IRCE: Does a Group-Buying Site Make Sense for Your Business?

Curious about adding daily-deal sites to your list of marketing platforms? A lot of retailers are. Daily-deal sites are one of the fastest growing and hottest technologies in the retail industry today. But offering a daily deal requires a lot of hard work. Bob McKeon, founder and CEO of PictureItOnCanvas.com, shared his brand's experience working with Groupon at the Internet Retailer Conference and Exhibition yesterday in San Diego.

PictureItonCanvas.com is an online retailer that takes old photos and turns them into beautiful pieces of art on canvas. When McKeon started, the company had three employees and, on average, sold 150 prints a month. In the six months since PictureItonCanvas.com began offering coupons on Groupon it's gone through an unnatural and rapid transformation. The company has expanded to 36 employees, changed locations and now sells, on average, 250 prints per day. PictureItonCanvas.com bought new equipment, sold that equipment and bought even bigger hardware, and went through two different mail servers — all because of Groupon.

McKeon noted that this type of growth isn't natural. In fact, not only is it unnatural, teaming with a daily-deal site such as Groupon might not make sense for your business for the following reasons:

• daily-deal sites tend to work best for restaurants, massages, spas and tourist sites; and
• more women buy Groupon deals than men.

There's another obstacle that can block you from using group-buying sites: Up to 85 percent of merchants are denied by group-buying sites. Most group-buying sites want half of the revenue generated from the offer, potentially disrupting a company's cash flow. Your company must be willing to sell its products at a very steep discount.

McKeon also noted that retailers need to be prepared for complaining customers. "The low-paying customers are usually the squeaky wheel," he said. And these customers will voice their frustrations on many levels — phone, email, blogs, complaints to the group-buying site itself. There are also no guarantees with group-buying sites. You typically don't sign a contract, therefore nothing ensures that the site will run your coupon. "At any moment they can say they've decided not to run you anymore," said McKeon.

That said, the return on investment from group-buying sites can be phenomenonal if you do it right. If you're denied by Groupon, there are other options such as Yelp or CitySearch. But before signing your brand up for a daily-deal offer, you must be prepared for the overwhelming influx of orders. Make sure your staff is willing to have their workload doubled, tripled or even quadrupled.