How the Groupon Business Model Works
Groupon offers daily deals to users for such things as, gym memberships, salon services, tourist activities or products do not become active discounts until a minimum number of groupons are sold. This “collective buying power,” that Groupon created gives customers products or services as extreme discounts and the business receives brand awareness and a spike in sales.]]>
Does it really work for businesses?In short, yes but the business needs to go into this “collective buying power” with a reasonable goal in mind because it Groupon may bring the overnight success businesses want but it does not necessarily equal long term growth in sales. In December 2009, Joe Whaley, Owner of 5th Avenue Chocolatiere in Manhattan offered a Groupon deal where a minimum of 125 Groupons must be purchased at $15 dollars for a $30 value of homemade, premium chocolates. Joe was wise to hit the Groupon site just before the holidays and the Groupon resulted in 1,229 Groupons sold. The means, $36,870 worth of product sold for only $18,435 and of that, half was split with Groupon. One of the best benefits to businesses using Groupon is they are not required to pay Groupon for their services since Groupon handles all the promotion and purchases by the end user. Therefore, the business simply offers the promotion, the business does not have to touch their cash flow and if the Groupon was a success, which 98% of the deals advertise are, the business receives three payments over three months from Groupon. Very little time or financial investment is necessary on behalf of the business but receiving potentially thousands of dollars over three months can be difficult for merchants. Overall, 5th Avenue Chocolatiere was happy with the success of the Groupon because it brought in new customers but after the intial spike in sales as a result of the Groupon, sales returned to pre-Groupon numbers. “ The only way I would do it again is if we received complete mailing address or emails of people who bought,” Joe said, which Groupon does not provide to merchants now.
Groupon’s Rapid GrowthGroupon originated and remains headquarted in Chicago, IL. They have expanded into more than 90+ cities in the US and 21 countries including, Spain, Turkey, Austria and Belgium.
The key finding is that Groupon is achieving considerable revenue growth across all measures: more customers, higher deal prices, and rapidly expanding markets. via TechCrunchThe success of Groupon has drawn many imitators including, LivingSocial and BuyWithMe but if sites that use the same Groupon business model encourage people to spend money in the interest of saving money, people will always spend.
…even if all these companies grow to be as big as Groupon, they’re not necessarily going to knock elbows. Deals from similar social-coupon sites rarely compete with one another on a daily basis. For example, on Monday, Groupon offered a month of yoga classes for $30 to New Yorkers. LivingSocial advertised a discount on chicken wings: $20 worth for only $10. It’s unlikely that customers would purchase one instead of the other. Some may opt for neither. A few might opt for both. That’s how coupons have always worked. via The Big Money