What Groupon, Living Social and Other Group Buying Businesses Are Doing Wrong
Let's be honest, the guys at Groupon and Livingsocial didn't look at their business model in much detail. Investors probably haven't checked it out as much as they should have, either. The concept is fundamentally pretty simple, yet intrinsically flawed - offer group buying power to consumers. Sell the service to businesses that want to sell to consumers, and then build a list of consumers who want to buy "stuff". It should be a match made in heaven, right? Probably not, unfortunately.
While it may be good for some short term cash flow, for both the Groupons of the business world and the seller of the products or services, there is little to be gained for a long-term sustainability of this. It is simply not sustainable in its present form. There is no buyer "relationship". The best advice - stop investing now.
Many business gurus have called for the demise of the Groupon business model as simply unsustainable, but there are some dramatic shifts that can actually make this work. It just takes a rethinking of the business itself.
In practice, it doesn't work. Groupon and Living Social may initially work for the small business sellers as it brings people in. It doesn't work any further than this. The outlying hope of the seller that these new customers will continue to buy from them are often times misled and subsequently shattered by the customer experience of it all, and what they have to offer. It is a complete and utter mismatch.
In principle, it can work. Group discounts have always had an appeal to most everyone. So, how can they actually make it work today? With a finicky consumer, there is little margin of error, and those that do get involved usually are quite dismayed at the actual outcome and decide that they just may not do it again. The consumer may not always get what they wanted and when they wanted it, and the seller may be losing money on what they are actually trying to make money on.
The basic strategy of "getting people in the door" or loss-leader doesn't always work. It can cause customer trust and relationship damage to the smaller companies who don't know what they are actually doing, and this mistake can be quite costly in the long term.
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