Groupon is ace if you want to get your teeth whitened, or a force a trained hairdresser to cut your hair for £3.
There are some everybody wins deals on these sites but most of them are either too cheap to make anybody any money or just crap that doesn't sell normally. I'm sure this model can be made to work but as you say, greed usually takes over.
I'm pretty certain that anyone operating in the industry will tell you they're doing fine, great revenue, tons of offers, vast number of merchants etc. Ask them about profit and watch for either silence or a change of subject.Originally Posted by John Jupp
Azam.net (09-02-12)
Not surprising to find 1999 style companies appearing, now that there are lots of different known models for making money online. (I didn't say profits btw - just revenue).
Given that these companies are formed purely to make money, involve no vocation and original shareholders probably got shares at 0.00001p... a bit of hype and a floatation with a share price of 100p or whatever... a whopping loss isn't really a headache except for the mugs that bought in at floatation or later.
Plus their market is a fickle group of savers who by the nature of their motivation are unlikely to stick with a known brand, if another comes along with a better offer.
If I established a VC or cashback site, I'd sell out when it was doing well when some other investor thought they could multiply the revenue. Then I'd go and do something interesting with the money that wasn't just trying to make more money.
I presume some of the early affiliates who never had it so good, got out and are now enjoying something that really interests them.
scriptmonkey (09-02-12)
You could certainly lose your investors money with a much simpler business model, but, maybe it's the model that attracts the investor?
Groupon spend massively on online advertising to build their database up and establish themselves firmly as the number one daily deals site. They should be able to reduce costs over the coming years and rake it in.
I've always thought this to be an unsustainable business model, given that no business can afford to give 70% of their turnover away on a regular basis.
No doubt its an instant cashflow tool but the longevity has got to be does it build incremental business. My guess is that it doesn't because the type of customer that uses these offers will no doubt look for the next great deal.
Eventually businesses realise they took a hit and got nothing/little out of it, so decline further participation. The USA is far bigger than the UK so maybe it'll take longer to burn out, or maybe it won't because businesses won't need to participate on such a regular basis to make it profitable for Groupon, and will be willing to accept a hit once every 12 months or so.
Groupon are expanding before consolidating - but the business they get has not really shown any signs of slowdown. This leads me to believe once growth stabilises they will be able to consolidate revenue for market size and position. Also worth remembering though you're correct in assuming bargain hunters don't look for repeat purchases, think about businesses that sell secondary products; e.g. a pen maker can discount his pens and sell at cost price almost, knowing that the refills will be bought through him. Groupon is excellent for reeling in customers if you have a model that is designed to retain them.
That may be the case if you're a pen maker with a unique product, but how many pen makers are there and how many pen retailers? People buying commodity items over the internet seldom show brand loyalty, even with the more established high street retailers.
In my previous life we white labelled a white goods service for lots of the major high-street retailers. Marks & Spencer, House of Fraser, Debenhams, Next, B&Q, MFI, Focus DIY, Boots and Sainsbury's. At the end of the day a Beko1234 is a Beko1234 and so the winning retailer was always the one with the lowest pricing - even £5 off a £250 washing machine could swing the decision.
Which brand came out on top? Well our own little known in-house brand of course, that undercut all other retailers and made more sales than all of them put togther.
Ofcourse I agree the majority of businesses do not look out for return customers, and the chances of customers showing brand loyalty are low - But there certainly are companies out there who make money from customers acquired by Groupon after the transaction has taken place. I've seen restaurants who don't include drinks in a deal, holiday packages where every little thing extra is bolted on outside of the deal etc, so the onus is on the business when deciding what offers to run.
The company for which we deal with Groupon do fantastically from it in the long run, and many customers who use our products go on to become repeat purchasers.
Yes there's no loyalty even on the high street - brands set prices and based on price/need/quality you make a purchase, but even if you see a TV discounted in January sales you don't refuse to buy a Laptop off them in July simply because they ran an offer a few months ago?
I do think the lack of loyalty will affect Groupon, but honestly speaking Groupon is great for exposure - you carefully plan a price and offer, set your capacity, get some cash in and show hundreds of customers you offer good service. Don't expect customers to buy the exact same thing for the full price but customers are clearly interested in the product area, and when something similar, newer, better is released - thousands of them will hopefully know you can be trusted when they are looking for a place to buy it.
Also excellent for shifting stock!
I think this contributes to the lower than expected revenues. Businesses can use Groupon effectively but they have to be clever with it. As Groupon take such a huge chunk of the revenue they are starting to keep the selling price low and hit the customer with extras.
1) Hotel stay with free meal and wine - £90 (£45 each for Groupon and Hotel)
2) Hotel stay £40 - (£20 for each) - Hotel then offers deal of £50 for meal and wine.
Customer still pays £90 but now the revenue split heavily favours the business. This is probably how it should be but Groupon end up struggling. They need to find a happy medium to keep this profitable for both parties.
So effectively what you are saying is that Group Buying sites are excellent for the clued in Marketing Manager in that they can tailor a specific numbers limited offer at the right margin and factor this into their marketing plans hoping to attract the consumer interested in the sector, or price an offer with the right margin breakdown so that they still come in quids ahead.
All good for the savvy Marketing Manager but where the Group Buying sites get the negative PR is too many listings for the hairstylist and restauranteur that isn't so market savvy. Perhaps in their zeal to list offers there should be a uniform Code of Practice for Group Buying sites. Then with a bit of sense, small traders don't get hurt in the process, customers don't have to wait a gazillion years to redeem the offer and Groupon (and others) start to demonstrate real value.
Yeah, well summed up. There is only so much margin to go round (whether this be of the original purchase or the calculated future value of the customer - if any) and I think a lot of businesses have forgotten this in the rush to exploit the group buying sites.
As soon as they realise they cannot sustain the original offers they either stop using these sites or get more intelligent. Either way Groupon don't see as much revenue. So forecasts based on past figures could be way off.
The model then becomes dependent on continued recruitment of new customers. I would imagine this is a huge part of their costs and the amount of new business has to level off at some point.
Totally agree with John. Of course there will be businesses backed with savvy people who can structure a deal accordingly to make Groupon work for them. However those businesses will be few and far between.
Furthermore with the discounts that Groupon demand many retailers will not break even until their 2nd or 3rd repeat visit / repeat sale. And with positive cashflow being a priority of many small businesses this could be considered quite a risk.
Coupled with the belief or knowledge that, once the discount has been redeemed, there's not much reason for the customer to be loyal enough to make that 2nd or 3rd visit/sale if there are similar deals available on Groupon or any of the other group buying sites.
The trouble with the rat race is that even if you win you're still a rat.
Time passes. Listen. Time passes. Dylan Thomas
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Have you tried using Groupon? I think its a terrible customer experience. You cant search by what you want, only by area. How (for example) could you book a weekend away if you dont know where you want to go?
Compare it to lastminute.com and the whole site needs a massive overhaul, from the signup onwards. IMHO of course
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