Group Buying: A Savior for Retailers or the Devil in Disguise?

What's Next In Payments®
9:04 PM EDT February 13th, 2011

What’s not to love about Groupon and LivingSocial? These sites and similar spinoffs will dole out discounts at top restaurant and retail venues in various communities across the country if enough consumers opt in to purchase the promotion. LivingSocial in January offered $20 Amazon gift cards for $10 and sold more than 1.3 million vouchers – the largest, online coupon deal on record.

Yet at the recent panel in Boston, entitled “Technology and the Retail Transformation: Mobile, Social and E-Commerce,” Newbury Comics CEO Mike Dreese called group buying “an enormously treacherous space.”

The leader of one of New England’s most popular stores for music, movies and provocative pop culture goods went on to liken group buying to a “gas station price war.” Dreese argued that retailers will find that it’s hard to know with group buying initiatives what to treat as revenue – given that the increased purchases resulted from discount vouchers. He also pointed out the huge marketing costs involved to stage a group buying venture. 

“There’s a lot of potential for window dressing with this activity,” mused Dreese. “Meanwhile, consumers get kinda what they want for kinda free.”

Dreese went on to call department stores, like Macy’s a “loser” in the group buying space.

“Unlike Victoria’s Secret, Macy’s doesn’t have a huge brand they can whore out on a coupon,” explained Dreese.

“So Groupon is a pimp, and this is a treacherous space,” joked panel moderator Jeff Glass (Managing Director, Bain Capital Ventures) of group buying.

Dreese’s fellow panelist, Clovr Media CEO Tom Burgess, argued that many retailers without loyalty cards can find group buying to be a helpful alternative. Clovr Media’s platform converts banner, text, video or mobile promotions into card-linked offers.

The challenge of managing various promotions and loyalty programs across multiple channels was also raised. Jim Crowley, CEO and President of group buying site BuyWithMe, suggested that the mobile channel can be useful in this regard.

“We need to talk with merchants about what types of solutions need to be developed to help them, and how can we help them reach customers again,” added Crowley. General Manager Dustin Humphreys stated that retailers hear dozens of pitches from entrepreneurs, but what really makes major companies want to deep dive are solutions that pertain directly to customer services. Panelist Andrew Paradise, CEO of self-checkout solution Aislebuyer, also seemed to agree with Humphreys’ assessment.

“The reality is we have to prioritize where we’re going to place our bets and invest in technology,” said Humphreys. “Put yourself in the position of that retailer. What are the top priorities, and how can you help us serve our customers better?”

Humphreys predicted that retailers would start to pull back and wait to see which solutions pull ahead of the pack, such as in the group buying space.

Dreese added his own perspective as a retailer on picking and choosing among new media marketing and point-of-sale initiatives.

“Does money come out the other end?” posed Dreese “Usually money comes out the other end when pain is being solved, and a lot of technologies aren’t solving any pain at all. It’s this is nice, but it’s not solving any crushing pain.”

He also added that many retailers prefer to avoid ventures that need to be managed by an outside IT firm, stressing that there’s no such thing as seamless integration.

Humphreys appeared to agree to an extent with Dreese, even as CVS explores a partnership with the check-in application Foursquare.

“Do you want to teach your customers to use Foursquare or to leverage our loyalty program, ’cause hey let’s get it out there, they can use Foursquare at Walgreens too,” said Humphreys.

All forum participants left with a better understanding of the advantages and challenges posed by new retail-related technologies and marketing opportunities. Yet one question remained unanswered: If Groupon is a pimp, what would that make Foursquare?

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