The rise of group buying sites over the last few years has been rapid. But as we now settle into a period where the novelty of these sites (and their offerings) has worn off, cracks have started to appear for both consumers and the advertisers themselves.
As the name suggests, group buying involves buyers making a commitment to buy a service or product at substantially discounted rates (although sometimes the purchase is not finalised until a certain level of sales are achieved), and on the flip side, provides advertisers with the potential opportunity of exposure to a sizeable and new audience.
But the reality of the operation of these sites and the deals that they offer can sometimes create unexpected consequences, particularly if an advertiser is not fully prepared.
So what are some of the common risks?
- Advertisers being simply caught unaware and unprepared for the unexpected demand after a promotion on a group buying site.
Quite often the advertisers are smaller businesses who can easily be over-run with business from a promotion, and left unable to meet the demand created by the promotion. The issue of course however then becomes that they have committed to the provision of the good or service in a certain time frame that they now can’t meet. This has implications obviously for the customer, but also for the advertiser and the group buying site. Not only might this sort of situation create a breach of contract, but the advertisers (and potentially also the group buying site) would probably also be in contravention of Australian consumer laws.
- Advertisers failing to calculate their actual costs, and running the promotion at a much bigger loss than expected.
The group buying sites will usually take a large percentage of the revenue created by the promotion, and an advertiser must factor this into the costs of providing the good/service at a reduced price anyway. Quite often the reality for an advertiser is that a promotion on one of these sites will leave them with a loss. This can be countered by the possibility of ongoing long term business from each customer, however anecdotal evidence (from my discussions with advertisers who have used this sort of advertising method) suggest that customers using this buying method are quite often price shoppers with lower levels of commitment to a re-purchase from the same provider than customers derived from other advertising methods. The long and short for a business considering this type of advertising is that a failure to do careful planning may result in a commitment to loss making business that does not convert to a long term increase in the customer base.
- Advertisers breaching advertising codes relating to their industry
Many industries have regulations that affect the kind of marketing that they can do. For example, the medical and dental industries. There has been recent noise raised in many of these industries about the many breaches that are occurring by virtue of group buying deals – and advertisers caught up in this sort of controversy in their business could be facing a risk to their licence to practice. As with anything relating to law – ignorance is no defence – so it is important to do your research about what advertising regulations apply to your business before you launch any sort of promotion, including one through a group buying site.
- The advertisements on the group buying site failing to comply with other laws
As an advertiser, do you have the final approval right over the content on the advertisements that will be shown with your offer? There has been a growing chorus of claims that some group buying site deals contain misleading or deceptive information about the type, quality or timing of the goods or services that are on offer. In an effort to increase the level of response to an offer a group buying site might be tempted to scale up the marketing hype – but if you as an advertiser don’t have the final say, you might end up with advertising for your good/service that doesn’t reflect the true reality.
If you’re contemplating offering your services via a group buying website, we suggest the following considerations at a minimum:
- do your research on how the sector works, whether your product can be sold on a group buying website, and what your competitors are doing;
- get very familiar with any specific advertising or marketing regulations or codes that impact your industry;
- do the maths for the best and worst case scenarios;
- make sure you think about whether you need a cut off limit on the number of goods/services you are willing to provide under the deal, and ensure that the advertising states this very clearly – together with any other conditions you may need to apply to protect yourself.
- be aware of your obligations under the Australian consumer laws, such as the guarantee that services are supplied within a reasonable time frame;
- shop around for the most suitable group buying site;
- be prepared to negotiate better terms with the group buying site if, for example, the site targets your niche; and
- find out whether you will have control over the promotional material because, in the event of any misleading or deceptive conduct or passing-off claims, you may be held responsible.
Much of the same applies to group buying sites, which also need to:
- be aware of a new code of conduct, which some of the larger sites have signed up to, confirming their commitments to consumers, and other legal obligations such as spam and privacy laws;
- have a policy to deal with advertisers who fail to deliver;
- make sure your brand is protected and that you are indemnified against third party claims;
- have a marketing strategy and think about how to get your best advertisers coming back; and
- train staff on areas of potential liability.
If you are thinking about advertising on a group buying site, if you are a group buying site with legal concerns about your activities, or if you are a consumer who feels you have been wronged by an offer you have signed up to, contact us at [email protected] for a confidential discussion.