Group buying consumer spending revised down to $530 million

Group buying niche players have been warned of tough times ahead following predictions that consumer spending in the sector will drop to $530 million this year, revised down from more than $600 million.

According to technology analyst firm Telsyte, the group buying industry has recorded its fourth consecutive quarter of revenue declines.

As a result, Telsyte is revising down its forecast for the sector from more than $600 million in consumer spending in 2012 to about $530 million.

According to Telsyte senior research manager Sam Yip, Groupon and Scoopon control more than 50% of the sector for the first time. LivingSocial is placed third on 14%.

Spreets, meanwhile, has slipped to 10% market share while Cudo is at 12% and OurDeal is at 8%. Yip says the gap between the large and small players is “phenomenal”.

“Some of these large sites are making up to $13 million a month. They have strong marketing campaigns and also big deals,” Yip told StartupSmart.

“It just shows that it’s going to be even harder for the smaller players to compete.”

“My suggestion [for small players] is to compete in other markets as well. Look at other ways they can [spark sales] with daily deals, flash sales, traditional merchandising, etc.”

For those looking to get out of the industry, Yip says their timing is far from ideal.

“If you think about a game of poker, you almost need to fold your cards or expose them… The big sites are just getting bigger and bigger, and that makes it harder to sell out,” he says.

According to Telsyte, the number of coupons sold has fallen from three million in the September quarter last year to 2.1 million for the same period in 2012. However, the average value of each coupon has lifted.

“Product sales and travel sales [are driving that],” Yip says.

“Also, a lot of sites now have tiered pricing. So if you buy a deal for $500, you can upgrade to another type of room for $100, and a lot of consumers are taking up that upgrade offer.”

Yip believes there will still be eight to 10 key sites in a year’s time, and the market will continue “at a similar rate as what we’ve seen”.

“Consumers are still seeing group buying as a key channel for their online shopping,” he says.

But Yip points out group buying is very seasonal, so businesses need to ensure their offers are well timed to coincide with Christmas, school holidays, etc.

“Every time it comes to the Christmas period, you can expect online traffic to increase and these sites are preparing for that. You will see a lot of promotional deals and seasonal offers,” he says.

“There’s also a big boost in the school holidays – Sea World had a deal on Cudo at the right time.”

Ultimately, Yip says the best thing to do is to ensure your deals are always relevant.

“Have something fresh that will give consumers an incentive to keep browsing and keep visiting your website,” he says.

“We’re seeing sites starting to push deals beyond 24 hours. Once consumers see that, it loses relevance. If you go to sites with 24-hour deals, those are the sites that succeed in this market.”

“The reason some sites [have longer deals] is because they don’t have enough in their sales pipeline.”