The Appeal of Groupon

Posted by Michelle at 9:11 PM


Oprah loves it, Google wanted to buy it (for 6 billion dollars), and it may be the fastest-growing company ever. Groupon is a two-year old company that offers a different deal-of-the-day to registered users of Groupon.com. The deals that Groupon offers are typically for 50% off at a local retailer; whether or not the deal is offered depends on how many users sign up for it. The interesting part is that Groupon keeps about half of all revenues from sales and by utilizing Groupon, retailers are often giving away their products at a loss. For example, if Groupon offers a $200 credit to a local retailer for only $100, that retailer only gets only $50.

So why would a retailer want to use Groupon? According to this article, there are three reasons: 1)When you get someone inside the door, they're likely to spend more than the Groupon value. 2)People bring their friends. And 3) first time customers are likely to become repeat customers.

Although Groupon's business model isn't particularly innovative, the company is innovating the way retailers reach new customers and markets. Groupon mainly works with small businesses that don't yet have a solid customer base, so reaching new customers is essential to their success--even if it means taking on a bit of a loss.

Given Groupon's massive success and easy-to-copy business model, similar sites have been quick to emerge and are eager to offer consumers even better deals than Groupon. It will be interesting to see how long Groupon can maintain its success and whether or not they can continue to innovate relations between retailers and consumers.

 

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7 comments:

  1. Lacey Carlstrom said... December 6, 2010 at 6:48 PM

    This business model resembles a few of the user-innovation company that only will sell T-Shirts or product if enough people have pre-ordered them. This way Groupon and other companies employing this are certain that they will not operate at a loss.  

  2. Neena Amarnani said... December 6, 2010 at 7:19 PM

    There are definitly improvements that can be made to the Groupon model. Although it is innovative, Groupon doesn't do a good job on focusing on any particular customer. I often get groupon coupons on services or offerings I am not interested in. It would be nice if groupon offered options (ie. sends me only coupons dealing with things I am interested in) to focus more on customer wants. I'm looking forward to seeing if any other competitors enter this market and capitalize on Groupon's flaws.  

  3. Aric Rindfleisch said... December 6, 2010 at 11:03 PM

    I concur with Neena. Groupon seems to have more bark than bite. In fact, there are very few offers for those of us living in Madison. However, I have to give them a lot of credit for the amount of attention they have drawn and wish that I thought of it!  

  4. Bryan Streu said... December 7, 2010 at 10:42 PM

    I, along with several of my friends, have used Groupon and will continue to do so. I agree with Neena, and that it should be more specific towards the offerings it gives for a certain user. In addition, I think as the company grows, it should offer more than one groupon per day.  

  5. Unknown said... December 8, 2010 at 2:25 AM

    I also agree with Neena. I have Groupon app in my iphone but I rarely look at it because they offer great opportunities for people living in big cities (like New york, LA etc..) but other than that not many attractive offers are given for people living in small city.  

  6. dylanml said... December 8, 2010 at 12:27 PM

    It will be interesting to see if Groupon can continue to receive these excellent deals from retailers, especially over the long term. You mentioned that the primary motivation to offer these discounts, is that retailers get new customers in the door. This would seem to imply that over time, a retailer, having already attracted these new customers would stop offering discounts to Groupon. Just something to monitor going forward.  

  7. Unknown said... December 11, 2010 at 9:11 PM

    I agree with all of you that Groupon need to put more focus on smaller cities.
    I also have Groupon app in my iPhone because I thought it would be really cool that I can get coupons from time to time, but no I barely check the app because I found that I can barely receive attractive/useful coupons...
    Hope Groupon will improved in the future and I can go back to check the app from times to time.  

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