Jonathan Marek

Groupon's First National Deal Blows Out

August 23, 2010

FROM RETAILWIRE:
Groupon Inc.'s first nationwide deal -- an offer from the Gap for $50 worth of merchandise at $25 -- sold 445,000 vouchers for the retailer last Thursday, bringing in $11 million in revenue. What do you think of the potential for national deals from daily-deal websites such as Groupon?      [more...]

Gap and Groupon had better be prepared to understand how much of this traffic is truly incremental. The economics of this deal are complex:
- some portion of customers will be incremental, others would have come in anyway
- of those that are incremental, some will come back again (incrementally) and others won't, or won't without another deal (deal seekers)
- for some customers, who would have come in otherwise, you gave them $25 they would have spent otherwise (or, if they would have spent ~$25 not $50, you gave them an additional $25 in goods)
- the breakage on unredeemed coupons is pure profit

If Gap is just trying out Groupon, as I suspect they are, it's not a big deal. But if this is to become a real marketing tactic, they had better understand the true economics.