Social Selling
The Virtues of Virtual
Targeting the Virtual World
Buying online. Buying with PayPal. Buying on eBay. It’s a list that seems never ending in the digital world, and now there is a new buying trend hitting the hospitality and retail industries — group buying.
No fewer than four companies, two of them based in the Washington area, have come on the scene in recent months offering discounts on everything from restaurant visits to spa treatments.
But there is catch: To get the discount, a specified number of people have to participate in the offer. That’s where the social networking worlds of Facebook and forwarded e-mail come in.
Chicago-based Groupon was the first on the scene nationally, launching in November 2008, and making its way to the Washington area in May. Next came D.C.-based LivingSocial and Boston-based BuyWithMe.com, which arrived in July. During the week of Aug. 10, D.C.-based What’s The Deal joined them.
The companies make money by taking a percentage of the proceeds earned by merchants who participate in the deal. The percentage depends on the offer and popularity of the destination, though BuyWithMe founder Josh Elwell said his company’s take usually is 25 to 50 percent.
Customers purchase the coupons directly from the intermediary companies, who send a check to the merchant for the proceeds after deducting their take. The coupons usually have an expiration period attached, and one deal per day is offered.
For some of the companies, group buying was a natural extension of work they were already pursuing. Groupon, for example, first used social media for collective action on things such as political donations, according to founder Andrew Mason.
“It takes the risk out of people agreeing to do something before they can see the rewards of their actions,” he said.
When LivingSocial was formed two years ago, it focused on popular Facebook applications, such as “Pick Your Five,” where users would choose their favorite beers or television programs.
The company closed on $5 million of venture capital financing in July of last year. CEO Tim O’Shaughnessy said group buying is a natural way to harness the company’s existing user base.
Collective buying is catching on quickly. Groupon started with 400 e-mail subscribers in Chicago and now has half a million in 12 states. It has sold 20,000 Groupons in D.C. Even though LivingSocial started just weeks ago, it is harnessing its existing customer base of 450,000 users in the Washington area alone for the program.
The new entrant is What’s The Deal, a five-man operation just getting started. Vice President of Partnerships Rob Schutz said the company is self-financing the operation for an undisclosed amount. He hopes to differentiate his business from the pack with new twists, such as working with food bloggers to offer deals on restaurants they recommend or throwing sponsored happy hours with bar clients.
The most popular deals have included discounts at places such as the National Museum of Crime and Punishment and TangySweet yogurt and price breaks on unusual activities such as rock climbing, according to the group-buying companies.
Georgetown boutique Urban Chic got 76 responses to its offer on BuyWithMe.com for a $50 gift certificate for $20, said spokeswoman Lauren Yalich, who praised the system for not requiring payment upfront and being cheaper than a printed coupon mailing.
“It was a huge success for us and a way to reach a new target audience,” she said.
Lansdowne Resort recently worked with LivingSocial to offer a $129 night stay with a discounted spa treatment, said Denise Benoit, director of marketing.
She found the payment system for purchasing the coupons confusing initially, but liked the promotion and the fact that the hotel was not responsible for doing any of the work. She plans to try Groupon next.
“All the people who tried it were new customers, and one of them used it to show her fiance the place for a possible wedding,” Benoit said. “That’s a huge hit for us if it comes through.”
Missy Frederick writes for the Washington Business Journal.






