Cash-strapped shoppers get social buying

The low purchasing power brought about by the recession has seen a new online business model emerge, that of social buying. Although such discounts seem well suited to the local market, the model was not born here, but was imported from abroad. Within just one year, a plethora of websites showcasing collective discounts have popped up and pundits expect the value of this market to reach several million EUR this year. Further new sites are on their way. In order to survive fierce competition, some are now starting to carve a niche for themselves.

Otilia Haraga

How do collective discounts work? The idea behind them is simple. The social buying website works with companies that put forward offers at very significant discounts, sometimes as much as 90 percent. The key is that the respective product must be purchased by up to 10 or 20 people; hence the term social or collective buying. If the required number of buyers is met, then the offer becomes active. If not, the customer keeps the money on their card and does not get the product.

Products on offer come from a wide range of areas – beauty services such as spa and massage sessions, meals at restaurants, cosmetic treatments, training, travel and beyond.   

Read more about

Creating Social Media Posts That Drive Traffic To Your Website

read more

“Social buying is the latest trend in consumer behavior as seen in countless examples in the USA and Europe,” Alina Otelea, sales manager at Golden Deals Romania, tells Business Review. “We believe this industry is a multi-million euro industry in Romania as it allows consumers to discover both online and offline merchants and as such it brings onto the internet a lot of the commerce that is taking place offline.” 

But how many such competing sites are there on the local market? According to Cem Tunakan, CEO of Groupon Romania, there is already an impressive number, between 18 and 29, some of which are in the process of being launched. This makes Romania an “educated market” which is already familiar with this concept, he says.  “Last year was a test for everybody. The total market in Romania will reach several million EUR in 2011,” Calin Fusu, CEO of Neogen, tells BR. 

At the moment, the Romanian user is still learning about this type of promotion. “We expect it will still take some time until the market stabilizes. This will also be influenced by the selection of trustworthy projects on the market as well as the growing awareness of Romanian business owners of the new promotion opportunity,” says Cristina Cojanu, sales and marketing manager of Adulmec online company. 

As collective buying is only just establishing itself as a business model in Romania, it is difficult to pinpoint an exact value for the market.

“If we estimate a maximum of 1 million users (who subscribed via the 18-29 competitors – because some subscribe on more websites) and each user spends at least EUR 1 using Groupon or other websites, we can predict the Romanian market to have a total value of around EUR 1 million by the end of 2011,” says Tunakan. 

Groupon was the company that launched this business model in the USA. The industry grew from a website called “the Point” launched in November 2007, by Andrew Mason. At the beginning, the site was created to bring together people with the same interests and help them solve problems and obtain major deals as part of a group. By the next year, due to the public’s interest in this collective buying system, Groupon was launched in Chicago and it took only a few months for the business model to expand internationally. It seems that it is not only Romanians who like a bargain!

The timing when this business model caught on is also important – right after the onset of the credit crunch in the USA. “This business model was launched at the end of 2008 and implemented during the crisis. I believe it was the right business system launched at the right moment,” says Tunakan. This is because consumer behavior changed after the crisis, with people becoming more careful with their money.

“They still needed to dress themselves, to eat, to entertain themselves with their families and friends,” but collective buying websites gave them the option to do so at discounts of 75- 90 percent. Groupon was launched in Romania at the end of last year and now has 17 employees.

“Although it is difficult to estimate the company turnover for 2011, because sales volume depends on subscribers, we are certain to sign up around 800,000 subscribers by the end of 2011. Therefore, if our expectations regarding the number of the subscribers prove true and if each one spends around 70 eurocents, we can estimate Groupon Romania will have a turnover of EUR 560,000 by the end of this year,” say company officials.  So far Groupon offers deals only in Bucharest but plans to expand its operations to the biggest Romanian cities such as Timisoara, Cluj, Iasi and Constanta.

It is also working on hundreds of partnerships that will bear fruit over the following months. The deals that have been most successful for Groupon were those that had the biggest discounts – between 83 and 90 percent. Big

sellers were trips and beauty services.

In fact, beauty services have become favorites with most clients of such websites.

GoldenDeals.ro, which was launched in October 2010, describes its most profitable sales as those targeting women, such as sessions at the spa or beauty salons. These are followed by entertainment deals such as laser tag or billiards. The firm also advertises restaurants, health services, and educational offers.

GoldenDeals.ro was founded by XE, which runs businesses in the areas of online classifieds and e-commerce. XE is owned by Global Finance, a leading private equity group in SE Europe, with investments in companies like Total Soft, Call Point and ICAP. So far, the team at GoldenDeals consists of more than 25 employees. In its first two months of operations, the company sold over 12.000 vouchers.

“For the time being, our main focus is Bucharest. However, we have had offers for all the cities in which the vendor had locations and for products available on order from anywhere in the country,” she says.

The oldest collective buying website on the market is Zumzi, opened by Neogen approximately one year ago. The site now has six employees and has expanded its operations outside Romanian borders: it is active not only in Bucharest but also in Sofia, the Bulgarian capital, where it goes under the name www.dalavera.bg. Neogen will launch similar websites in Chisinau in the Moldovan Republic and in Belgrade, Serbia, as well as in Timisoara, Iasi and Constanta in Romania.

“There are already nearly 100,000 people who receive our offers and the partnership with Neogen/Bestjobs gives us access to another 1 million potential clients. Each offer registers several hundred purchases and we have more than 5,000 orders a month,” says Fusu. However, Fusu does not attribute this success to the recession alone but also to the fact that this is a business that is mutually beneficial for both clients and suppliers.

“The discount offers are very varied, from restaurants and spas to unique experiences such as sky diving,” said Fusu. However, fitness and food products sell best with Zumzi.

Elsewhere, the DealFever.ro website was launched at the beginning of this month by Adulmec SRL, an independent Romanian-American company active on the online market since 2009.

“Starting up this kind of website in such a short time was only possible because the company structure was already functional and the teams already operational,” said the company. The Adulmec team currently numbers 20 people and is expanding. 

When entering a market where there is already fierce competition, the need to carve a niche or settle on a certain segment becomes very important. When DealFever.ro began life this month, it started on a niche that appeals to women. “Because we launched so recently, we are still diversifying our deal portfolio while conserving the niche direction. This way, we will be able to understand which deals are the most interesting to our audience,” said Cojanu.

SITE PROFILES

Groupon.ro

Launched in Romania by Groupon company of the United States in December 2010.

Currently has deals only in Bucharest but will open up in big Romanian cities such as Timisoara, Cluj, Iasi and Constanta.

17 employees.

Zumzi.ro

Opened by Neogen approximately one year ago.

Operates in Bucharest and Sophia but will expand to Timisoara, Iasi, Constanta

as well as Chisinau and Belgrade.

6 employees.

GoldenDeals.ro

Opened in October, 2010, by XE, which is owned by private equity group Global Finance.

Currently focuses on Bucharest.

More than 25 employees.

DealFever.ro

Launched in January 2011 by Adulmec, an independent Romanian-American company.

Currently focuses on Bucharest.

20 employees at Adulmec. 

otilia.haraga@business-review.ro