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ARTICLE MarketingAugust 19, 2014

Group-buying websites in Australia: where to from here?

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Group-buying websites like Groupon and LivingSocial swept into Australia, promising never-to-be-repeated offers and quickly building up huge customer databases. But this sector is now facing a number of challenges – so, what does the future hold for the deal site industry?

It’s been more than four years since the group-buying industry took off in Australia, promising unbeatable online cut-price deals.

The group-buying market has faced significant changes in recent times, with variations to commission models, a reduction in deal providers and a high number of consumer complaints about delays and rigid redemption terms.

Short-term gains for deal websites

The Australian group-buying industry generated around $500 million in 2013, while total online spending reached approximately $15 billion. Technology analyst firm Telsyte identified 2013’s strongest group-buying deal categories as fast-moving consumer goods, event tickets, fast-food offers and higher-priced offers aimed at the premium market.

Brian Walker, founder and CEO of retail consulting company Retail Doctor Group, says group-buying companies are about short-term marketing and will have a marginal impact on the broader e-commerce industry. “I don’t see them as a brand builder,” says Walker. “I see them as short-run promotional businesses, including clearing out distressed stock from retailers. Some have valid special offers, but there is often not a lot of depth to the offers. They are what they purport to be – high visitation, high impact, short-term ‘get in and get out’.”

A challenge they face is that retailer discounting is getting cheaper and the general online shopping industry is growing."

Brian Walker, Retail Doctor Group

Group-buying industry challenges

The top five companies – Groupon, Scoopon, LivingSocial, Cudo and OurDeal – generate about
90 per cent of the sector’s revenue.

There were more than 100 daily deal providers in Australia in 2012, but that number has more than halved to 40. More deal websites could also disappear before the end of 2014, believes Walker. “I think we’re going to see a further rationalisation of companies in the industry,” says Walker. “A challenge they face is that retailer discounting is getting cheaper and the general online shopping industry is growing.”

The group buying industry has also been challenged by changes in commission models, which has seen a reduction in the commission rate from 50 per cent to around 15–35 per cent.

Deal websites dogged by customer complaints

Group buying has also suffered from consumer complaints, which brought about the voluntary introduction of an industry code of conduct as a means of restoring consumer confidence. The code of conduct aims to promote fair, honest and ethical behaviour within the industry. Member sites are now identifiable by the Group Buying Code Member logo listed on their websites and on offers, and they must ensure that all marketing and electronic messages comply with relevant legislation.

Although the Australian Competition & Consumer Commission (ACCC) recorded a 35 per cent drop from 1,715 complaints in 2011/12 to 1,065 in the following financial year, group buying was one of the seven official ACCC enforcement priorities for 2013.

Overselling has been a particular issue. For instance, a deal for Havaianas thongs was advertised by group-buying site LivingSocial in 2011, resulting in 100,000 pairs being sold. That caused a huge backlog in deliveries and when NSW Fair Trading contacted LivingSocial, it admitted it was unable to fulfil all the orders and instead offered refunds or credits to customers.

“If customer satisfaction was defined as every customer achieving the deal that was on offer in a seamless way, with the product they want delivered to their doorstep and meeting all their expectations, then you would have to say that fluctuations in offers and stock by virtue of a group buying model could lead to inconsistency in satisfaction.”

The rise of premium and repeat deals

Telsyte predicts the emergence of deals aimed at more affluent demographics, as well as those that require consumers to commit to ongoing delivery of goods, such as health supplements and baby products.

“Group buyers will differentiate their product offering largely by the product itself,” says Walker. “One of the most valuable assets they have is the database. They want to make a profit, but in terms of their balance sheet, the value of their database is very important, just as it is for companies like Facebook.”

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