Group therapy

In a region where online shopping is largely unheard of and credit card use remains limited, no individual or company could have been prepared for the popularity of online group-buying. Launching in the Middle East just two years ago, websites such as GoNabit and Cobone were instantly successful, attracting a spate of customers looking for great deals on their holidays, beauty treatments, outdoor activities and meals out.

It all began, of course, in China, where the notion of selling products and services at reduced rates based on a minimum number of people signing up for the deal, or ‘tuangou’, was coined.

Catching on to the profit potential quickly, Europe, the US and Australia followed promptly in China’s footsteps with a flurry of their own websites, rendering group buying one of the hottest sub-sectors in the technology industry throughout 2010 and 2011. In the Middle East, the phenomenon continues to grow.

“In the last twelve months, there has been a significant amount of corporate acquisition and expansion activity from the large players and a rush of new start-ups looking to obtain a slice of the market,” says Dino Wilkinson, a Dubai-based communications and technology lawyer at Norton Rose. “In the UAE, the acquisition of a local business [GoNabit] by a major US player [LivingSocial] was one of the Middle East technology sector’s most significant transactions of recent years.”

According to industry researchers, there are around 30 websites in the region today, with the biggest players thought to be Cobone, Groupon.ae, and LivingSocial, formerly known as GoNabit. Others such as Turret Digital’s YallaBanana are also proving increasingly popular as interest rises, and many sites now operate beyond the UAE in countries such as Saudi Arabia, Lebanon and Egypt.

Dan Stuart, the founder of GoNabit in Dubai and the new managing director of LivingSocial, says the group-buying industry has sparked a whole new approach to marketing in the region. Unlike before, he says, businesses can now invite their customers to taste and sample their products or services with the guarantee of some profit.

“We’re basically a marketing company, but instead of promoting your product up front on a billboard or on a radio ad and hoping to get business, you’re able to market and get a profit. We’re essentially getting people to commit upfront financially to try out the business, in return for giving a discount. So rather than listening to a radio ad and thinking about going to a place, you’re actually in the chair, having your hair cut or eating the food or whatever.”

For companies such as the Banyan Tree in Ras Al Khaimah, a campaign with GoNabit certainly drew a large amount of customer interest, with more than AED1.3m worth of vouchers sold in just four days. An offer for a discounted day out at Ferrari World had a similar effect, with AED900,000 in vouchers being bought in the same timeframe.

Long term, the returns are different for different businesses, Stuart says, with some finding that customers come back to the company or switch their loyalty, while others benefit more from positive word-of-mouth or increased brand awareness. Either way, he argues, group buying has proven itself as an effective way of marketing a business.

Some objective industry analysts agree with Stuart that group buying does indeed offer a novel marketing strategy. For a lot of companies, it creates an additional market segment which they can target, whilst also helping to formalise the process of providing discounts and promotions.

“[For hotels and spas] it helps to channel discounts into a more formal process as opposed to informal groups and connections,” says Chiheb Ben Mahmoud, head of hotel advisory at Jones Lang LaSalle MENA. “Now when you go through group-buying schemes you know that it will not be possible to get further discounts, so it gives some discipline. It is also a marketing channel which is less subject to sale cycles such as Christmas, making it more dynamic.”

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