Group buying sites

Should you be wary of group-buying sites?
 
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02.Issues with group buying sites

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."

 

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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.

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.

 
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