Why group-buying websites don't always save you money

Group-buying websites have sprung up all over the place over the past couple of years, promising to help us save money by using collective bargaining to drive down prices.

However, one of the leading sites in the industry, Groupon, has recently fallen foul of the Office of Fair Trading (OFT). It said Groupon was in breach of three different sets of consumer regulations.

In total, the OFT told Groupon to eliminate 23 different problems, including using inaccurate prices as a reference upon which to base 'discount' prices, or offering deals in volumes that retailers couldn't realistically fulfil. But the OFT recently announced that Groupon has now changed its sales and marketing practices, as it promised it would.

The Office of Fair Trading has now written to 35 of Groupon's competitors to get them into line as well.

Here's what you might find at a group-buying website

I took a look at several so-called 'group-buying' websites to see if they offered any genuine bargains. I'll give you a few typical examples of what I found.

A deal from Groupon

Groupon, like many of these websites, advertises a lot of products and services that you can't easily compare, such as a one-and-a-half hour chocolate-making workshop for £29. The non-discounted price is apparently £70, but what's it really worth?

The first advertised product I see that can be easily compared was a ticket to the musical Chicago, playing in London. I see the top-price tickets are selling through Groupon for £29.50.

Looking at several ordinary ticket websites, including discount and last-minute websites, the Groupon price appears to be about £10 cheaper than you can expect to get these tickets anywhere else.

However, after securing the deal from Groupon, you have to choose a ticket for a show within the next seven days. You don't have a guaranteed seat. It isn't clear what happens if you buy the deal and all the top-price seats are sold out for all shows within seven days, or if there are no seats available at all on the days you're able to go.

Groupon certainly makes it look like you can, at least sometimes, expect to get a cheap deal if enough people buy. However, in my search I couldn't see how many had to sign up for the deal to be on.

All the products I looked at said that the deal was on, even if just two customers had signed up for it. In my opinion, this makes it dubious how much the power of collective buying really influences the price you can expect through Groupon.

A deal from Incahoot

I looked at an energy deal with Incahoot, a website that says that it uses "the collective buying power of our members to negotiate exclusive deals and big savings". It offered 7% off npower's standard tariff for a year.

Checking with lovemoney.com's independent, whole-of-market gas and electricity comparison tool, I see that the same deal is available to those using gas and electricity comparison sites.

I also see that other tariffs are cheaper, so Incahoot users might be misled into believing they're getting a better deal.

In addition, Incahoot makes a big thing about the fact that you could get a discount of £100 by paying by direct debit, but it doesn't mention that npower offers this to all its customers who buy online, even through comparison websites.

I couldn't really see how Incahoot works as a genuine collective-buying website, and I'm not convinced it really is one.

A deal from BagThat

I also took a look at BagThat. It isn't explicit and completely clear how, but the website intimates you can expect a better price depending on how many buy the product.

The first product I saw was the latest Apple TV, which lets you run internet media such as YouTube from your home TV. With postage included, you can buy it through BagThat for £105 or bid as low as £86.

However, there is only a “slim chance” of getting it for £95 or less. Compare this with some other retailers and that doesn't look good. After a quick search I found it available to buy immediately on eBay – using the Buy it now! button – for less than £82 including postage.

This indicates that perhaps eBay sellers and Amazon have more real bulk-buying power. No surprise, considering their size.

My overall impression

It turns out that 'group-buying' is a completely inaccurate phrase. These websites are not lovable, philanthropic communities. The main purpose of group-buying websites seems to be to give companies a very effective place to advertise their product or service.

Most of the many websites we classify as group-buying websites – if not all of them – do not obviously seem to negotiate lower prices depending on how many customers sign up to the deal. Some might do, but it's impossible to tell if they genuinely do. It's very easy to manipulate.

Indeed, these websites appear to operate just like voucher and voucher code websites. That is not meant as a compliment, as I wrote in my study of 100 voucher deals: Voucher codes leave you worse off! You should read that article in conjunction with this one, because all the manipulative tricks used by those websites are used by many or most group-buying websites

Of the discounts that genuinely save you money, you still need to beware of the small print to ensure you truly benefit.

Although a large number of dubious practices intended to persuade you to buy might have been banished from Groupon, the other websites have only just received their warning letter from the Office of Fair Trading.

So watch out how you use them. Don't buy anything you don't need and always compare prices elsewhere first.

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