Groupon. Why?

wimblewomble_2

I don't know if this the appropriate forum, but I am curious about the Groupon business model.

They offer vastly reduced prices for products or services, for participating companies.
But, surely, the company is making a significant loss, especially if it's 70-90% off.
Those kinds of deals are unlikely to attract regular and repeat custom, and probably appeals to those dyed-in-the-wool bargain-hunters. So the reasoning of loss-leading doesn't work.
And without regular offerings, the companies profile isn't raised.

So why do companies sign up to the Groupon model?

mumto2loves

just an example, i bought a hair dresser voucher, new just started up hairdresser. had my hair done and she offered me the same groupon price if i paid and booked before i left, (without going through groupon so she was saving/making their cut) then at the next appointment she offered me 50% off the full price of my next 4 appointments. if i then have all these appointments my 5th will be free.

i've had my hair done there 3 times now and i'm happy with how she does it, and that i'm still getting a 'deal'. she has told me that she made a loss with the original groupon deal, but before that she was paying alot of money every week on advertising and she had no one coming in. some days she would sit all day and have 1 client. but now she is booking 2 - 2 1/2 month in advance full every day.

i'm not sure if that would work for all the deals they have on there but this one makes sense to me.

pitkin2020

Its certainly not something I would use for any business especially not my own. Groupon have a nasty habit of overselling the vouchers which not only reflects badly on them but reflects worse on you to your local area when vouchers are having to be refunded etc.

I'm not saying it doesn't benefit some businesses but you have to plan it very carefully and minimise the losses, then upsell upsell upsell.

Whilst some of those customers may return after the voucher the % is very low in reality. Post 2 is a prime example (no offence mumto2loves) but you are price shopper, you have been enticed into a good deal, which they are continuing at a stupid discount rate. Whilst you may continue to use that hairdresser after most in general will continue to use the discount until another offer crops up and they will switch or atleast try it, if the service is just as good and the full price isn't much different they may not switch back.

pitkin2020

........and here is a prime example why a groupon voucher could do you more harm than good....
http://forums.moneysavingexpert.com/showpost.php?p=45402620&postcount=4

Groupon have more than likely over sold the voucher, like they always seem to do. The retailer will say 100/1000 vouchers and groupon will sell 300/3000 vouchers, which is fine unless they sell 100% of them. The retailer then can't cope because they weren't prepared for an over sale of 300%+ and it has a negative impact on groupon and the retailer.

Groupon will bounce back with another extraordinary deal whilst the retailer with nothing else to pull out of the hat gets 90% of the blame.

Gavin83

Groupon pocket somewhere around 50%-60% of the price as well so the end business gets very little. I think a lot depends on the type of business though. I think the most common deal is for restaurants. I find these days restaurants offer 'groupon' menus which only offer basic meals so you aren't really getting much of a saving at all. Factor in drink and tip and the restaurant is normally doing alright out of it. I've never been back to a restaurant I've used via groupon but its because I've never been that impressed. Something like hairdressers make sense as your likely to have repeat custom and I've seen recent offers for festival/gig tickets which also makes sense as they aren't incurring any extra overheads and therefore may as well sell the tickets even if they get hardly anything for them. Really don't understand the motivation behind hotels/hair removal/laser eye surgery and stuff like that though as the customer won't be returning.

paddyrg

http://www.theregister.co.uk/2011/06/15/daily_deal_sites_waiting_to_hit_rock_bottom/

Not an amazing deal for advertisers, upsell is low, repeat business is low, you have to accept under 25% of your normal fee (50% discount plus 50% of what's left goes to Groupon), it is only really viable for a few types of business, certainly not anyone who rely on selling a product with real-world value.

VfM4meplse

pitkin2020 wrote: »

Groupon have a nasty habit of overselling the vouchers

I always thought it was the business that over-sold slots, knowing that demand would out-strip supply!

pitkin2020 wrote: »

Groupon have more than likely over sold the voucher, like they always seem to do. The retailer will say 100/1000 vouchers and groupon will sell 300/3000 vouchers, which is fine unless they sell 100% of them. The retailer then can't cope because they weren't prepared for an over sale of 300%+ and it has a negative impact on groupon and the retailer.

Excelllent post, caveat emptor!

I had a bad experience with a "5*" afternoon tea - avaiilability at weekends was non-existent. Similar with beauty treatments, these stop being a treat when they become too much of a hassle to book / don't fit in with yoiur diary. I won't use Groupon any more, it can be a real con.

Sooler

Why Groupon Is Poised For Collapse
http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-collapse/
... a view on the daily deal industry by Rocky Agrawal