

Lessons from the Groupon Disaster - frankphilips
http://pandodaily.com/2012/11/29/lessons-from-the-groupon-disaster-maybe-international-can-wait/

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ALee
The easiest way to figure out one's international expansion strategy is to
look at GDP or GDP per capita over the accessible market for your product.
Many startups in the attempt to hoodwink growth find that it's AMAZING to get
growth in developing countries. They fail to recognize that their predecessors
or competitors are not catering to those groups because it just doesn't make
economic sense.

I, for one, am a bigger believer in the small dedicated cohort of people
strategy, e.g. Facebook, etc.

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xanadohnt
tl;dr - focusing globally at the outset, instead of nailing it locally first,
Groupon has set themselves up for failure.

The article is a disappointment in that very little is actually said about
Groupon. I was hoping for the nitty gritty details of their dirty scammy
business.

~~~
deveac
_> I was hoping for the nitty gritty details of their dirty scammy business._

For me, it never seemed like you had too look past their basic business model
to find dirty and scammy practices.

Their customers are small businesses, and the site's _users_ are offered
massive discounts, of which Groupon gets a large cut.

Small businesses do not want to be in a position where they are offering steep
discounts in the first place _without_ Groupon. Every day their incentive is
to run their business to minimize excess inventory and price merchandise
properly out of the gate, as well as stock the _correct_ merchandise, -all so
that they can limit merchandise going on sale, and if it does, limit the
discount at which it does, in order to retain the highest possible margin.
While you can illustrate exceptions, this is _generally_ true.

So that being the case, Groupon comes along and tells the merchant essentially
that they want half of the margin on products that the merchant is trying hard
not to put on sale, and not to discount steeply when they do, and oh by the
way, they want the merchant to _massively_ discount that merch before they
take their half.

It isn't hard to see why that model creates _structural_ incentives to produce
scammy behavior like inflating prices specifically for a Groupon so that the
discount isn't really a discount (or if it is, much less than advertised).
That's just for the consumer. The structure also gives incentive to Groupon
sales people to engage in scammy behavior, pressuring small businesses to sign
up for a service where the value proposition is often very small, non-
existent, or worse, negative.

Groupons can be effective for small businesses, but when your model is selling
users _massive_ discounts by slashing margins, and then taking a _massive_
chunk out of that slashed margin...well...it certainly set my radar off at the
beginning when I first heard about them.

~~~
xanadohnt
Oh, I totally agree: <http://news.ycombinator.com/item?id=4236351>

But I wanted to read about it more in-depth and gain an understanding beyond
my and your speculation. For whatever reason, I have a macabre pet interest in
Groupon.

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jrabone
Perhaps if US companies didn't start from a mindset which consistently refers
to "domestic" and "international" business, their performance might be better.
Europe is not one country yet, never mind everywhere else.

~~~
jerf
I'm not sure that's anything other than a strawman. The company I work for has
about six broad categorizations, and no problem segmenting further as needed.
Are you sure "companies" are routinely making that mistake, or is it just your
mental model of a company that makes that mistake?

