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The power of the masses: Social shopping conquers

While Hungary’s retail sales were stagnant in 2011, the e-coupon market produced rapid growth.

There is a certain area within the online market that has been performing particularly well. The online bonus/coupon market, where the first players appeared only in the second half of 2010, has seen rapid growth in 2011.

According to estimates by GKIeNET, the total value of the bonus/coupon market in Hungary was HUF 3-3.5 billion in 2011, three-quarters of which was divided among just three players.

Despite being a young market, it has matured fast. It seems that operators have already settled into their grooves. There are three big players, and in their wake, several smaller sites have started offering similar services – their number had reached 60 by the end of last year.

A model to follow

The business model came from overseas: the first site based on a new sales philosophy emerged in the US in 2008, when Groupon, a deal-of-the-day website that featured discounted gift certificates usable at local or national companies, was launched (see box on Groupon’s history).

Groupon history

The US-based Groupon grew out of the campaign website in November 2008. The name Groupon blends “group” and “coupon”. The first deal Groupon offered on its site was a half-price offer for pizzas for the restaurant on the first floor of its building in Chicago. As a result of its aggressive expansion policy, Groupon now owns numerous international operations, all of which were originally deal-of-the-day services similar to it, but most of which were subsequently re-branded under the Groupon name after acquisition. In June 2011, Groupon filed with the US Securities and Exchange Commission (SEC) to raise up to $750 million in an initial public offering.

The Groupon business model is often described as a typical win-win-win model, as site operators, consumers and merchants all benefit from it. Coupon firms offer daily deals on their sites gathered from merchants. These deals can be both services and products. If a certain number of people sign up for the offer, then the deal becomes available to all, but if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools.

Groupon makes money by keeping approximately half the money the customer pays for the coupon. Coupon websites in Hungary kicked off with the same business policy, but there are differences in commission rates. The majority continues to charge 50% of the sales price as a fee, but because competition is fierce, many offer services at lower commission levels. However, the higher the commission is, the more consumers will have access to the deals.

Mainly marketing

With e-coupon firms getting a foothold in Hungary, the spectrum of goods and services available for online purchase has been significantly widened. Coupon sites offer bargains in nine categories: beauty care, gastronomy, travel, leisure, experience, wellness, sport, education and health. Except for tourism services, all of these services and products are newcomers to the world of internet sales – previously, they had been advertised on the net, but not sold.

Long-tail effect

Besides the big market players, there are several smaller ones offering daily deals. Although the majority has a wide range of such deals from nearly all segments, some targets various niches, such as Babakassza, a site for families with children. Another example is, an exclusive online shopping club, that was launched in January 2011, and offers up to 70% discount from top fashion brands to its members. However, not every one follows the Groupon model., a site operated by Kft, builds on databases of auctions sites Vatera and TeszVesz, and there is no minimum number of bidders in order to get the deal.

However, the daily deals business model is primarily a marketing tool for merchants. With the big discounts they offer, and after paying commission to the site operator, they rarely make any profit. But the marketing value matters more in this case. That is what Bónusz Brigád was quick to realize.

“The advertising market has been in a poor shape, but this model offers a solution to effectively spend shrinking advertising budgets,” Zoltán Kaprinay, co-founder of Bónusz Brigád, told the Budapest Business Journal.

Most businesses apply a strategy in which they consider the discounted products or services as a form of advertisement. They lower their prices so much that they do not make a profit or may even lose money, but in return, they receive substantial advertising exposure for the duration of the sale. Traditional advertising would cost them much more.

The strength of community

Only a year after the first such business was launched in Hungary, already 1.5% of the population between the ages of 14-74 have purchased products or services in this way. This marks a major shift in online consumer sentiment: a study carried out by GKIeNET in 2009 showed that nearly half of Hungarian customers had a negative attitude about coupons (paper-based back then), and marketing professionals also took a cautious approach.

This was mainly due to the mentality that perceives cheap or discounted purchases as shameful. Retailers, in many cases, also had a hostile attitude toward coupons, and that didn’t help to improve consumer sentiment towards this form of shopping. This is one reason why Bónusz Brigád uses the word "bonus" instead of "coupon", Kaprinay noted.

But all this has started to change, mainly as a result of the power of the community, which has the ability to create trust in consumers. Site operators also did their best to dismiss such concerns. “When we sign a contract with a new partner, it is stipulated that they cannot treat consumers with bonuses differently from those paying with cash,” Kaprinay said. “Our partners were quick to realize that this is in their interest as well.”

Like and comment

But besides receiving an effective advertising tool and a chance to make up for the losses caused by the crisis, merchants see additional benefits from the Groupon model. “We have a team of professional journalists who write descriptions of the products or services offered on our site,” Gábor Heller, the other founder of Bónusz Brigád added.

Unlike in a traditional web shop, deals on bonuses or coupons on these sites are only available for a few days. Advertising the actual deal is not enough to maintain consumer interest in the long run; brand marketing and the support of customer communities also play a crucial role.

These involve interactive communication through online channels, for which social sites such as Facebook can provide the easiest platform. The possibility of commenting on the deals also works as a quality assurance tool, Kaprinay says.

Bónusz Brigád

Bónusz Brigád, owned by Hungarian entrepreneurs Gábor Heller and Zoltán Kaprinay, was launched in September 2010. In the first six months of operation, the company generated HUF 11.4 million in turnover, and in its first full year in 2011, it reached the HUF 1 billion threshold. The firm started to operate in a small office, but they soon moved to a bigger one, and now there are 23 employees working for Bónusz Brigád. With the business going well, the two owners decided to devote all of their time to it and both quit their other businesses. The projection for this year’s turnover is about twice that of 2011. Today, they receive more than 100 inquiries per day from aspiring partners, but, as one of the owners says, they are selective about new partners, and the number of companies turned down exceeds those accepted. “This way, we can maintain the quality of services offered on our site,” they say.

Kupon Világ

Kupon Világ is the only one of the top three bonus/coupon companies with an international background. It is a member of the German-based Rebate Networks, which operates in 29 countries. Kupon Világ was launched in November 2010, and it offers services and products from companies in Budapest and eight large towns in Hungary. Its main international partners include H&M, McDonald’s, Starbucks Coffee, iTunes and Subway. According to the GKIeNET-Corvinus survey, Kupon Világ was the second largest market player in May 2011, with turnover of more than HUF 99 million.

Napi Tipp

Although the website of Napi Tipp was launched in July 2010, the first offers only appeared a few weeks after its main rival Bónusz Brigád kicked off in the fall. However, as managing director Haim Schlesinger says, Napi Tipp was the first e-coupon site in Hungary promoting fresh deals every day. According to the Napi Tipp site, the total amount saved by the site's users so far is more than HUF 2 billion, with a discount rate between 50-92%.