… That’s the Social Buying question. With the recent launch of Facebook Deals and Groupon’s recent reported revenue of $800 million, Social Buying is becoming a a topic of interest for many businesses. Before you think about jumping in this pool, though, there are a few things you should know.

What services are available?

A new Groupon clone or deal site seems to pop up every day, but services tend to fall in one of two categories: Time limited, possibly group oriented deep discount or location based savings. In the time limited model, a deal is posted on a site, usually daily, and is usually available for purchase for one day only. The site Woot! was the pioneer in this format, offering daily deals of tech items. Sites such as Delight and ShirtADay have sprung up to serve other niches. Groupon entered the market in 2008, adding two features: deals specific to a handful of cities (usually working with small businesses) and introducing the group aspect. In order to have a Groupon deal go live, a minimum number of users must say that they want to purchase it. LivingSocial has also adopted this Group Buying idea.
Location based savings are usually offered through a location based app on a smart phone. Deals are advertised in the platform and when you check into a business through Facebook Places, Foursquare or Scvgnr, you unlock a deal. The deals are usually along the lines of 10% off a purchase, a free appetizer or sample size product or other added value service.

Should I use one of these Social Buying services?

As with any question about general marketing techniques, the general answer is “Maybe.” You definitely want to make sure to read all the fine print (like noting that Groupon takes a 50% cut; decreasing most company’s revenue from the deal to 25% or less of their normal revenue) and decide whether it’s feasible economically and geographically. If you live in Wazoo, Michigan and not many of your target customers use these services, you may want to steer clear. If you’re on the outskirts of a large city and looking to increase exposure of your product, they may be just what you’re looking for. The basic concept behind most services is one that is not new to any business owner: the loss-leader, drawing customers in with hopes of future, bigger sales.

Well, what should I use?

If you have a pretty regular customer base, but a few more customers couldn’t hurt or if a similar business has recently opened and you want a share of their buzz, a location-based deal if probably for you. As a bonus, when users check in at nearby businesses, they’ll see that there is a deal nearby… just the thing to snag those restaurant diners who surely want to stop at your cupcakery for dessert.
If you’re a more experience-based service or a new or fairly underserved business looking to get lots of people in the door, group buying is what you want to look at. These will get you a set number or higher of customers checking you out: after that, it’s up to you to wow them and convert them into regulars.

What’s the catch?

With group buying, especially, you want to make sure that you’re not creating more demand than you can handle. In an example posed by Christina Harris,

…if a massage therapist agreed to a one hour massage that is normally $50 for $25 and she said that ten have to sign up for the deal to be valid, she would have to give 10 massages for $25 each, but she would only receive $12.50/massage because Groupon gets their share for promoting it. That’s 10 hours of massages for $125.  But, typically if a Groupon deal is made, there are far more than the initial 10 who would sign up that the massage therapist could be stuck doing a whole year’s worth of massages for just $12.50.  That would like put her out of business.

Making sure not to skip the step where you put a limit on the number of people that can buy the deal is key, especially when you’re selling something service oriented. Also, make sure to take advantage of the fact that the customers using group buying sites are accustomed to having restrictions on their coupons that might not otherwise be in effect. Trying to pack the seats for the first week of a performance? Make sure that the coupon stipulates what showings it’s good for. Running a restaurant deal? Have the value be below the average spend for two people (more than likely, they’ll spend more).

The bottom line

Social Buying services can be a great way of both gaining exposure with new potential customers and endearing loyalty in existing ones. Before going with a service, make sure that you know your options, know the fine print, and have determined whether the deal will hurt you financially. And above all, Social Buying can only get customers in the door; it’s up to the business to keep them through great customer service, excellent social media communication and building a sense of community.

(Image: Gift of Yoga Foursquare Special , a Creative Commons Attribution (2.0) image from lululemonathletica’s photostream)