Here we are again to highlight trends effecting local consumers and business owners. And this month, I want to focus on online phenomenon group buying. If you haven’t yet heard of Scoutmob (my company) or Groupon and LivingSocial, it’s just a matter of time before you do. Over the past year, a tidal wave of new online business models, consumer excitement and investment money has poured into this industry. And there is no end in site. So, if you’re a curious local looking to be part of the growing group of, well, group-buyers, read on.
Since the Internet gained mass appeal in the mid-90s, there have been many trends that produced real and lasting change. Take online auction sites. Travel reservations. Even dating. But what has not occurred – at least in any meaningful way – is a way for consumers to find a tremendously compelling reason to flock to local businesses. These businesses have websites. Some are active on Yelp or Twitter. And these are helpful to some degree, but nothing had been created to really drive new customers to businesses in a way that is worth those precious advertising dollars.
That all changed in November 2007 when a little company started in Chicago called Groupon. The model was simple: when a certain number of consumers committed to purchasing a deal (at a steeply discounted price on a local business), everyone who put their credit cards down on that deal got that discount. If not enough people committed to buying the deal, the deal doesn’t happen – so local businesses only paid up when they saw the promised results. This model has now grown to dozens of cities, spawned even more competitors… and Groupons has since raised tens of millions of dollars for further expansion.
This model is extremely compelling for both businesses and consumers – a rarity in traditional, local “interruption” advertising. Consumers love great deals and businesses have rarely ever seen a local advertising product that causes so much excitement plus the bonus that they only had to pay when results occur. The closest thing to this up until now had been OpenTable.com, where payment only occurred when a customer completed a reservation.
What’s new about this model isn’t only performance-based pricing or rabid consumer interest; companies like Scoutmob are finding that we can offer a discount to consumers without degrading the brand of the local business. In the case of Scoutmob, our deal aims to actually elevate the brand and awareness of a business in the same way an AJC article might. It gives local businesses a chance to promote what’s unique about their brand along with this added incentive to give them a try. This is a far cry from what occurs with typical local coupon books, which used to typically appeal to bargain hunters. This active, connected, curious demographic also spend much more than the deal amount (averaging 50 percent more) during each transaction, therefore the transaction is profitable even after the discount and fee.
So if you’re a local (and who among us here isn’t), take a gander at some of the players in this space. If you are any flavor of local business (from salon to restaurant), you really should consider exploring what might work for your brand here. It’s the most popular and most effective part of the local online advertising space right now… and it didn’t become that way without good reason.