What is Groupon's business plan?

#19 Today, 12:48 AM
mhendo
Member Join Date: Aug 2001
Location: California
Posts: 19,644

Quote:
Originally Posted by denquixote
Many critics of Groupon have stated that it cannot survive because merchants cannot make money this way however Groupon recently released numbers (for whatever they are worth) that stated that 48% of local Groupon sales are to repeat business clients.

Wow! Groupon releases numbers showing that Groupon works! In other news, Coke releases statement saying that Coke tastes better than Pepsi.
Quote:
Originally Posted by denquixote
Groupon originaly, ISTM, required a minimum number of persons in the group before the sale price become official. To think that businesses lost money because they had too many customers sounds hard to believe

Right.

They lost a little bit on each customer, but they made it up in volume!

The article that noted these stats on repeat customers was in the WSJ of Jun 18 and the info was attributed to YIPIT. Not knowing who or what YIPIT is I attributed them to Groupon since they must be the bottom line source.

As far as making the losses up on volume, that was exactly my point. If businesses are requiring a minimum number of participants before any Groupon deal is “on” then it just seems to me that reported losses resulting from too many participants must be taken with a grain of salt. All Groupon offers I have seen come with conditions that prevent Groupon users from destroying a business.

Firstly, a heartfelt plea: for the sake of all that is good, learn to use the quote function. Your posts are incredibly confusing. You’ve been here for five years now, and it’s not that hard.

And yet i’ve already linked to three stories where business lost thousands of dollars as a result of a Groupon deal.

Unless you can come up with a more convincing analysis of the business plan, and of why, specifically, businesses can’t lose money by using Groupon, i’m afraid i’ll go with the actual evidence over your “grain of salt” and “hard to believe” speculation on the matter.

That’s kind of not untrue. The deals get canceled unless a minimum number of people sign up. Groupon was using that as a way to get its customers to get their friends to sign up for the deal and for groupon itself. And in the very early days of Groupon, occasionally, not enough people would sign up for a deal.
But now that everyone and their dog is on Groupon, every deal hits the minimum number shortly after the deal is offered.

But why should the end user care? I would be wary of investing in an IPO, but business makes risky and foolish decision that ultimately backfires is old news.
How did those free pretzels work out for Marge Simpson?

Sorry but some seem to be saying groupon is bad or something.

If by “end user,” you mean the individuals who use Groupon to get deals, there is no reason why they should care. If they receive the deal that they expected, then it’s of no real interest to them whether their participation makes money or loses money for the business concerned.

Maybe you’d be good enough to show me where i said that end users should care about Groupon’s business model? This thread was started specifically about the business model itself, and i have merely offered evidence about that model, both from Groupon’s and the participating business’ perspective.

Again, i never suggested otherwise. In fact, by offering three examples of businesses that lost money with their Groupon deals, i was simply pointing out that some businesses use the service without adequately thinking through the possible consequences.

Who is saying that? No-one in this thread. As far as i can tell, you are responding to an argument that no-one had made. The notion that “Groupon is bad or something” is just a straw man that you’re setting up so you can knock it down again.

In case you failed to read my post, or in case you read it and failed to grasp my argument, let me summarize for you my main points about Groupon:
[ol]
[li] Some businesses, largely due to their own miscalculations, have lost significant amounts of money using Groupon.[/li]
[li] Businesses that use Groupon need to take into consideration what type of goods or services they are offering, as well as the likelihood that their Groupon participation will net them extra business in the short or long term.[/li]
[li] Some businesses might be happy to take a short-term loss on their Groupon deal if it means gaining long-term clients or expanding their market.[/li]
[li] Many businesses, and especially service businesses, are likely to find Groupon most useful in a down economy, when business is slow and the marginal cost of providing the service is low compared to fix costs like rent, wages, etc, giving the business incentive to fill the empty seats for a reduced price.[/li]
[li] Because of #4, Groupon might begin to struggle in a good economy, as service businesses no longer need its help to fill empty spaces. This was the argument of the Wharton School professor.[/li]
[li] Some Groupon businesses, and some customers of those businesses, will try to game the system, demonstrating that people can be assholes.[/li][/ol]
There is nothing in all of that about Groupon being “bad or something.”

I was also addressing the claims made by denquixote, who believes finds it “hard to believe” that businesses can lose money by using Groupon. I have given three examples where this happened, and those only made the news because the amounts involved were so large. I’m willing to bet that literally hundreds or thousands of other businesses have lost money (maybe just small amounts of money) on the service, and i’m equally sure that hundreds or thousands of businesses have done well using Groupon.

None of this is a value judgment about Groupon. I do not consider Groupon either good or bad. I am simply trying to understand it based on evidence, rather than on mere feeling or supposition.

Uh wow I wasn’t trying to debate, …there have been numerous articles and posts, google groupon+bad and just skim. Most are about small businesses going under, some mention users are dissatisfied or no more satisfied than someone who did not partake in Groupon’s wares. It is strange to read so much bad press for a company that provides voluntary advertising.

Anyway I am sorry.

There’s nothing to apologize for, but you have to realize that people here are going to respond to what you say, and will do so within the context of the ongoing discussion.

I’m sure you’re right that a Google search for groupon+bad will give a lot of hits. But that doesn’t mean that Groupon is bad in any sort of larger, moral sense. Groupon might well be bad for some businesses, and good for others. If a business loses money on Groupon, the business owner might write on the internet that Groupon was bad for her business, but that’s simply a statement about whether or not Groupon made money for that particular business. Some other business owner might write the Groupon was great for her business.

I also don’t quite get your comment that you find it “strange to read so much bad press for a company that provides voluntary advertising.” Bank of America provides voluntary banking, but it also gets plenty of bad press. Netflix provides a voluntary subscription, but still attracts its share of complaints. AT&T provides voluntary phone service and plenty of people still gripe about its costs and its customer service.

Every company in existence has people who complain, and just because the service is voluntary doesn’t, and shouldn’t, make the company immune to criticism, especially if the company in question does not always live up to its promises.

Also, rather than just Google groupon+bad and “skim” the results, why don’t you look at what some of the articles actually say about Groupon? For example, this Forbes magazine article, which gives quite a few details about some of the problems that businesses can face when using Groupon. It also notes that, whether a deal is good or bad for the business, and whether it is good or bad for the customer, it is always good for Groupon because they get their cut no matter what.

As i said, none of this is a moral evaluation of the company; it is merely an analysis of who benefits and who does not when businesses use Groupon.

I think Groupon is good for businesses that can scale up significantly i.e. businesses that are small now but are looking to get bigger. The problem is many restaurants (which seem to have lost money) have limited seating and can’t scale up to compensate for the discount per unit customer. If these customers tend to come back and become repeat customers, then it’s worth it I say.

To follow up it is clear that Groupon does not have a successful business model:

A dozen years ago, Groupon shot to fame popularizing the online group buying format, confidently rejecting a $6 billion acquisition offer from Google and instead going public with a $17.8 billion market cap. The company today says it has 14 million active users, but almost consistently for the last decade, its financial position has been in a slow decline — with stagnation in its core business model, little success in efforts to diversify, declining revenues and ongoing losses.

And today comes the latest chapter in that story. The Chicago-based company, which today has a market cap of just $103 million…