Groupon’s Daily Discount Drivers

Discussion
Apr 05, 2010

By Tom Ryan

Groupon.com is a growing daily-deal website built around “collective buying
power.” The twist versus other coupon websites is that a certain number
of people need to sign up for the steep discount or nobody gets it, encouraging
consumers to share with friends.

In practice, Groupon emails “deals” — typically 50 percent
off local restaurants, retailers, spas, etc. — to its members every day.
Consumers get a short time to agree to purchase the coupon online. If enough
members sign up for the deal, the consumer is charged and receives an e-mail
with a link to view and print a coupon, called a ‘groupon.’ Groupon keeps
half the revenue that consumers pay online, leaving the restaurant with about
25 percent.

For businesses, the word-of-mouth nature of groupon.com helps quickly reach
new consumers who can be turned into repeat customers.

Groupon.com

“When you see the deal, in order to get it you have to share it with your
friends on Facebook, your friends on Twitter, forward it to people via email,” Andrew
Mason, Groupon, founder & CEO, tells todayshfv.com. “It gives
the merchant what they want, which is a huge number of new customers, and
of course the customer gets what they want, which is a really great price
on something cool to do.”

Still, Groupon admits that the initial groupon doesn’t yield much. For
instance, restaurants in Minneapolis offered a $50 dinner for $25. After Groupon’s
cut, each restaurant received $12.50 per $50 meal.

“You may barely break even on Groupon customers the first time,” David
Rangel, Groupon’s director of merchant services, told the Minneapolis Star
Tribune.
“But if you bring them back once or twice, you’ll get
a terrific return.”

One critic was Lenny Russo, chef and co-owner of Heartland Restaurant in St.
Paul, who believes such deals only bring in short-term revenue and pushes down
pricing.

“They know the restaurant industry is on the ropes, and they are offering
people a quick fix,” said Mr. Russo. “They are preying on people’s
fears.”

Groupon currently operates in 40 cities and expects to be in 100 cities nationwide
by year-end. Competitors include restaurant.com ,
deals.livingsocial.com,
dealstork.com and
crowdcut.com.

Discussion
Questions: What do you think of groupon.com and other daily-deal traffic-driving
websites? What are the pros and cons of retailers using such websites?

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12 Comments on "Groupon’s Daily Discount Drivers"


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David Biernbaum
Guest
11 years 1 month ago

Groupon might have success, however my concern would be that consumers will get tired of receiving the mail day after day for items that are not particularly relevant on. For example, receiving a certain restaurant or entertainment discount on Wednesday, for Wednesday night, might all too often lead to an opt-out after a while.

Ian Percy
Guest
11 years 1 month ago

I get these Groupons, though haven’t acted on one yet. THe biggest issue for me is that a) the deal is usually minimal and b) I’ve got to drive for 40 minutes each way to save $20 at a restaurant I haven’t heard of. Their definition of ‘local’ needs to tighten up.

Recently, I came across another offering based on the same idea called Doozy Of A Deal (www.doozyofadeal.com) where a significant portion of the money goes to local charities, schools, etc. I’m not sure but I think you can even pick the charity. The discounts seem to be on a par with Groupon. Again, that “goodness” factor comes into play.

Ben Sprecher
Guest
Ben Sprecher
11 years 1 month ago
There’s a major challenge presented by this model for a marketer – they have no control over *who* can receive the offer. Groupon seems to be making the “customer lifetime value” (CLV) argument for why a retailer (say, a restaurant) would want to take such a deep discount. CLV is a very valid way to think about marketing costs, *provided* that the consumer is genuinely an incremental customer. But what about the person who is already a customer, and who jumps on the day’s Groupon offer because it’s an easy way to save big on a purchase they were planning to make anyway? In that case, you are simultaneously cutting into the retailer’s margin on the transaction (they gave an example of a restaurant getting $12.50 for a $50 gift certificate) and undercutting the consumer’s expectation of price for future transactions. I don’t see an easy way around this for Groupon. Short of tying into each merchant’s loyalty data and allowing targeting of offers to subsets of the Groupon community, there’s no good way to… Read more »
Doug Fleener
Guest
11 years 1 month ago

I’m a Groupon user and just this weekend experienced the win-win it can create.

Both of my daughters are softball players and we were going to take them to the batting cage to get ready for the season. Groupon had a special last week for a batting cage we’ve never been to. I bought a few coupons and went there on Saturday. The staff was great and as a result they will now become our regular batting cage. I got a deal and they got a new customer. Now that’s a win-win.

I think it makes sense for companies to do these programs as long as they don’t get hooked on the easy high-volume, low-margin dollars.

I know I will continue to use Groupon, Woot.com, and Buy With Me to look for great deals and at the same time find new people to do business with.

David Dorf
Guest
11 years 1 month ago

Reading Philip Greenspun’s blog post, as Ben suggested, certainly gave me some perspective. How do I invest in Groupon?

Clearly Groupon is a powerful marketing tool, but it has to be part of a larger campaign to ensure prospects are being converted into regular customers.

Martin Balogh
Guest
Martin Balogh
11 years 1 month ago

I have been using Groupon for about 6 months and have been very impressed. There is a bit of misinformation in the first comment. The Groupon is not good just that day, but generally is valid for about 6 months or up to a year. I have found their customer service to be first rate. I had purchased multiple coupons for a restaurant that closed for indefinite remodeling and when I contacted Groupon they refunded my money quickly. I would agree with the comment, that at least in the Chicago market, it seems aimed primarily at city residents, with very few suburban offerings. Not sure how it works in a less dense market, say LA. My guess is a more localized version of Groupon is in the works.

Doug Stephens
Guest
Doug Stephens
11 years 1 month ago

Groupon, and services like it, could be the harbinger of collective buying on a wider scale. The internet has availed the ability for consumers to organize in an unprecedented fashion.

It’s completely foreseeable for example that 100 consumers who all want a particular model of car could band together and negotiate fleet pricing from a manufacturer.

In other words, what we could see to an extent is the eventual dis-intermediation of retail.

Cathy Hotka
Guest
11 years 1 month ago

Please — configure coupons to be LESS work!

Doron Levy
Guest
Doron Levy
11 years 1 month ago

While this does look like a great idea, no deals yet for Toronto so I can’t gauge how good the deal is. They say ‘ridiculously huge’ so I’m looking forward to see what the offer is. Just looking at San Diego’s recent deals and I think I was expecting something different. I’m not sure how well this would work in Toronto. Most of us work Monday to Friday 9-5.

Bill Hanifin
Guest
11 years 1 month ago

Crowdsourcing to build traffic for local restaurants is a great idea, but I wonder if restaurant owners could make better use of their marketing spend.

If the example in the article holds, then the effective discount is 75% on the first pass. Typical restaurant coupons in local papers offer 10% off the entire tab, sometimes with restrictions. Imagine if a 20-25% coupon were available? There might be enough “group frenzy” in a local market to drive traffic to that same eatery at lower discount.

Consumers may become weary of too many digital hoops to jump through to save money and sometimes, simpler is better.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 1 month ago

No groupon.com deals for Sacramento, yet, and living in a nearby ‘burb will not make Sacto-based restaurant and leisure activity offers attractive to me anyhow. Like me, I’m sure that many, many other consumers will be looking for groupon’s WIIFM (What’s In It For Me?) and find it insufficient. As others have mentioned, a restaurant could spend their promotional dollars better by publishing high-value coupons in areas close to their locations. Groupon.com may have an advantage in controlling the number of discounts issued to each participant, but there are other ways for restaurants to control use of locally-published coupons.

However, I love the group coupon concept. Not for brick & mortar service bidnesses, necessarily, but for internet offerings. Similar to online affiliate and tell-a-friend programs, prospecting for group internet purchases – especially at the discounts referenced – could help liquidate excess inventory, quick-sell holiday merchandise, and expose new customers to retail websites they’d never visited before.

Michael Tesler
Guest
Michael Tesler
11 years 1 month ago

From a retailer’s perspective, I have to ask, “Why not?” Yes, it’s important to recognize that the boost in traffic may not be clearly reflected in margins, but that is the nature of many promotional discounts.

Bargain-seeking existing customers may take advantage of a Groupon, perhaps to the dismay of a shop owner focused only on generating new business, but the fact of the matter is you’re still getting the business. As long as you’re attracting new customers as well, the Groupon is still doing its job. Once customers are in the door, the battle is over: a well-run store will sell itself and get repeat customers.

Paying for discounts that can be tied to actual results is a far better alternative to spending money on radio, TV, and newspaper ads where you are primarily paying for misses. Using Groupon, you are only paying for hits. Now if this approach could be applied to our Red Sox, we would really have something.

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