TeamBuy, WagJag, BuyWithMe, LivingSocial, and Groupon are among the most common names within the newest marketing phenomenon known as team buying. No, this doesn’t mean that your recreational softball team is going to pitch in to buy team sweaters. Although somewhat similar, team buying refers to a group of people coming together to buy items at a discounted price. Hoarders around the world will preach that buying in bulk is always cheaper which is the fundamental concept of these companies. Except, the items (or services and experiences) being purchased are in singles quantities by complete strangers- ONLINE! Considering that everyone and their grandmothers are looking for the cheapest price on anything they buy and these consumers are also become overly confident with purchasing online, team buying sites seem like a win-win solution. Retailers are increasing their foot traffic and consumers are saving a buck. From a marketing view, this is a complete nightmare.
Bringing Back the Basics
All good marketing textbooks explain the idea of customer relationship management (CRM), where marketers try to build relationships with their customers to ensure loyalty, repeat visits and protection of future business. Team buying websites have completely neglected the idea of CRM and put their entire focus on creating transactional customers. Furthermore, team buying sites have enabled mom-and-pop stores to get their name out there, while increasing foot traffic. But happens when giants like McDonalds enter the fray? Are consumers going to buy the deal for the local burger joint or hold off for the Golden Arches?
Gap and GroupOn
As an example let’s look at Gap. They participated in a Groupon promotion during summer 2010 and generated over $11 M in sales in one day by giving $25 off of $50 of clothing. Those are amazing results for a single day (and losses considering they would need to fork over $11 M to cover that promotion). In the long run, consumers will come in and spend more than $50 giving Gap even greater profits and increase their foot traffic. Except, Gap alienated their regulars and gave random customers a deal and their best got nothing. And the customers that purchased the deal will most likely use their coupon and never return as they are just following the deal. Was this a good business move or bad? Only their sales will tell. Least we know it wasn’t as bad as their new logo launch.
Although, the current model of buying sites may not be as attractive as they seem there are platforms emerging that may be a better solution. LevelUp and SocialSelect are combining the check-in, the game and the reward all in one. The difference between them and the daily deal is that they encourage individuals to engage with their brands and provides them with an incentive to return. LevelUp is built on both mobile and web interface and can be used in real-time, which incorporates location! The concept is based on levels, once the player passes level 1 they automatically move on to level 2 and so on. For a restaurant, level 1 can be a breakfast deal, level 2 could be lunch and level 3 could be dinner. Furthermore, you can purchase the deal and use it immediately by showing the barcode.
SocialSelect provides their best customers during a visit with a deal card that they can use to log on to the site and be rewarded with a deal that they apply to their next visit. They can also share the incentive with selected friends. This way companies are able to use the deal as a private, select marketing tool rather than an arbitrary discount.
Another consideration is the announcement last week from location mainstay, Loopt. The company launched U-Deals – the reverse Groupon. Currently available only in San Francisco, the system empowers the consumer to make their own deal, at the places they pick. You come up with the deal, you get your friends on board, and then submit it to Loopt. They then try to get the merchant to accept the deal.
If it works both the consumer and merchant should benefit through better margins.
Team buying seems to be the latest fad in the marketing space. By adding location, this fad can become the future. SocialSelect and LevelUp have been pioneers in this area by adding the foundations for daily deals and CRM. Will this prevent Grouponers from frequenting their daily sites? Probably not. But it does give some hope to businesses that are not reeking in the benefits of team buying. This way they can build clientele and reward their best customers at the same time. Although, there are arguments for and against team buying, we can say for certain that a good solution is always location. But for now, we can only wonder if TLC will make a spinoff to Extreme Couponing.