

Reality of Group-Buying - bpeters
http://sociallayer.tumblr.com/post/3639420091/reality-of-group-buying

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DevX101
I have no data to test the following hypothesis, but I suspect that a
significant portion of Groupon revenue comes from deal hunters.

These are people who love to find a deal, and if they went shopping and found
an item with a great price on the tag, they still wouldn't feel excited about
buying it unless it were ON SALE.

If this hypothesis is true, these people go from deal to deal on groupon every
week. They surf the hottest local deals, but the only company loyalty they
have is to Groupon themselves.

Who know's, maybe I'm wrong. But if I'm not, local spas and restaurants will
eventually wise up.

~~~
cfinke
> the only company loyalty they have is to Groupon themselves.

And Living Social, and Crowd Cut, and DealPulp, and ValPak, and Eversave, and
Mamapedia, etc. The people who you describe don't have any exclusive loyalty
to Groupon; it's just another one of the dozen emails they get every morning
with a possible deal.

The main advantage that Groupon has over these competitors is that "Groupon"
has come to be genericized as a term for a group-buying deal. My wife never
says, "Let's use that DealPulp I got last week." She says "I have a Groupon
for 50% off, so let's go to Santorini for supper," even if it was a Living
Social or Crowd Cut deal.

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orijing
That's quite a misapplication of micro theory. The supply-demand diagram
doesn't apply (very well) in cases without complete information, for instance.
For example, there are many customers who aren't even aware of the businesses
being advertised. That's the premise of Groupon--not to get existing customers
to come back more, but to get new customers who didn't even know about the
businesses.

I'm not saying that this is effective--the only way to know for sure is
through testing, which I'm sure Groupon can do, but I'm bothered by the
author's manipulation of micro theory.

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tomkarlo
This post is an econ student's way of saying:

"It's hard to grow profits by selling to cheap people."

I do think there are situations where Groupon makes sense - primarily where
you have a high fixed cost (like rent), high margins on the product (say,
liquor) and poor utilization. The only time that's likely is with a new
business, because it's not a stable state -- either you grow out of it, or you
go out of business.

The problem is that Groupon, while attracting customers, also attracts
customers who are more price sensitive, less loyal and have lower price
expectations for the future. That's not as good as getting the customers the
hard way: finding people who value your product enough to pay the normal
price, and are happy with it.

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klochner
Hate to respond to pedantry with more pedantry, but that's a pretty
questionable application of micro theory.

The main value of using Groupon is that in exchange for offering a deep
discount, you get the firehose turned on your business - it's a customer
acquisition tool, using equal parts advertising and pricing. Businesses
wouldn't get the same demand spurt by offering discounts without using
Groupon.

What the author gets right is that it's an open question as to whether
merchants can convert the discount buyers into regular customers.

~~~
bpeters
I understand they have more visibility in an other wise hidden market.

However, short term advertising and pricing only moves you on the same demand
curve. Unless you end up converting those discount buyers.

I think Groupon is a great way to get your business known, just don't put your
eggs in one basket is all I am saying.

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melissamiranda
Groupon is primarily good for discovery, but it's up to merchants to
capitalize on referrals from their Groupon customers. It works particularly
well for small operators who need to put a quirky business on a map.

For example, a friend who lives in San Francisco bought a Segway tour of the
city, which she would never on earth do had she not seen it on Groupon. She
then asked 50 people to join her tour, and then plastered the photos all over
Facebook. A lot of people now know these tours exist, and next time we have
friends visiting from out of town, we'll be asking her about it. If the Segway
tour operator had offered her a promo for referrals, all the more reason for
us to remember the tours and book, preferably via her referral link.

I suspect the effect is similar to getting your startup covered in Techcrunch.
Suddenly you get tons of pageviews and signups, but it's up to the startup to
keep people coming back.

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roel_v
I don't agree, I don't see the value for businesses in a fundamental shift in
the demand curve any more than 1 euro hamburgers have that goal. Getting more
customers in the door is a customer acquisition tool, hopefully getting those
customers to return; or even better, upselling them something. It's not part
of a fundamental change in pricing strategy, it's a short-term marketing tool.

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gohat
I've been taking macroeconomics and one of the questions asked, "Do you think
this is a good model to explain this phenomenon?"

My answer? "If a two variable equation can explain things that PhD/MBA's with
20+ years experience don't get, yes."

Economics is very valuable but, imo, mostly on a higher level.

~~~
bpeters
The micro graph was not designed to be an exact science to the phenomena that
occurs with group-buying. It was added to give the reader a visual
representation of my overall argument towards Groupon.

There are no data points, it is merely a tool to show what I was saying.

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amitraman1
Businesses should use Groupon to bundle deals, not selling single items for
deep discounts. This increases a businesses' volume and transaction costs go
down per sale.

