3 reasons NOT to start a group buying site

The group buying industry sprang to life with very little warning. Groupon began a trend and soon everyone wanted a piece of the action. This phenomenon has been popular in emerging market countries such as South Africa where it began with Wicount in 2010. By January 2011, big names like Groupon and Bidorbuy had bought out smaller South African sites like UbuntuDeal and with a very low barrier to entry, the market exploded.

It would seem that it is an industry to have a look at, especially for an entrepreneur; perhaps you can start your own group buying site?

After all, you can buy a domain, a WordPress theme and get a site up for less than US$150 nowadays (the entire process is described here).

If even 100 people buy a US$10 deal on your site, your fee could be as high as US$500 and you’ve already made a profit, or have you? It’s little calculations like this that have made people jump up to catch some of the action — but is it all that easy? The answer is no, and here’s why.

1. You will actually need a large amount of cash to start a successful group buying site
To get those 100 people buying your deals, you will need a database of happy customers, something that doesn’t come easily. Using email databases won’t work — you’ll end up on spam lists.

Currently there are two group buying sites on the South African hall of shame.

To get real, dedicated and repeat buyers on any eCommerce website, you need a strong online (and some would argue offline) presence. You’ll need staff who can do the sales, add the content, do design and development work, and the list goes on and on.

2. Deals are not very easy to bring in
To have those deals on your site, you’re going to have to make a lot of calls and meet a lot of businesses. For really good deals with larger companies, things take time and you’ll need to have a sales force of numerous consultants based in various cities to really become a top player in the market.

3. Customers and clients are a service responsibility
For some reason, the group buying industry has been plagued with complaints (check HelloPeter right now and surprise yourself) from customers as well as clients.

Why?

If businesses are offering the deals that are the life-blood of your website, and hard-earned customers are paying you their money, why wouldn’t service be on the very top of your list of priorities? Nevertheless, this takes time, more money and a lot of patience, especially since many are still mvery cautious online buyers.

All of a sudden that easy deal with 100 buyers is a lot further off than you thought, and the idea of running a group buying site is a little less attractive. Over the next few months until the end of 2011, we’ll see the market even out and the main players remain to form a neat online industry that didn’t exist even two years ago.