One of the most prevalent social commerce strategies is the use of a group deal
ID: 371894 • Letter: O
Question
One of the most prevalent social commerce strategies is the use of a group deal like Groupon or Living Social. Investigate whether group deal sites like these are effective approaches for marketers. What marketing objectives can be accomplished using group deals? Is the approach financially sound? What are the risks? Explain your answer drawing upon a brand's experience using a group deal to enhance your response. If you don’t personally have experience with a group deal you can reference someone else’s experience you may know.
Explanation / Answer
Investigate whether group deal sites like these are effective approaches for marketers.
Group deal sites cannot be written off just like that. They do provide a great channel for marketers to reach out to a larger audience, coax the intended users with the volume based discounts to use the product. It is relatively very low budget and the best part is the expected customer arrival is already estimated. This gives the vendor also a great visibility on the expected footfall, sales and thus he can order effectively to his suppliers eliminating his obsolescence and stock out costs.
What marketing objectives can be accomplished using group deals?
Group deals can help to achieve effective promotional strategy at a minimal cost. Anther objective of brand awareness is also achieved but to a small extent as there are other marketing gimmicks by which it is enhanced more readily. Group buying when clubbed with social networking sites creates a great word of mouth and very reliable awareness of the brand and leads to a lot of new and loyal customers.
Is the approach financially sound?
Yes, Financially it is very sound due to the almost accurate demand and supply matchup. Also since one user cannot buy in bulk, there are multiple users and thus no pinch is felt in everyone’s pocket (due to discounts). But if it is executed unmindfully it could turn out to be a decimation of business (as explained in the answers further)
What are the risks?
Risks could be in the form of a negative feedback or brand image in case of something goes wrong with the product or service. Also since all the users are almost like a group in case of any litigations, they could turn out to be a powerful group to deal with as compared to individual users.
A major risk arises when there is not enough thought given to the cost structure of the promotion and more than the optimal number of offers are released by the seller. In that case either the business loses money that day (or on that offer) or the customer goes back disappointed.
Explain your answer drawing upon a brand's experience using a group deal to enhance your response.
Consider an example of a massage parlor which advertised on Groupon. It offered a huge 70% discount on its services to outdo their competitors in the area. It turned out that almost 1000 people bought those coupons and it turned out to be a nightmare to serve them all. Even the service quality degraded and the parlor received a lot of feedback. To some extent it got banished by the users on Groupon.
On the other hand a restaurant offered the coupons but limited it to 100 users (as per their ability to serve). They ordered the necessary material for the buffet meal and limited drinks and ended up selling all the coupons and using up all their capacity for lunch that day. This was a game turning experiment for them and they used the group deal sites effectively thereon.
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