When it comes to deals and discounts, we Indians find it difficult to say 'no' to a good offer. So when we were introduced to group-buying websites a few months back, we were taken in by the concept.
But the recent closing down of a well-known website begs our attention. Why is it that when Indian e-commerce industry is growing at a scorching pace, group-buying shows a negative trend?
The Indian consumer has matured since the last dot com burst and now we take great customer service as a given. On a typical group-buying website, what we are getting are deals and discounts; there is no guarantee of great customer service.
On the other hand, most portals have learnt a big lesson from the late 90s dotcom burst: Never take the customer for granted. The new players pay great attention to what the customer wants -- from products and services to free home delivery across the country to after sales service.
Volumes are a big driver for group-buying websites. If you look at the area covered by these websites, it is mostly the major Indian cities; no tier 2 and 3 cities. Why? Because the deals and discounts on offer are not of great use to someone living in a tier 2 city.
For example, a great deal at a Spa in Gurgaon is of no use to a homemaker in Mysore. Therefore, a group-buying website, while being an online shopping portal, mostly has a niche geographical spread.
Though we get fabulous discounts at group-buying websites what is conspicuously missing are the best brands. The best-known brands don't work on mind-boggling deals; they bank on their intrinsic brand value, and we customers love them for it.
Customer loyalty is another big-issue with group-buying. If the basis of the business is discounts, then the customer would go where she is getting the best deal. In the e-commerce industry, which is very competitive, customer loyalty matters a lot.
Repeat shopping by loyal customers have been keeping the online shopping portals' cash registers ringing.
When it comes to group-buying, the return-on-investment is very low. Though the buying volumes are high, the website has a low profit margin. Even the vendors, whose deals the group-buying website is selling, ultimately becomes a competitor because they are adding new customers to their list and would like to be in touch with them directly.
Further, on an average customer acquisition cost in online shopping is Rs 600 per customer but group-buying makes approximately Rs 50 from each transaction. This means it would take at least 12 transactions to break even. So what is really needed -- as is apparent -- are high earnings to stay afloat and pay the bills.
If we look at the Indian group-buying space as a whole, we see a clear need for leadership and consolidation. The year 2012 would certainly pave the way for this. It has been the trend internationally, where multiple players offering innumerable deals have caused customer fatigue.
If the same becomes true in India, where almost every month some new development is taking place in the e-commerce industry, 2012 could witness the death of group-buying.
The author is CEO & co-founder, Letsbuy.com
