Lite Weight

This is my short blog.

Why Groupon’s hype vexes me…

I am really struggling to see a viable business model behind this much publicized company.

For membership based business’s I see some value in discounting to attract new customers e.g. a company like Zipcar, can offer 50%-75% off on their annual membership fee because they will make up the business in rentals, as someone buying the coupon is obviously interested in renting cars. I can also see intermittent value for things like Spa’s and random city things that people would not do or consider without the 90% discount e.g. dinner cruise, etc.

BUT for everything else, like restaurants, clothing retailers, supermarkets and all other business types I see no value in offering a 50% - 90% discount to attract new customers, repeatedly.

I have read that local businesses that have used Groupon DO NOT use it again, upwards of 70% of the time. While Groupon won’t release figures it denies this. I see why any business would not see the value of discounting their product repeatedly, because beyond the basic economics it also devalues their product.

A company I know recently used Groupon and were told to expect so much traffic that they were asked to re-configure their website - so Groupon customers did not have to sign-in additionally (which Groupon claims reduces effectiveness of sell thru). In the end this client got 300 customers through Groupon, and had to inconvenience upwards of 1000 new customers who did not come to the site through Groupon because the sign-up process was on hold! I know this client is NEVER going to use Groupon again.

My take: Groupon is ALL smoke, mirrors and hype. And that is why they had no choice but to turn down Google’s $5 billion offer to buy them…

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