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Groupon Business Model – Is it a Win-Win Deals?

Groupon, a named derived from “group-coupon,” is a fast dealing website that contains discounted gift certificates that can be redeemed at local or national businesses.  They offer massive discounts, typically 50-90% off, with well-known companies.  The premise of the Groupon philosophy is to “send tons of deals to subscribers in the free emails they send every day, sending plenty of new customers to businesses.”

Inaugurated in November 2008 in the city of Chicago, USA, Groupon afterwards expanded to other cities such as New York and Boston. By October 2010, theywere servicing over 150 markets in North America and 100 markets across Europe, South America, and Asia.

Groupon offers one  deal each day in each of the markets it facilitates. It then utilizes itself as a “guarantee contract” using The Point’s idea, which means that if a particular number of individuals sign up for an offer, the deal will then become accessible to all. If the prearranged minimum is not fulfilled, no one will receive the deal that day. In this way, the risk is decreased for retailers who then treat the discount coupons as quantity sales promotion opportunities.

Groupon receives their profit by roughly taking half of the money paid by the customer for the coupon.  For instance, a $60.00 dinner can be purchased by the customer for $50.00; Groupon and the merchant will divide the $50.00. This means that the restaurant, in this case, would offer a $60.00 meal, but will receive only $25.00 for it.

Particular businesses are on Groupon’s non-collaboration list. These include abortion clinics, strip clubs, and shooting ranges. Unlike classified advertising, the business pays no fees upfront. The company assembles personal information from obliging customers and then recruits customers by email, who may be curious about a certain product or service. Due to their market share that consists mostly of women, deals are frequently concentrated on the beauty, health, and fitness sector.

Although this sounds like a winning marketing formula there are latent difficulties with the Groupondiscount codebusiness model. For example, at times a deal has been very successful leaving a small business with an overabundance of customers. Some may see nothing wrong with this scenario, however, a small business could jeopardize their business by customers not being satisfied, or they may not be able to meet customer demands. Many companies thought that they would appeal to new customers by offering a bargain, along with the hopes that these same customers would return. Unfortunately, this is not always the case and the customer is solely attracted to the deal and not the business. Therefore, many consumers never return as regular paying customers.

Groupon has recently started a mobile application accessible by Android, Wap, iPhone, Windows Phone 7, and Blackberry. It permits consumers to purchase deals on their phones and collect them utilizing the screen as a valued coupon.

Groupon has expanded internationally as well. In February 2011, the Russian subsidiary publicized that it would be united with the Russian company Mail.ru. This conglomeration would permit them to propose deals on their social network called Odnoklassniki. Through this method, individuals would be able to purchase and split deals from Groupon through their profiles.

Author Bio:- Eric Filter is a freelance writer promoting savvy online shopping through use of price comparison, money off coupons, voucher codes and local Groupon discount code for UK deals.

{ 1 comment… add one }
  • Megan R

    February 11, 2012, 3:50 am

    I’m continually dismayed by Groupon as a consumer and horrified as a business person. As a consumer I used to find Groupon exciting and would view the deal everyday to see if the vying consumers were going to make their deal regardless of if I was interested or not. Then the whole process started to wear on me. I realized that the deals I would be interested in had unreasonable expiration dates or terms and exclusive to new customers only. As a business person who was interested in the Groupon advertising model I was bothered to learn that there was no real customization for individual businesses. Groupon has a cookie cutter set of deals that are available and anything outside that cookie box is not accepted, or more aptly you are warned that they can put you down but it would be years (if ever) before they would contact you. Also admitted was that in certain fields, they already had vendors that have had a lot of success that they would rotate through the position and they were not looking for any additional vendors. I understand their process and how they have to generate the deals in a timely and fashionable manner, but the philosophy doesn’t seem to mesh well for me as a consumer or as a business person.

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