Group buying sites

Should you be wary of group-buying sites?
 
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01 .Introduction

group-buying-lead

Should you trust group-buying sites or should you steer clear? The CHOICE shadow shop puts them to the test.

Australians are embracing online retail with gusto. And while group-buying (also known as daily deal) sites offering discount vouchers for food, services and activities are relatively new to the online shopping landscape, they’re increasingly popular.

The Australian group-buying market is worth about $500m, according to Naren Sivasailam, senior industry analyst with IBISWorld. “Group buying is a small subset of online shopping but it is definitely a growing segment. Given how cautious consumer spending is right now, the idea of getting something for next to nothing is obviously appealing.”

But the group-buying industry does have a dark side. In October, NSW Fair Trading (NSW FT) revealed that, despite the introduction of a voluntary code of conduct into the group-buying industry a year earlier, complaints had spiked sharply. In fact, group-buying sites were second overall in their annual gripes list, following complaints about household appliances.

“The increase occurred in the second half of last year and through to March this year because the industry exploded in that time,” says NSW FT assistant commissioner Don Jones. “There were a number of new entrants into the market and they were competing quite aggressively for customer lists. They concentrated on getting customers, but not on keeping them.”

For more information about shopping online, see our Networking and internet section. 

CHOICE shadow shop

CHOICE bought a voucher for a deal from 10 different group buying sites for locations around Australia. We let the vouchers expire, then got in touch with the sites and with merchants to seek a refund, credit or extension. While the terms and conditions of all sites state that vouchers must be used by the expiry date, we wanted to test the customer service of the merchants and group-buying sites. Our shadow shopper uncovered some interesting results.

Buying sites shadow shopped

Our findings

Getting in touch with the sites was relatively easy. Groupon, Living Social and My Team Deals listed phone numbers. Spreets also listed a phone number although this was hidden in the “help” section of the website, so our shopper contacted them via web form. Deal Lovers, Ouffer, Scoopon, Moosta and OurDeal listed email addresses or had web forms for questions and concerns. Cudo required a a web form to be filled out, but upon entering her details our shopper was instantly connected to a live chat operator.

Response times for most sites were reasonable. Cudo gave instant resolution via live chat. Our shopper was on hold with Groupon for eight minutes; Living Social only made her wait for about 30 seconds. Spreets responded to an email in 27 minutes, while Deal Lovers responded within an hour. Scoopon and OurDeal took seven days to respond, and an email to Moosta was still unanswered after 27 days at time this piece went live. My Team Deals (MTD) offered good service to begin with: upon receipt of our shadow shopper’s request, a representative of MTD rang her back quickly and left a return business line and mobile phone number.But when our shopper rang back, an MTD representative promised to ring her again with an outcome, but never did. 

Our shopper was offered a positive resolution to the expired coupon issue on three occasions. Cudo provided the best outcome, crediting her account in the amount of the expired coupon. While the other sites weren’t willing to honour her coupon, three of the merchants (all in Sydney) were. Pizza Pesce Birra offered to honour an expired coupon for a two-course meal with wine for an additional payment of $5, Konga Fitness offered to honour a coupon for five dance classes for an added $10 and Complete Chiropractic Care agreed to honour with no further payment.

Reminder emails were a great feature of several of the sites we shadow-shopped. Groupon send an email about one month and then one week before voucher expiry to remind our shopper to use its deal. Living Social sent an email a month before expiry. Ouffer says it will also soon start sending reminders.

What to look for

Group-buying sites certainly provide some great discount opportunities. But despite the fact that the industry has been maturing and the group-buying code seems to be making a difference to customer service, consumers should still shop with caution. If you’re considering a deal, do your research.

  • Check review sites for feedback on the merchant.
  • Look out for too many vouchers being sold for a small business that may not be able to handle a peak in demand.
  • Only buy vouchers from code signatories.
  • Don’t leave your booking to the last minute when you’re seeking to redeem a voucher – this is when the merchant is likely to be hit with a spike in demand.
  • If you have any complaints, seek a resolution with the group-buying site. If that fails, contact the consumer affairs body in your state – our sources tell us a positive  resolution is likely.

 
 

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With the skyrocketing popularity of group buying came problems. New operators were entering the market and seeking to get the best possible deal to attract voucher-hunters, without considering the limitations of the merchants they were dealing with.

Group-buying sites are in theory beneficial for both merchants and customers. For merchants, the deals offer an advertising and sampling opportunity. 

For consumers, the vouchers provide a discount on goods and services. But as the industry has matured over the past few years, not everyone has been holding up their end of the bargain.

Joshua Borenstein, founder and director of group-buying site Ouffer, believes some sites and merchants have lost sight of the purpose of group buying. 

“Ultimately it’s supposed to be a marketing tool. Most businesses understand that and treat it as such. But there are a select few who don’t view it that way. It’s supposed to be about getting customers in the door, them having a great experience, coming back and telling all their friends about it. Unfortunately... [when group-buying first came to Australia] merchants were allowed to and indeed incentivised to do the opposite."

With the skyrocketing popularity of group buying came problems. New operators were entering the market and seeking to get the best possible deal to attract voucher-hunters, without considering the limitations of the merchants they were dealing with.

Limits on vouchers sold weren’t set, or were too high. Merchants were paid as soon as vouchers were sold in some cases, and so had little incentive to honour the offers. Group-buying sites often wouldn’t return customers’ phone calls or emails. Group buying soon developed a bad reputation. And while insiders believe the industry is improving, the reputational damage is lingering.

“There’s a lot of work to do as a collective to build consumer trust,” says Borenstein. “I’m not sure there’s been a huge improvement in that department. As one of the players in the market we believe we suffer a reputation problem.” But operators of group-buying sites and regulators believe lessons have been learned from those early mistakes.

“One of the most basic challenges was that the quality of the products sites were selling and the quality of the suppliers weren't up to snuff,” says Borenstein. “Ouffer has become a lot pickier about the merchants we’re willing to feature. We’ve moved away from cleaning services, auto services, gardening and pest control, which are typically run by sole proprietors and have a mobile staff, because we were seeing a pattern of problems there.”

Changes to processes

Spokespeople for other group-buying sites confirm that they too have become more discerning. “I think Cudo and the industry has gotten better with working with quality merchants,” argues David Ash, Cudo’s former COO and now a director of parent company Mi9 Group. “There are always going to be people out there doing it for some quick cash, but we’d rather not deal with those people. If the customer has a bad experience they won’t come back.” 

Financial arrangements between group-buying sites and merchants have also changed. Some sites now do credit checks on merchants before featuring them. In some cases, sites don’t release funds to merchants until vouchers have been used, and not at all for vouchers that go unredeemed. In other cases, a staged system is implemented, whereby funds are released in several steps. “If a merchant has no incentive to redeem vouchers – if we say ‘you get this amount of money regardless of the number of vouchers redeemed’ – then the merchant may act to make it more difficult to redeem,” says Borenstein. “Changes to payment models and keeping cash in reserve make it a lot easier to issue refunds in cases where consumers are unhappy.”

Code of conduct

The group-buying code of conduct was launched in November 2011 with the aim of promoting best practice within the group-buying industry and increasing consumer confidence in dealing with group-buying platforms or sites. The code sets out rules for refunds and credits, warns against misleading and deceptive conduct, and provides sanctions for breaches. 

Having been in operation for one year, the code seems to have made a difference in the industry. “The code has caused a real change,” says Jones. “It was supposed to turn the focus of the major businesses in that industry to improving customer relationships. And, to their credit, they have. They’ve hired additional staff, set standards, and they’re making much better selections in the merchants they deal with and the offers they feature. We’re monitoring them on a monthly basis, and we’re engaging with the various players and regulators. The group-buying sites know they’re being watched and are improving their game. The industry is becoming less of a problem for us. "

"We encourage people to buy from code signatories,” says Jones. “And we’re actively encouraging businesses that aren’t members of the code to sign up. That’s now an expectation within the market that they should.” Signatories include Cudo, Deals.com.au, Groupon, Living Social, Ouffer, OurDeal, Scoopon and Spreets.

Despite better quality control measures being in place to weed out problem merchants along with financial incentives to encourage good behaviour by merchants, CHOICE members still report problems involving group buying.

Andrea Sturgeon contacted us regarding dodgy dealings with OurDeal and merchant Town & Country Mattresses and Beds. Andrea had purchased a deal for two memory foam pillows, which were advertised as medium to firm density, top-of-the-range products. 

The pillows arrived two months after the deal was purchased, and were posted loose, not covered in plastic, and without any branding or information.

“One of the pillows was a [yellow] colour and smelled strongly of mould,” Andrea says. “The pillows were not medium to firm as advertised, and were a very cheap standard, certainly not worth the $210 value advertised. There was also a gift voucher in the packaging that had already expired, just to rub salt into the wounds.”

Upon requesting a refund from OurDeal, Andrea was told to contact the merchant, who refused the request. “I’m appalled that consumers can be told flatly they cannot have a refund for a faulty product.”

Jones says OurDeal is ultimately responsible for this issue. “They’re not at liberty to say that it’s someone else’s fault. All the representations about quality lie at the feet of OurDeal. Group-buying sites are exactly the same as bricks-and mortar retailers in this respect. They’re not just brokers, they’re the people doing the deal with the customer, who [in this case] certainly has a right to receive a product that’s new, wrapped, and moderate to firm."

“There are plenty of complaints like this. The smaller companies believe they’re just providing a website portal for people, but that’s not the case.”

Making complaints

According to industry sources we spoke with, sites are now much more amenable to issuing refunds than they have been previously. “We’ve realised that if you don’t give a refund and the customer wants one, they’re going to get one anyway by going through Fair Trading,” says Borenstein. “So if someone really feels they’re entitled to a refund, you might as well prevent additional frustrations for everyone.”

NSW FT has a high success rate in the group-buying arena according to Jones. “Something like 96% of complaints to us are resolved within 30 days by the group buying sites. As soon as they know they have a complaint with us, they escalate it.” 

If you have an issue with a group-buying product or service, it’s worth attempting to resolve the issue with the merchant first, although ultimate responsibility lies with the group-buying site. If the merchant is not cooperative, the next step is to seek redress from the site. In some cases they may attempt to negotiate with the merchant to reach a suitable resolution. Where this isn’t possible, they may either replace the deal with an equivalent one from another merchant, or issue a credit or refund.

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