The Top 5 Group Buying Sites: Love ‘Em or Hate ‘Em?

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

Advertiser Disclosure ▾

This page contains affiliate links from which we receive a compensation. Like many publications Wise Bread is supported by affiliate commission from partner companies whose products appear on our site. This may influence which products we write about and the location and order in which products appear. We aren't able to cover every product in the marketplace.

Wise Bread Picks

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

Recession-weary consumers flock to group buying sites for good reason: When times are tough, snagging deals of 50 to 75 percent off escapades, entertainment, and epicurean delights is a no-brainer.

Things get a bit trickier on the merchant end, however. Besides offering steep discounts, stores must pay steep commissions to the service provider—approaching 50 percent or more.

Is it a fair trade? Online discount sites attract tens of millions of subscribers, with the average customer shelling out between $10 and $30 on powerhouses like Groupon and LivingSocial. There are no upfront costs, the exposure is huge, and they generally write all the ad copy for you.

Group discounts make the most sense for new venues looking to get the word out, those with economies of scale that make it less expensive to operate at higher volumes, or establishments with a realistic expectation of upselling coupon-holders.

To maximize success, social media experts recommend tailoring deals to encourage repeat visits, such as buy-three-get-two-free, offering customers incentives to redeem vouchers during down times, gathering e-mail addresses to stay in touch, and tracking buying patterns.

At one time, Yelp, Facebook, and Google were all jockeying for a piece of the group-buying market. Recently, Facebook decided to shut down Facebook Deals after only four months, and Yelp has scaled back its deals function amid competition. Smaller, niche businesses may want to get their feet wet with more targeted deals sites, since the bigger players typically offer less favorable terms.

The techie blog InfoGenra recently released the top five deals sites based on Alexa rankings, popularity, sales and visibility. Here are the pros and cons of each.

Groupon

Launched in 2008, the Chicago-based behemoth had 83 million subscribers as of March 2011 and is in 175 North American markets and 43 countries. If a critical mass purchases the deal, it’s on. As with other sites, Groupon subscribers receive daily e-mails from the site or through Facebook and Twitter.

The Good

• As the market leader, Groupon offers merchants access to an expansive customer network and a full-service marketing shop that provides content, images and advertising.
• The site’s deal optimization tool calculates the return-on-investment in advance.
• Groupon Now! provides greater flexibility for merchants to choose the type of discount and the duration.
• Groupon Stores are virtual storefronts, offering merchants a devoted page on Groupon featuring product deals.
• Groupon gives customers credits for encouraging their friends to purchase deals. On occasion, the site offers deals to help charities raise money.

The Bad

• A Rice University study found that a third of surveyed merchants did not turn a profit with Groupon. Business owners complain online that Groupon customers are unnecessarily demanding and bad tippers, along with blasting the site for misrepresenting terms and extending deals for longer than agreed upon.
• Groupon is also facing a class-action lawsuit alleging that it deceived customers and flouted rules that cover expiration dates for gift certificates.
• If you’re looking to get cash fast in the door with Groupon, think again. The site spreads out payments over three months.
• Because of its size, Groupon can demand a higher share of the sales price and force merchants to cede a lot of control.

LivingSocial

The second-largest online coupon site, LivingSocial reaches about 26 million people a day, operating in 13 countries. The site targets a largely female base by offering family-friendly discounts and advertising on women’s lifestyle sites and mommy blogs. LivingSocial offers one gigantic deal a day with discounts of up to 90 percent at local restaurants, bars, spas and theaters. Its mobile app helps customers access local deals from wherever they are for instant gratification.

The Good

• Unlike Groupon, LivingSocial makes good on the deal regardless of how many people buy it.
• Site staffers assist small business owners during peak redemption periods, such as right after a coupon is released or just before its expiration date.
• Customers receive perks for recruiting new users. Deals are shared through special web links and if three people sign up, the person who originally distributed the deal gets it for free.
• Because LivingSocial is smaller than Groupon, merchants say they can exert more influence over the content of the deal.
• LivingSocial also has more favorable payment terms, cutting a check within 15 days of the deal ending.

The Bad

• Merchants complain online that LivingSocial salespeople are great until there is a problem. Then, they don’t return phone calls.
• Others chide the company for letting customers purchase as many as 10 vouchers for a single deal and not capping deals as requested.
• Like Groupon, LivingSocial takes about 50 percent of all deal proceeds as commission.

Woot

Launched in 2004 by an electronics wholesaler and acquired by Amazon last year, the Texas-based Woot started by selling just one item a day, mostly tech-related. Two spinoffs are Sellout Woot, featured on partner Yahoo! Shopping’s site, along with Deals Woot, which aggregates shopping deals from around the Web.

The Good

• The site pioneered the one-product-per-day-until-sold-out deal model, though customers can often buy up to three of that day’s items. The site takes an irreverent marketing approach.
• The wildly popular blind grab bag, ‘Random Crap” or “Bag of Crap,” occasionally includes expensive items and is known to sell out within seconds and crash the server.

The Bad

• Online complaints against Woot cite broken items, slow shipping and bad customer service. Recently, Woot had to issue an open apology to customers, along with refunds, after offering discounted HP Touchpads for $379 before the $99 fire sale started.

Eversave

The Woburn, MA-based Eversave offers a daily deal in select major markets, including Chicago, Dallas, New York and Seattle.

The Good

• Eversave boasts an A+ rating from the Better Business Bureau, the highest of the five sites.
• Eversave has a robust referral program, which offers new customers credit just for signing up and distributes bonus codes to existing customers.
• Businesses can donate a portion of deal proceeds to local charities.

The Bad

• Users are asked to provide personal information before accessing coupons.

BuyWithMe

Headquartered in New York, BuyWithMe is not yet available in every city, but it is expanding steadily and targets a mostly female audience. Rather than specializing in impulse buys, the site offers deals for up to one week, and, like Groupon, requires a minimum number of buyers.

The Good

• Longer deals provide maximum visibility for merchants.
• The site pays businesses within 30 days of the end of a promotion, and customers often exchange vouchers for store gift cards to be used at any time.
• BuyWithMe allows merchants greater flexibility in timing discounts.
• Businesses are involved in generating and reviewing ads, providing information about awards and other differentiators.
• According to BuyWithMe statistics, 87 percent of buyers spend more than the value of their vouchers and 90 percent are new customers.
• Similar to LivingSocial users, BuyWithMe members share deals and if three friends purchase the same deal, the deal is on the house for the original member.

The Bad

• Customers criticize BuyWithMe in online reviews for adhering to an overly strict refund policy, distributing incorrect voucher codes and partnering with “substandard” vendors who occasionally go out of business before users can redeem vouchers.