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What's the Deal? Toronto companies are part of the group buying phenomenon

A mash-up of e-commerce and social media, group buying sites offer consumers the power of shopping in numbers -- big numbers, judging by some of the juicy deals recently proffered by Toronto's TeamBuy, Chicago's Groupon, and Guelph's StealTheDeal and a cluster of competitors.

Torontonians are swarming to these sites and signing up for daily emails advertising goods and services at deep discounts -- typically half-price, but sometimes as much as 90 percent off everything from frozen yogurt to concert tickets. Some of the more esoteric finds include speed-reading classes, psychic readings and laser tattoo removal. Buyers provide their credit-card info, but there's no deal until a minimum number of people commit. When that happens, the deal is "unlocked" and shoppers get their vouchers.

Rebecca Kogon, an account coordinator at a Toronto PR firm, has embraced the allure of group shopping. She loves the deals and discovering new businesses through the sites. When she sees a great offer, she says, "I want to tell all my friends and buy it right away." Kogon did exactly that when Groupon offered vouchers for Utopia Cafe, one of her favourite restaurants. "I was ecstatic. Some of my friends bought three. My boyfriend even bought one, and he lives in Boston."

Retailers have also warmed up to this marketing concept. Group buying sites deliver new customers, provide measurable results and generate free exposure via social media. "They're basically bringing you customers without you having to advertise to the general population. It's self-selecting -- you're only really paying for the customers that want to be your customers," says Danielle Voisin, owner of Tea Oh, an online tea shop that launched in the spring. After taking part in a few group deals herself, she made an offer through TeamSave in July: $10 for $20 worth of gourmet loose-leaf tea. About 50 people grabbed the deal.

Voisin repeated the offer in August, this time through TeamBuy, despite her concerns that group buyers won't become full-paying customers. She's also curious to see if the business model of group buying sites is a sustainable one. "It's an interesting business strategy, to say the least," she says. "Something is working -- some of these deals are going gangbusters."

It wasn't always that way. Predecessors to group buying sites, several "demand aggregators" surfaced in the 1990s, then died out in the early 2000s when consumers didn't latch on. Social media has given new life to the model. "[Group buying] is at the intersection of a lot of the social media networks really growing up and becoming extremely popular at the same time that there's been some economic pressure and people are looking for ways to get good deals," says Jeremy Zuker, founder of Toronto-based WagJag, which launched in January. "[It's] really the perfect storm for this type of model…We're just starting to scratch the surface in terms of the number of transactions."

The alpha dog of group buying sites is Groupon, the American company credited with igniting the group buying craze in 2008. It offers deals in dozens of cities in North America and Europe. Since its Toronto site launched in mid-April, 115,000 people have signed on. Its best-selling deal so far? A one-hour boat ride with Toronto Harbour Tours for $8 (worth $21), which moved just shy of 3,000 vouchers.  

Groupon has plans to expand across the GTA, undeterred by the upstarts scrambling for market share. "[Our competitors'] chief competency is to imitate the model we created, whereas our competency is being innovators and redesigning the space," says Julie Mossler, Groupon's consumer marketing manager.

As the playing field gets more crowded, all of the sites are seeking ways to stand out. Groupon offers a no-questions-asked return policy, a discussion forum and a merchant services team. It also plans to offer hyperlocal deals, based on subscribers' postal codes and gender, in the next few months. TeamBuy is cultivating a community of shoppers on Facebook, and WagJag is venturing outside urban centres into combined markets such as Pickering/Ajax. Groupon and DealFind pay members for each referred friend who makes a purchase.

"The platforms that are consistently delivering quality deals and offering them on a more national level will be the long-term winners," says Ghassan Halazon, CEO of TeamBuy, which debuted in Toronto last October and later added Montreal, Vancouver and Halifax; the site gets about 60,000 unique visitors per month. Although the public's appetite for deals appears to be limitless, he believes smaller websites will find it harder to attract attention. "Users are probably going to be less likely to click on ads when they see this deal-a-day format."

Halazon adds that success brings its own challenges. "People think it's a sound model that doesn't require a lot of overhead or technology, but at the end of the day, if we sell 800 to 1,000 buys, there are consequences to that. You need to deliver on service…it must be well-coordinated on the user side and merchant side. It's not as easy as it sounds. Smaller players may underestimate what it takes to deliver on 1,000 buys a day."

In addition to established sites going mobile and hyperlocal, Halazon predicts publishing and media companies -- and others with a wide reach or large networks -- will get into the game by partnering with group buying sites or starting their own. "This will become a big player-take-all type of market. Smaller sites will ultimately be swept away if they don't have the money and first-mover advantage."

For those left standing, the payoff will likely be staggering. "It's an exciting time. Merchants are getting new ways to fill seats, users get deals in a down economy, and businesses [like ours] gain by making both sides happy," says Halazon. "It's not clear where [group buying] is going, but it's clear it's the future. Social commerce is here to stay and local deals aren't just a fad."

Jaclyn Law is a freelance writer and editor who lives in a part of downtown Toronto that will be cool any day now.
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