The dangers of group-buying websites

Group-buying websites can help you make huge savings. However, some of the deals on them have been found to be misleading and to offer poor value for money. So are they really worth using?

The Advertising Standards Authority (ASA) has banned almost 60 adverts from discount websites in the last six months alone. Many of the cases revolved around group-buying websites like Groupon, with adverts for deals being branded misleading and confusing.

So, what exactly are group-buying websites, how do they work, and what are the pitfalls to avoid?

How these sites work

There are now several group-buying websites operating in the UK. Groupon, LivingSocial, Groupola and KGBDeals are some of the most established.

In the early days, sites like these emphasised the ‘people power’ angle and the benefits of co-operative buying. In fact, the majority of group-buying websites could more accurately be described as daily deals sites.

Each site links up with retailers and other service providers to offer special deals every day. Site users are then encouraged to sign up for each offer.

Some websites - like Groupon - require a minimum number of users to sign up for a deal for it to be valid (known as the ‘tipping point’).

At this stage, everyone who’s signed up gets the deal, and the money is taken from their cards. If the crucial number of sign-ups isn’t reached, the deal is withdrawn and no one is charged.

A few group-buying sites will offer deals no matter how many users sign up for them. These sites tend to offer other incentives. For example, a site might give you the deal for free if you get three other people to sign up for it.

Advantages

Group-buying sites certainly do offer some genuinely large discounts - often 50% or more off the RRP of an item or service.

In addition, they give small, local businesses another way to promote themselves, and advertise their goods and services to a mass online audience.

Pitfalls to avoid

However, there are several traps and loopholes to avoid if you want to make group-buying sites work for you. Here are five important questions you should ask:

1. Do I need it and can I afford it?

Many group-buying sites only (or mainly) offer ‘luxury’ items and services, rather than essentials.

For example, deals I found on Groupon included facial injection treatments, gastric band hypnotherapy sessions and tickets to a four hour, VIP boat party.

Before you reach for your wallet, think about whether you can genuinely afford to treat yourself, and actually want the deal on offer. Getting 80% off something you don’t really want or need isn’t a bargain!

2. What is the total cost?

One of the things the ASA highlighted was the misleading nature of the pricing on certain deals.

For example, as reported in the Telegraph, an email for a ‘deal of the day’ Invisalign teeth bracing voucher stated that members would pay only £98 for £1,650 of treatment - claiming a 94% discount.

In fact, those signing up would have to pay the remaining balance afterwards; but this was only explained in the small print.

So, if you don’t want a nasty financial surprise, go through all terms and conditions with a fine-tooth comb.

3. Can it be found cheaper elsewhere?

Don’t assume the deal or discount offered is the best out there. Sometimes you’ll get better value directly from the retailer, or from restaurant deal sites like Tastecard or Toptable.

That’s why it’s crucial you do your own independent research and price comparison.

And be wary of big discounts on obscure services or items. For example, are you sure how much gastric band hypnotherapy sessions are actually worth?

4. What are the limitations?

Keep an eye out for time or date limitations that might make it hard for you to use a voucher.

Check that you can redeem the offer at a location convenient to you. Most vouchers also expire within four months or less, so make sure you use yours before it does.

5. What if the provider goes bust?

Finally, it’s worth being aware of your consumer rights in relation to group-buying sites.

Because you’re purchasing goods or services online, you’ll be covered by distance selling regulations. In a nutshell, these mean that within a ‘cooling-off period’ (usually lasting seven days) you can cancel your order and get a refund if you change your mind.

However, if a deal provider goes bust, your voucher is likely to become worthless - and in reality you may find it hard to get your money back.

In normal circumstances, paying for an item or service by credit card gives you extra consumer protection: Section 75 of the Consumer Credit Act states that you can claim against your card provider, as well as the retailer, if anything goes wrong.

However, most group-buying websites are defined as third party agents. This means that the supplier is solely responsible for the quality of the product.

According to Which?, this kind of transaction is a developing area of consumer law. And as such, Section 75 protection may not fully apply.

So, it seems to come down to common sense: If (worst case scenario) you can’t afford to lose the money spent, a group-buying website isn’t the best place to spend it.

Good luck!

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