Groupon success in SA

2011-06-13 14:09
Cape Town - Retailers have generally welcomed their association with Groupon which has launched in SA, despite some cautionary voices about the group buying business model.

Groupon negotiates discounts with retailers and passes those on to its subscribers. Users of the website choose which "deal" they'd like to purchase, but the company only releases the offer once a minimum number of "sales" have been realised.

"If not enough people sign up, then the deal is cancelled, and you won't be charged. Better luck next time! So if you really want the Groupon, be sure to either beg or threaten your friends," Groupon says on its website.

Music retailer Look and Listen joined Groupon in May and reported that it is happy with the results so far.

"There's no question that the results were very beneficial for us immediately after the coupon broke and we've seen since the coupon, a growth in our business as a consequence," Look and Listen CEO, Darren Levy, told News24.

New doors

Ratanga Junction in Cape Town has also had success with the Groupon platform.

"We've known about Groupon and it's been quite successful particularly in the UK, so we went ahead and pursued it and immediately sold over 3 000 tickets to Ratanga Junction," said Ratanga Junction Theme Park general manager Bill Taylor.

There have been concerns that Groupon promotions might alienate existing customers, but Levy rejected that, saying that the system opened new doors to market products and services.

"It's fairly normal that companies run promotions at certain times. There are going to be some people who are upset about that - that's the one issue."

Online retailer WantItAll says that the model might cause alienation of a customer base, but the scale of the business and offer could play a role.

"I think it's one of the challenges that the guys at Groupon have and I think it's also one of the challenges that businesses associated with Groupon are having: 'How do you go about being on Groupon while at the same time not devaluing your product offering?'

"I think people are working it out still because it's such a new concept. It depends on the size of your business as well," said WantItAll CEO Justin Drennan.


Ratanga was initially concerned that its relationship with Groupon would cannibalise business with visitors buying the discount tickets and staying away thereafter.

"It's a good point and it was one of our concerns. Following our Endless Summer season, we were having our normal April school holiday season, and we felt that perhaps we were robbing Peter to pay Paul," said Taylor.

He added that visitor numbers were better than anticipated, indicating that the strategy was successful.

"That didn't happen. We got all of the people we were expecting in April and even on those late April holiday bonus days we call it, our numbers were outstanding. Our fears were unwarranted."

The platform was a useful marketing tool and firms said that it offers a way to connect with customers to build a brand.

"On the other hand, what we did with them was promote a very new part of our business that's still in its very early days of development. So this is not about a customer that typically buys a CD at Look and Listen for R100 that we're giving for R50," said Levy.

"Just as importantly to sales it is also used as a good marketing tool because even if someone did not purchase a ticket, judging by their demographics there are hundreds of thousands of people who are going ahead and looking at it, who know we're open," said Taylor.


The success that Groupon has enjoyed has caught the attention of internet giants and Google and Facebook are looking to challenge the start-up.

Google Offers, working in conjunction with a "Wallet" mobile payment platform for Android smartphones, began testing in the US.

Facebook has been pushing to organise web traffic around its users with the launch of "like" buttons on partner websites and also launched a deals programme recently.

Typically, Groupon takes about half the revenue with offers, but it is unclear what the exact agreements are in SA.

Look and Listen was bullish about the value of deals through a social buying service like Groupon.

"And to be quite honest it was such an aggressive deal that anybody who had bought a song, I think they would have been silly not to buy a coupon to buy another song," said Levy.

Taylor agreed that online marketing offered by Groupon had worked for the theme park because in addition to selling tickets, the public became aware that the park was open when it was usually closed.

"So with our limited marketing budget and our off-peak season, it was a double success for us."


Drennan said that social buying has added excitement in e-commerce.

"The growth that we've seen in Groupon has been phenomenal and the whole social aspect that they've managed to tie into this business led it to become one of the leaders in this space."

He said that the model was enabling businesses that were outside the "e-commerce space" access to a new market.

"We looked at what Groupon was offering and saw it as an acquisition channel for ourselves and had to price our products appropriately with them."

Retailers have not yet decided whether this kind of marketing will replace traditional advertising or whether it will complement existing strategies in targeting customers.

"I think the marketing strategy for today and the next 10 years is almost where IT meets marketing. I think it's good for the consumer; it's going to raise the bar for everybody who's in the game.

"I'm not saying it's going to eliminate our traditional marketing because our front page in the weekend newspaper has really paid off, but I think it's going to be augmented and supplemented by the IT marketing and cyberspace marketing of the 21st century," said Ratanga's Taylor.


It is likely that Look and Listen would reduce its marketing spend in order to offset that cost against the discount offers with Groupon, but Levy said they would continue to evaluate the success.

"At this stage it's very likely, the whole deal was sold to me by Groupon as a marketing expense. In the long term, hopefully bringing the customers to [the] site would tell that there is this site available and we are doing downloads, and that in the future, they would keep coming back to me."

Even though WantItAll sold 4 000 coupons in one day with Groupon, Drennan said that he doesn't see offers as a regular occurrence.

"I don't see us doing this every month, because our view is that we want to see it as an acquisition channel. I want to run a really good offer, get it out there to as many people as possible, have as many people as possible take up the offer, and I hopefully get repeat business in the future."

Levy insisted that as the market for social buying became more competitive, he wanted to give Look and Listen a head start.

"There're lots of spas and restaurants and not unlikely that some of my competitors are also going to jump on the band wagon soon and follow my lead in terms of using Groupon as a promotional tool, but I wanted to be the first mover," he said.

Levy said that users are prepared to buy online and it made commercial sense to target marketing messaging to an audience that had no issues with sharing details over the web.


"It's very suited to online promotions because the customer who is paying for a coupon already has a credit card in his hand, so I know that I'm appealing to someone who's prepared to swipe their credit card and buy something."

Given that Groupon entry into SA is recent, it is still too early to determine whether the model represents a significantly successful way for companies to reach consumers, but despite Look and Listen and Ratanga Junction's endorsement, WantItAll remains cautious.

"Is it working? I'm not sure. We don't have enough data to make that call yet," said Drennan.

- Follow Duncan on Twitter
Read more on:    groupon  |  internet  |  e-commerce

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