» Group Buying – Is it a Good Deal for You?

This post was written by Sonny Ganguly, CMO of WeddingWire, you can follow him on Twitter @sonnyg. A full version of this article is available in the Education Center. Sonny leads WeddingWire’s marketing strategy, customer acquisition, and business development.

The basic concept of “Group Buying” is simple: get a lot of people to purchase large quantities of a product or service for a deeply discounted price. Your marketing costs are automatically built in to the discount and the goal is that you get a lot of brand new customers. However, in the wedding industry, these types of group buying services can be more difficult to deliver a positive ROI. That is because most of your customers may not provide repeat business. So, if you discount heavily the first time it may be difficult to make a profit off of these new customers. That being said, deals are a great way to motivate potential customers to make immediate decisions.

Pros & Cons
When used effectively, group buying is a powerful way to grow your client base:

  • Good for Cash Flow: One of the best benefits is you get the money upfront. This can be especially useful in the wedding industry, where the offseason can create swings. Keep in mind that most group buying services make payments over a 90 day period.
  • Low Risk: You only pay a percentage of total sales generated from a deal thanks to performance-based advertising.
  • New Customers: You aren’t sending the deal out to your own list, so you get the opportunity to cast a wider net and reach new clients.
  • The Lazy Purchaser: Some people simply won’t redeem their deal, but you’ve already been paid!

With such deep discounting and high volume client acquisition, it’s also important to keep a few things in mind:

  • The House Gets Half: The affiliate takes a significant cut of the total purchase price, usually 50%. Tack that onto the discount you are already providing, and you can end up providing your service at cost (or worse, below your break even). Keep this in mind when calculating the percentage discount you are willing to offer. Many times businesses find themselves making $0.25 on the dollar (a 50% discount, plus half of the purchase price to the deal site). Yikes!
  • Keep Seasonality in Mind: You don’t want to schedule a group deal during your busiest months. Use the influx of new customers to hedge against your offseason.
  • Know Thy Repeat Customer: Not everyone will turn into a repeat customer, especially in the wedding industry. There will be people that simply will use your business only because they have a voucher. Be sure and identify potential repeat business in the midst of deal-hunters.
  • Not for Every Business: There are certain categories in the wedding industry that lend themselves better to deals, particularly those with add-on products or multiple touch points in the customer lifecycle. An invitation store may be able to bring someone in with a deal for save-the-dates and keep them around for purchases of the invitations and more.

Made for Weddings?
Group buying and daily deals will be a hot topic for local businesses throughout 2011 and beyond. Groupon and Living Social continue to grow at unprecedented rates, but their business model is not optimized for many businesses in the wedding industry that do not have large quantities of repeat business. Deals are a good way to get customers to make immediate decisions, but the discount comes out of your pocket.

The Deal trend has hit the wedding space as well, with large national sites, including www.weddingwire.com, featuring a local deals section that may be a better fit for your business. These sites allow wedding professionals to upload their local deals for brides and grooms to find while searching for your services. Many times, these national sites don’t take any type of cut, which means you get to keep 100% of the revenue. Wedding specific deals may be a good way to fill your open weekends or help sell add-on items, such as engagement shoots for photographers or save the dates for invitation companies.

Providing consumers with a ‘good deal’ has always been a positive driver in making purchase decisions. As with any type of deal, make sure to run the math to ensure you are coming out on top. You can always start by posting a deal on your own website or on a national wedding site. Just remember to include a limited time frame with your deal. Consumers are more likely to take action if they feel like the deal won’t be there tomorrow!