example really takes the cake – and its with Groupon itself.

So the story in a nutshell is about poor Kim, owner of a parent-teacher store who uses Groupon to jump start her ailing business. She freaks out when the response 20 minutes in starts to look horrifically high (and all of us direct marketers know when responses are high, quality of customers goes down proportionally).

Groupon doesn’t take her calls, then doesn’t take her calls, and Kim sees all her current customers on the buy list. Plus Groupon has got all the small print wrong so her current customers were buying in 5’s!

Kim finally gets through to Groupon who says she has to honour the first 400 sold under the wrong terms (now that must have been a big concession for Groupon), but they would not cut off the amount of product sold.

Groupon finally sells 1,158 ‘packs’ – and Groupon crows it has been the most successful retail Groupon in Kim’s city. ‘Yay Me :(‘ says Kim.

So Kim gets around $10k after Groupon gets their 50%, but doesn’t get the money immediately – of course it’s over 3 instalments over the life of her published “groupon” – ending in January next year! ¬†From her 10k, she needs to cover the $11.5k in product bills (which of course she has already paid for – adding to her cash crisis).

Of course the same is happening is Australia. Retailers are losing money, losing staff morale with customer crush, losing customer patience with waiting times from here to eternity (bad when you have an ant problem like my friend Charles), and probably the will to live too.

On the flip side, customers are getting dissapointed with deals that are too good to be true, poor quality product (the deal from the butcher sent everyone rushing to the loo) and bad service. The honest retailers don’t even have a chance at creating loyalty!

When I talk about StreetHawk I say we are the antithesis of Group Buying. We don’t rip the retailer off, we encourage loyalty, we put analytics into retailers hands so they can see how well StreetHawk is doing for them creating new and loyal customers.

This time next year I hope to be singing ‘Ding Dong, Group-enstein is dead, la la la, la la la’ (the tune is obviously more tuneful than some of Bob’s). We know that the business model can work for some high margin operators (e.g student massages) but overall, these companies will need to shift.

P.S. If you really want to read an analysis from someone who is anti group buying (with numbers and examples to support), then get your fix here! (The comments are just as enlightening as the article).

P.P.S. It looks like Spreets and Cudo are looking to self regulate – a great initiative and well worth it to save everyone’s skin. Not all of these companies are the same, but if they are not careful they will all get painted with the same brush

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