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(Jason Scott/©Jason Scott/Epic Photography Inc.)
(Jason Scott/©Jason Scott/Epic Photography Inc.)

Part Three: Group-buying

Groupon clones offer glimpse of the future Add to ...

In this four-part series, we'll look at the group-buying landscape, and the opportunities and risks for small businesses considering offering daily deals

There are so many similar entrants in the group-buying market today that some have taken to referring to the competition as "the clone wars." Groupon's success has spawned a legion of imitators large and small. Hundreds share the same business model: Partner with local merchants, offer a steep discount every day on a wide array of items, sell as many as possible, and keep a cut of each coupon purchase.

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So far, the idea has proven lucrative. However, as markets become saturated with Groupon clones, new approaches are emerging. Not every group-buy company will survive the consolidation that usually follows the proliferation we've seen, but these new variations on the theme could point the way to the future: limited quantity. When Bill Heilmann was working as a consumer researcher in Chicago - Groupon's hometown - he found himself asking merchants what they thought of the Groupon experience. One answer he kept hearing, he says, popped out.

"They were selling so many certificates, that businesses didn't have the capacity," he says.

A former global planning director with advertising giant BBDO, Mr. Heilmann is now the CEO of FabFind, a new Toronto group-buying startup that's taking a different angle on the group-buying craze.

Instead of trying to encourage as many people as possible to sign up for a deal by setting a minimum number of purchases and then throwing the gates wide, Mr. Heilmann's firm sets out a finite number of deals on each offer, which ticks down to zero as consumers snap them up.

This approach makes sense for merchants that have a limited number of items to sell in the first place: The Canadian Opera Company, for instance, used the service to sell seats to a recent production. And while other group-buy services allow merchants to put caps on how many deals they sell, larger players might be reluctant to offer hundreds of thousands of local subscribers a deal that only a few hundred can buy.

"They talk about capacity planning, but what they're really interested in is maximum volume," says Mr. Heilmann.

Upscale and members-only: What better way to control one's subscriber list than to make the whole website a members-only proposition? iGet.it, a Montreal-based group-buying that's readying itself for North American launch within the next two months, is aiming to take luxury group buying sharply up-market.

"We looked at the market, and it became clear that the up-and-comer affluent spender is not being targeted," says Jason Reid, iGet.it's VP of Corporate Development.

Aimed at 28-44 year olds who are making more than $125,000 a year, the firm is planning to offer deals on everything from BMW merchandise to valet service to behind-the-scenes access to live events. Its watchword is exclusivity: Instead of taking a cut of the deals it offers, it plans to make money by charging members a $100 annual fee - and members will only be admitted by invitation.

iGet.it will be running up against some established players in the luxury space. The New York Times has launched its own up-market discount site, called TimesLimited. Meanwhile, the name to beat is Gilt Groupe, a luxury-item flash-sale site that actually predates Groupon. Gilt has only seen its profile grow with the rise of group-discount sites; its latest round of funding could value it at $1-billion. It says it only admits select clients, though after we provided the site with an e-mail address, a membership invite rolled in within a day.

Niche sites: The explosion of group buying has fragmented the marketplace in more ways than one. Not only are general-purpose sites like Groupon and WagJag competing with hundreds of clones for consumer dollars, the model is being adopted by a growing variety of niche sites offering deals on specific ma.

Meanwhile, the indistinctly-named GroupPrice.com targets small businesses as purchasers, offering deals on office-related supplies and services such as marketing plans, web design services, software, hand sanitizer. The list goes on: GroupGolfer.com sells group-discount golfing equipment; BookPerk.com group-sells books; ChronoShark.com bills itself as the "Deal a Day Watch Site," though one might reasonably ask how many days' worth of watches the average consumer needs.

Are niche sites worth it? On one hand, they promise better results by reaching a targeted audience that knows what it's looking for, holding out the ideal of more conversions from a smaller e-mail list.

On the other, a proliferation of software services has made it easy for most anyone to set up a professional-looking group-buying site. Merchants are best advised to do some homework before signing up. Successful group-discount sites benefit from marketing expertise and hands-on work with merchant partners. If a small group-buying site is understaffed, or worse, out there to make a quick buck while the market is hot, merchants could find themselves selling the wrong deal to the wrong crowd - and that's a bargain nobody wants.

Special to The Globe and Mail

The series continues next Monday with: Small businesses offering group deals: What to expect? Other Stories can be found on the Web Strategy section of the Your Business website.

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