I  am going to share my thoughts on why I think small businesses should love and use group buying.  However, lets get the disclosure up front here.  I am the owner of the Maritime group buying website, How She Goin'.

There, now lets get down to business and please do share your thoughts and opinions.  

Why should a small business be interested in group buying?  It is essentially an e-commerce site, bringing consumers deals from local merchants.  Local online commerce is one of those opportunities where merchants have struggled with over the years.  What I mean by struggle, is converting leads from eCommerce or social media has not worked as well as most merchants have expected.  Through its online-to-offline coupons, group buying has figured out how to track that last mile in local online commerce between the ad and customers showing up at a store.

This all sounds great, but how does this benefit the merchant?  Let me try explaining by telling a little story about a new bakery, called Grandma's Kitchen.  

Grandma's Kitchen is mildly profitable.  They pull in 50-100 clients per day each person spending roughly $5. Profit margin is low because costs of goods (fixed and variable) are high around $3. That means the markup is 40%.

Grandma's Kitchen wants to generate buzz around a new product called "The Best Cookie Ever" where they add some organic chocloate to the cookie and they toast the cookie in front of the customer to turn it into the best cookie ever.  

What are their advertising options?

This is where I think it comes down to a comparison between what I call traditional advertising and non-traditional advertising. Now my math is not the best, but I will try. :-)

1. Billboard advertising - $10,000 for 4 weeks at a popular intersection with roughly 750K impressions
2. Online advertising - Combination of Video, Banner and Mobile - $10,000 can get you roughly 1.25 million impressions over a 4 week period
3. Offline Advertising - $10,000 will get you 1 million impressions in a multiple of local newspapers throughout the month.
4. Group buying - same $10,000 could get you. If deal is 75% off $20, so cost to consumer is $5. The cost of goods are $3 x 4 (if the cookies are regular $5 you can get 4, exclude tax) so the loss per deal is $7. You get 750,000 impressions and 1450 guaranteed customers walking in your door.

Yes, group buying does cost small businesses money, but where would that money have gone otherwise? Most likely other forms of advertising that cannot be attributed to direct sales (discounted or otherwise). When a small/medium business offers a deal through group buying, at the end of the day they know exactly how much business they can count on. For a lot of small businesses that means a lot. 

Which would you choose?

With Grandma's Kitchen, a group buying deal can be a great way to drive traffic to the store and build brand name in their city.