

How Groupon is Losing $1,117,808 Every Single Day - aaronwhite
http://blog.priceintelligently.com/blog/bid/172691/How-Groupon-is-Losing-1-117-808-Every-Single-Day

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randomdrake
The title here seems a bit sensationalist. I was expecting to read a story
about how Groupon is bleeding a million per day. Instead, this is an article
about how one company's analysis has concluded that they could be making
$1,117,808 _more_ per day.

A missed profit is not a loss. It's a missed opportunity, sure, but I don't
think calling it a loss is appropriate.

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dquigley
I agree that "A missed profit is not a loss."

For example, Amazon is in my opinion a company that doesn't focus on
increasing profits, especially in product areas where they are trying to push
out competitors. Groupon could be artificially holding their price low to
force out competitors.

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rtb
This seems like a spammy advertorial to me. There is nothing in the article to
back up any of their sensationalist claims.

As far as I can tell, they ask customers how much they would pay, and draw a
pretty graph of that. What evidence do they have that people's responses to
price questions are an accurate indicator of what they would actually spend?
What have they done to address selection bias?

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pccampbell
Great points, rtb. We've actually done a lot of research on validating our
process and algorithm. I addressed this in another comment, but we've run this
process with commodities (very marke driven products) to ensure the process is
sound (check out more info here:
[http://blog.priceintelligently.com/blog/bid/153543/Pricing-i...](http://blog.priceintelligently.com/blog/bid/153543/Pricing-
is-a-Process-and-How-We-Validated-Our-Technology-By-Pricing-Gold)).

We've also started working on honing more and more validity checking into the
model to filter out as much noise, outliers, and selection bias as possible.

The next step for this particular angle would be to test the deals out at the
higher price point. Past customers of ours have definitely seen changes.
Appreciate the feedback though. For the next part of the series we'll make
sure we outline more about the foundation of the methodology and the validity
behind it. Happy to hop on a call to outline, as well.

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rtb
Thanks for the thoughtful reply. Your gold example doesn't really prove the
approach sound though. If you ask a gold buyer how much they would pay for
gold, I would expect them to be able to give you an accurate answer
immediately.

However, if you ask a consumer how much they would pay for a discretionary
purchase, I would not expect their answer to match reality.

Let's say you asked me how much I would pay for a BMW. I would probably never
buy a BMW at any price (except if I thought I could sell it on immediately for
more), but I would happily name a price if I was asked. This would distort
your figures.

I just don't believe that what people say about prices matches what they will
do (except for traders in commodity exchanges, which I think is a very
unrepresentative example v.s. consumers visiting a restaurant).

(Thanks for the offer of a call. Luckily, I don't have the stress of setting
any customer facing prices at the moment, so I'm not a potential customer, but
thanks anyway.)

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leoedin
Surely a fairly core issue is the type of customer who buys from Groupon.

If Groupon deals are primarily purchased by a fairly small core of regulars
(in my very limited experience a few people I know use groupon a lot, most
never do), then increasing the price one day might just put them off buying
tomorrows item. Every person has a finite amount of disposable income.

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nicw
Exactly. There are so many other factors regarding pricing: Long Term Value,
and Cost to Acquire being one of them. It is common to break your audience
into 'bands', and learn the trigger points for each band: cost to acquire a
customer in this segment and how likely they are to make repeat purchases, at
which price.

Simply put, the majority of your audience may make repeat purchases, but only
if each purchase is a separate price. This is much greater value than a one-
off purchase.

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waterside81
Apart from the other issues people have listed here, I'd take issue with their
50/50 assumption. We've been offered 70/30 right off the bat without any
negotiations by Groupon and its competitors and that was as far back as late
2011.

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pccampbell
In the qualitative research we found all kinds of different splits, but the
consistent one was 50/50, with a lot of articles mentioning that the 50/50 was
actually worse for the merchant, because Groupon then included processing
fees.

At the top level though, we're more focused on the price sensitivity
information, so even if we change up the split, we're still talking about a
good amount of revenue being left on the table.

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studiosam
Interesting article, when I read the headline my thoughts were: What about
Living Social the company that Amazon has written off as a dead investment
that cant IPO and will be gone well before Groupon?

There is a lot Groupon can do to perform and the huge war chest they built
from the IPO has given them a great runway to do so.

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pccampbell
Living Social probably runs into the same exact problems, but we'd have to
test Living Social users specifically. What's interesting is that in the
qualitative research, we found merchants speaking favorably about Living
Social vs. about Groupon. Customers seemed to be a bit more affluent, as well,
almost indicating that a lot of "BuyWithMe" users switched over to LS, instead
of focusing on Gilt deals.

I think this shows I've read too much about daily deals.

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PanMan
are you sure people would have actually bought at the higher prices? The
Groupon revenue is from actual sales, your data is from asking people. People
often say they pay a lot more than they actually will press the "buy" button
for.

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pccampbell
Great question. So, we've definitely done a lot of validity checking in the
form of pricing out commodities (gold, beans, etc.), but the customers we've
worked with have also seen some great lift from the changes guided by the
data. You'll never actually know until you put the price out there, but the
foundation is pointing towards yes.

That might be our next form of validity checking, pricing out a daily deal,
and then selling it. Splash pages aren't hard to build out, after all. More on
how we priced out gold here:
[http://blog.priceintelligently.com/blog/bid/153543/Pricing-i...](http://blog.priceintelligently.com/blog/bid/153543/Pricing-
is-a-Process-and-How-We-Validated-Our-Technology-By-Pricing-Gold)

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krat0sprakhar
Interesting analysis; However, how does one factor in sensitivity in this
analysis? Wouldn't one want to know how the demand will be affected if the
price is increased?

