Mahesh, The Economic Times
August 12, 2011
Be it a holiday package, dining at a star restaurant or getting a hair cut at a fancy salon, everyone wants a better deal (read huge discounts) these days. This has led to a mushrooming of internet sites that offers discounts on everything under the sun. There are 20-30 websites like snapdeal, taggle, sosasta, mydala, and so on, offering such deals to customers. "Consumers want to try new products and at the same time save money," says Anisha Singh, founder and CEO, mydala.com.
The way it works
Group-buying sites offer heavy discounts on a range of products and services that are in demand. This is how the economics works: Any organisation broadly has two kinds of costs – fixed and variable. In the case of a restaurant, for example, the fixed cost includes expenses on air conditioning and maintenance, salaries paid to staff, etc. The variable cost is that of food. Now, a new restaurant needs to popularise itself to attract new customers. It may have a 100-seat capacity, but there may be only 50-60 people, on an average, seated at the restaurant. As a marketing exercise to attract more customers, the restaurant gives promotional offers through websites.
"Generally, a discount is given in such a way that the variable cost is covered, which, in the case of a restaurant, is food," says John Kuruvilla, founder and CEO, taggle.com. So if a meal at the restaurant costs 300, it is offered at a discounted rate of 150 to attract customers. This 150 covers the food cost.
This creates a win-win situation for both the customer and the restaurant. A lower price attracts customers to the restaurant to try the service out, which they may otherwise not do. At the same time, it also gives business to the restaurant. The website, in turn, gets a commission for every customer who buys the deal. A customer who wants to buy a deal from a website is given a voucher after the payment is made. So when you buy a service for, say, 500, some websites insist that you pay the entire amount upfront. Some others may allow you to pay 100 for the voucher and pay the balance to the vendor when the service is provided.
The typical group-buying site goes live when a minimum number of customers buy the deal. Generally, websites give a commitment to vendors to get a minimum number of customers. For example, for a dance class deal, the merchant may insist on at least five customers. Once the deal is put up and five customers buy it, the deal goes live (it is on the website). However, some websites do not go by this minimum commitment. Once the deals are uploaded, any number of customers can buy them.
What’s on offer?
Almost all these sites offer deals on restaurants, salons and spas, dental check-ups, car cleaning, pest-control services and so on. Among the products they offer are electronic items and gadgets. Discounts could vary depending on the brand and category. In some cases, the discounts may be as high as 80-90%. As these sites pick up, new and exciting services get added.
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