Digital World: Consumer groupies and group-buying sites

Shame on you if you're still paying retail prices.

Eyal Felstaine 311 (photo credit: Courtesy)
Eyal Felstaine 311
(photo credit: Courtesy)
Still paying retail for stuff? If you’re plugged-in (i.e., Internet savvy) – shame on you! The Internet, as we all know, has been responsible for several consumer revolutions already, but the biggest revolution – call it a coup against full-price shopping – is only just beginning.
That coup is being led by Groupon, which is to shoppers what Facebook is to teenagers. Groupon is a combination coupon/deal/ advertising site that helps businesses recruit new customers, while providing significant deals for consumers.
Each day, Groupon features deals in various categories (many of them related to food/leisure/services/travel), with the “big deal of the day” offering consumers discounts on whatever is being offered – up to 90 percent off, in some cases. Consumers who want the deal buy the discount coupon in advance and redeem it at the business.
The catch: Groupon offers a set number of coupons (say, 200) for the product/service. If the minimum number of people buy a coupon, the deal is “on.”
If not – everyone who paid gets a refund, and the business goes back to the drawing board.
Groupon was started by in Chicago by now 29-year-old entrepreneur Andrew Mason in November 2008, at the height of the recession. (First lesson of Groupon: Don’t ever let anyone tell you that you can’t make it, even when times are tough!) Today, Groupon provides deals in 150 markets in the United States and in four other countries – and that doesn’t even include the dozens of Groupon clones, both in the US and abroad.
Groupon started out with $1 million in funding, and several weeks ago the company rejected an estimated $6 billion buyout offer from Google! A healthy percentage of those Groupon clones are to be found right here in Israel; I counted at least a dozen (at, which aggregates the deals from each of the Israeli group-buying sites).
There’s even a site that appeals strictly to English speakers (, with most of their deals located in Jerusalem. The biggest Israeli group-buying site is Deal Hayom (, which features deals in five Israeli cities: Tel Aviv, Jerusalem, Haifa, Rishon Lezion and Beersheba.
While the Internet is worldwide, and certainly national, the trick with group-buying sites – including Deal Hayom and Groupon – is to give it a local flavor, says Dr. Eyal Felstaine, CEO of Deal Hayom, with whom I discussed the whole group-buying phenomenon.
Group-buying sites have to give incentives to both consumers and businesses to get them on board, he says, and the way to do that is by micro-targeting the consumer and matching his or her need to the businesses. And that means building a good, old-fashioned mailing list.
“That’s my biggest asset, and I am very careful not to misuse it,” he says. “Everyone who signs up gets an e-mail a day with a deal tailored to their needs.”
When he tries to sell a business on offering a deal, Felstaine says, he tells them it’s not a discount they’re offering; instead, they’re actually entering into an advertising campaign.
“I offer them a guaranteed audience for the product or service they’re targeting,” he says. “Remember that if all the coupons aren’t sold, the deal doesn’t go through and everyone gets a refund. Thus the businesses are getting exposure to many new potential customers who will hopefully come back again, after the coupon expires.”
That’s one reason why the deal services work on the local level, Felstaine says.
“The business or service has to be convenient to consumers, otherwise they won’t bother,” he says. “We can target potential customers by several methods – the most important being address. Residents of Beersheba, for example, might use a coupon for a restaurant in Tel Aviv on a one-time basis, but if they get coupons for Beersheba, they are much more likely to return to that restaurant in the future.”
The question of whether customers will return once the deal is over – the loyalty question – is one that is asked by many business owners, not to mention computer journalists. When it comes to supermarket shopping, for example, even loyalty programs where the customer signs up for a credit card issued by the market fall by the wayside unless the store keeps the deals coming; if consumers see the store as too expensive, they just won’t go.
The loyalty question is a real issue for businesses, Felstaine says, and that’s why he doesn’t work with businesses that are not going to benefit from the group-buying model.
“A store that sells Levis jeans, for example, is not going to benefit from this, and we wouldn’t even try to sell them on the service,” he says. “The loyalty is to the jeans, not the store. But it’s different for a business like a restaurant or a spa. If you want to go out with your spouse or friends, you are more likely to go to a place you’ve been to before, or that you’ve heard about from friends. You want to know the route, more or less, what to expect, whether there is parking, etc.”
“For a business that caters to leisure needs, group couponbuying is an excellent resource,” Felstaine says. “It’s like advertising for them, and for all I know, many of the people we work with may be using their advertising budgets to pay for expenses associated with their deals. The return on investment per user is 100 percent: the coupons are sold in advance, so the advertiser knows it works.”
For years, Internet advertising was considered effective only for big-name, national and international businesses; it was just too difficult to sell to small businesses.
The best a local business could do was to use Google Adwords to target users and hope for the best. But it seems that Groupon and company have broken the code.
(Groupon is said to have about 35 million users, and Felstaine says Deal Hayom sells NIS 12 million a month and has 110,000 users.) People are going to go shopping, deal or no deal, so why not take advantage and save some money?