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Why websites specialising in group buying deals are struggling

Why websites specialising in group buying deals are struggling

Websites specialising in group buying deals are floundering. Some have closed, while others have been forced to change their business model.

Any model based on hyper discounting will not survive when the switching cost for the customer is zero: Kanishk Shukla, CEO, Photo: Sounava Ray Sarkar Any model based on hyper discounting will not survive when the switching cost for the customer is zero: Kanishk Shukla, CEO, <em>Photo: Sounava Ray Sarkar</em>
They seem almost too good to be true. "Save up to 95 per cent in Delhi/NCR - get access to restaurants, spas, sporting events, cinemas and much more" goes the leading ad on Groupon India's website, "Get free offers," screams The attractive, ever-changing offers - they have to be snapped up within 24 hours of their announcement - across group deal sites ought to have had customers clicking furiously and forming queues to redeem the discount coupons the sites send them. But none of this has happened.

On the contrary, a number of such sites -, and - have shut shop, while the likes of,, and have changed their business models. Only a handful like Groupon India remain in the original business. Both Snapdeal and Koovs are now online retail stores - while Koovs has abandoned deals entirely, Snapdeal offers a few at the bottom of its site, almost as an afterthought. GrOffr is largely into real estate broking. What went wrong?

Group deal websites draw their revenues from the commissions the merchants - restaurants, cinemas, hotels, etc - pay them for each customer they bring in at the discounted rate. Barring the big players, most merchants have limited marketing options - being mostly limited to bulk SMSs, flyers and registering on - so they buy into these schemes to get an additional channel, as well as the likelihood of getting bulk customers. It makes sense for a restaurant or newly opened shop owner to get discounted customers rather than no customers at all.

For the group sites, getting those bulk customers is the big challenge. "The revenue model was the problem," says Rutvik Doshi, once CEO of the short-lived "The amount of money spent on getting a customer was 10 times what was realised from him by selling him an offer. This meant the same customer had to buy 10 coupons from our site before we could break even on marketing expenses alone." But there is no guarantee that a deal-hungry customer will go back to the same site for his next coupon purchase. "The problem with deal hunters is that they are rarely repeat customers," says Vikhyat S., Co-founder, "They will buy wherever they get the best discounts." Co-founder Kanishk Shukla is equally pessimistic. "Any model based on hyper discounting will not survive when the switching cost for the customer is zero. The businesses kill one another trying to acquire an online customer only to take home a non-loyal customer," he says.

Anisha Singh, Founder and CEO,
We focus on helping merchants reach customers, rather than the other way round: Anisha Singh, Founder and CEO, Photo: Aditya Kapoor/
All these sites were inspired by the success of Groupon, launched in the United Sates in November 2008. (Since then Groupon, too, has had its own share of problems - CEO Andrew Mason resigned over an accounting scandal - but is now slowly recovering.) All the Groupon clones in India were born between late 2009 and early 2011. Groupon itself entered the Indian market in January 2011, buying up one such site called The investment required appeared modest - mainly in creating the tech infrastructure and employing a sales team to both liaise with merchants and market the site.

But once they jumped in, many entrepreneurs realised they had been mistaken. For one, there were too many of them. "We entered because of the low mobilisation cost and effort required on the supply side," says Rajeev Sathe, Co-founder of which, too, has since closed. "In the early days, leading brands jumped on board." The problem was getting customers because of the fierce competition. "The timing of our entry made it challenging to create a presence without significant investment in customer acquisition," adds Sathe. "Neither I, nor my partner, had the appetite to risk further investment given the difficulty of raising funds."

Ankur Warikoo, CEO, Groupon India, agrees. "Group buying has extremely low entry barriers but barriers to scale are high," he says. "If you don't understand the nuances, you will end up in a race to offer the biggest discount - a bad experience both for your merchant and your customer." The Indian group deal sites have, in fact, made some concessions their US counterparts do not - but even that has not helped. With most US sites, for instance, a discount deal becomes valid only after a minimum number of customers sign in, thus assuring the concerned merchant a bulk order. In India a discount deal is 'on' the moment the first customer buys his coupon.

Some feel group deal sites also had their priorities mixed up. "Who is the main focus, the merchant or the end-user," asks Amitabh Saran, former CEO of, which has shut down its group deals vertical. "It was always supposed to be the merchant, but deal websites started focusing largely on the person holding the credit card. Soon it became clear to most merchants that offering huge discounts was not a sustainable way to bring in new customers."

In turn, the disdainful attitude of some merchants towards their 'discount customers' hardly helped. In one Bangalore restaurant, for instance, those bringing in coupons were served half a bowl of soup against the full bowl promised. "To encourage customers to come back to particular sites, we need a large pool of merchants," says Doshi, the ex-CEO of "But the pool of local merchants who can provide quality service and shell out offers at the same time is small. Except a few hundred in each city, most do not serve customers well."

So, apart from moving into a different segment, how have the survivors managed? Obviously, having deep pockets helps - as in the case of Groupon India, backed by its US parent. "Just one or two global players will survive on the basis of their financial muscle," says Shukla of Koovs. More interesting is the case of Mydala, which has modified its role, without - unlike most others - entirely transforming it. "We focused on helping merchants reach customers rather than the other way round," says Anisha Singh, Founder and CEO of Mydala built a marketing platform which merchants could use, apart from improving its data mining and analytics to help them. It claims to be currently assisting 100,000 merchants and their advertising partners reach 200 million users in 145 towns and cities.

Published on: Sep 21, 2013, 12:00 AM IST
Posted by: AtMigration, Sep 21, 2013, 12:00 AM IST