The Groupon Effect

Posted on December 12, 2010 by Greg 3 Comments

Getting selected as a Deal of the Day on Groupon is like winning the lottery. But drinking from the firehouse can also be challenging. I suppose it’s kind of like being featured as one of Oprah’s Favorite Things (BTW… Oprah has featured Groupon as one of her Favorite Things). Once you’ve been mentioned you better be ready!

How to get featured on Groupon

  1. Apply to get your deal featured on Groupon – If you’re lucky enough to be selected this is the most powerful effect. Your deal has to be selected and approved and includes a premium write-up from Groupon. Groupon keeps 50% of each Groupon sold as a featured Groupon.
  2. Open a Groupon Store – You can feature your own deals on your Groupon merchant profile page and pay to have Groupon promote it for you. Groupon take a 30% cut on each promoted deal, and only  a 10% cut on non-promoted deals.

Groupon merchants get a deal stats dashboard that reveals shopper demographic information, including a map mashup showing where their Groupon purchases are originating. This new feature, merchants say, is addictive. Much like feverishly checking one’s email, a merchant can become obsessed with checking in on the deal stats dashboard.

My Mini Interview

Last Friday night I went to dinner at a restaurant that had featured a deep discount coupon on the Internet, much like Groupon, but on Travelzoo’s new Local Deals program. I asked the server what it was like to work in the restaurant the Friday night after a Groupon or Travelzoo Local Deal had been featured. She confirmed what I suspected:

  • The cooks get bent out of shape because they’re typically paid hourly. So if you’re a cook, Groupon means working your tail off for no additional income.
  • The server I interviewed said that most people are generous and realize they should tip based on what the total bill would have been without the coupon. That, coupled with the surge in restaurant guests usually bodes well.
  • The restaurant owner needs to calculate the cost/benefit of the coupon. Is it a good investment of time and energy? Does it really result in additional loyal customers?

Here’s a Groupon video interview with a delicatessen owner who talks about his Groupon gold rush and how to prepare for the new surge of customers:

A little More about Groupon

Groupon is the brainchild of Andrew Mason, Groupon founder and CEO. An outgrowth of Mason’s other company, The Point, Groupon has grown rapidly in the wake of publicity. Recently, Groupon refused an estimated $6 billion buy-out offer from Google. With low barriers to entry, the social buying niche is growing exponentially. Heavyweight Internet companies like Travel Zoo and Amazon will likely provide stiff competition. Other U.S. social coupon competitors are  BuyWithMe, LivingSocial, SocialBuy, Tippr. While these market entrants will provide additional credibility to social coupons it may also dilute the value of Groupon. Also, there’s an elephant sitting in the room: Asia.

Maybe Mason should have sold while the selling was good?

  • Sources estimate Groupon’s annual revenue at close to $1 billion
  • Chicago-based
  • Roughly 300 employees
  • 35 million Groupon subscribers
  • 18 million groupons sold in North America
Hire great people and give them the freedom to be awesome. -Andrew Mason

Groupon Is A Wannabe In Asia

Groupon is busy trying to acquire sites in Asia. In order to compete in the global market, it’s going to be crucial for Groupon to assimilate enough of the existing competitor sites to be considered a viable player.

The business challenge of needing to grow internationally isn’t unique to Groupon, however. In fact, McKinsey forecasts that if China follows the historical experience of other countries, its saving rate will decline over time as the country grows richer, as happened in Japan, South Korea, Taiwan, and other economies. Therefore, a strong presence in these countries will become increasingly important for truly global corporations.

Asia only accounts for 2.3% of Groupon’s global traffic now, but that’s likely to grow fast since Groupon last month snapped up daily deal sites in three Asian capitals with small but sophisticated populations: Singapore, Hong Kong and Taiwan. Singapore’s Beeconomic, Hong Kong’s uBuyiBuy and Taiwan’s Atlaspost will change their URLs to Groupon addresses in early 2011. (The Beeconomic deal will also take Groupon into the Philippines, where there has been little activity in the daily deal space). -AdAge

Conclusion

If you’re thinking about using Groupon do the numbers first. Consider whether you’re likely to realize a positive ROI. If you’ve got the type of business that becomes more profitable with full occupancy or usage then Groupon is for you.  Examples would be booze cruises, movie theaters, concert venues, most events.

Check out this related blog post from Ries’ Pieces entitled, Coupons, Groupon and Cocaine. She makes that argument that coupons are bad for your brand.

3 comments

  • [...] Related blog post: The Groupon Effect[/note Share ThisTweet [...]

  • Excellent article. I’ve been talking with others recently about how businesses should be able to share less half the coupon revenue (I’ve found 30% with one company) and even offer less than 50% off so that a wider variety of businesses can do this profitably. I would prefer more options and deals closer to my house than gargantuan discounts on things I don’t use or do. And I prefer that businesses I enjoy be able to STAY in business. The whole calculation thing ahead of time is critical, and it seems like a lot of businesses don’t understand how to do that.

    Thanks again for the article.

  • [...] online coupon or “daily deals” market space. I’ve written about the so-called Groupon Effect, and why I think businesses need to carefully consider their approach to online coupons. [...]

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