

An economist's explanation of Groupon's success - waterside81
http://mises.org/daily/4657

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jamiequint
A few issues:

1\. Groupon deals aren't only valid for one day, thus the restaurant owner has
no idea when people are going to be in the restaurant or not.

2\. I reject the notion that I restaurant owner would prefer to serve a full
restaurant at half price over a half full restaurant at full price. From my
discussions with businesses who use Groupon, they mostly see it as a tool to
drive repeat customers not one-time customer volume. Very few restaurants can
make ANY money at 50% menu price, much less at 25% menu price (after Groupon
takes their cut).

3\. I would be willing to bet the 'tipping point' effect of Groupon on the
sharing of deals is nearly insignificant. I think a far larger driver of
sharing these deals are deals that require multiple individuals to
participate. (e.g. I bought a coupon with 15 of my friends to go paintballing
in a few weeks)

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zaidf
_There are problems with this strategy too. No matter how hard he tries to
isolate his target audience, the owner can't really control how many people
show up. Or, the numbers might turn out such that (conventional) advertising
is too expensive._

I call BS on this. I have ran into many store owners(though they are rare) who
have been having similar success as Groupon for _years_ simply by giving a
good damn offer in the paper. I have ran into even more who consistently have
crappy coupons and get crappy results. I find very, very few who try a
groupon-like offer in the paper and don't see results.

This article is typical keyboard-jockey analysis from some supposed expert.

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sachinag
Evan Miller (I forget his nick on HN) wrote the first - and the best -
explanation of the analysis of Groupon's economics:
<http://www.evanmiller.org/golden-football.html>

~~~
brandnewlow
I just put out a call.

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gojomo
I found this analysis (previously posted to HN) a bit more rigorous and less
ideological:

<http://www.evanmiller.org/golden-football.html>

The mechanism has some superficial similarity to 'Assurance Contracts', an
economic idea for coordinating group actions that are best done all-or-
nothing. However, it seems that at least now, with Groupon in its galloping
stride, there's no real doubt most promotions will hit their target
participation level. That is, it's more a promotional mechanism for focusing
consumer attention, rather than a solution for a coordinated-decisionmaking
problem.

There's room for other innovations in these areas, as well. The 'dominant
assurance contract' gives an extra sweetener back to pledgers if the threshold
_isn't_ met, to make assurance contracts work for otherwise nonexcludable
'public' goods where bystanders might normally hope to free-ride after others
fund. See:

[http://www.marginalrevolution.com/marginalrevolution/2005/05...](http://www.marginalrevolution.com/marginalrevolution/2005/05/assurance_contr.html)

<http://en.wikipedia.org/wiki/Assurance_contract>

~~~
greattypo
Agreed, the Evan Miller piece is far more thoughtful than the OP. Still, it
doesn't consider that many groupon deals are un-, not barely-, profitable for
the business owner.

For example: <http://posiescafe.com/wp/?p=316> The deal was $6 for $13 worth
of merchandise, but after Groupon's take, she gets to keep $3. No way to cover
costs with a deal like that.. never mind profit.

And if the deal is unprofitable, there's no way to economically justify the
offering unless you start factoring in soft effects like return visiters, name
recognition, etc.

~~~
gojomo
Indeed, there must be other effects, perhaps more important than the 'golden
football' zone, that explain these loss-leader deals.

Almost any business should be willing to lose a little on product if that loss
displaces more in other promotion/customer-acquisition costs. A business would
be more willing to do so if they're sure the cost is reaching new customers.
Perhaps that's an important part of the Groupon secret sauce -- the purchase
of the 'coupon' with credit cards that provide a relatively strong identity
signal. That could be used -- eventually, at least -- to target future
promotions to unique new customers.

Does anyone know what sort of data the business gets from Groupon? Have any
businesses offered repeat Groupons that _aren't_ available to people who
bought the first one?

~~~
systemtrigger
_> Does anyone know what sort of data the business gets from Groupon?_

The only customer data Groupon shares with the merchant is first and last
name.

 _> Have any businesses offered repeat Groupons that aren't available to
people who bought the first one?_

Highly unlikely. Imposing a conditional like that would complicate Groupon's
process and confuse many users.

You mentioned identification by credit card number... Problems I see in that
scenario: PCI compliance, UX, lower revenue per deal. And since many people
have more than one credit card there is a loophole.

