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The Groupon dirty secret (blackysky.com)
54 points by blackysky on Jan 18, 2011 | hide | past | web | favorite | 21 comments

I take issue with the graph coloring. "Bad" should have the same color in both graphs and should be on the same side of the graph on both. He uses red for bad in graph1 and blue in graph2.

60% of businesses who try groupon like it enough and may use it again?

That's great for client acquisition for most types of businesses.

67% of businesses who ran a promotion made a profit during that promotion? That's great.

Lots of times you run promotions at restaurants to make less of a loss. Every day you have a restaurant, your interest on the loan you took to buy your equipment, every day you pay rent, you're in the hole. Every your kitchen is open and staffed you're in a hole if those seats done fill, but you're in less of a hole than if you stay closed (as long as you have some customers). Some restaurants open on Monday and Tuesday to lose less money then they would if they were open only Wed-Sun. Some restaurants make money every day they're open. Many do not. Most "live" for the busy Thurs-Sun afternoon.

This article/statistic keeps coming up: I think it shows how well groupon works.

33% of businesses lost money during the promotion, 40% of businesses didn't like using the service/had a bad experience. What are the numbers for the restaurants prior 3 weeks?

Those numbers are not bad at all.

If Groupon makes money by taking it away from advertisers, these numbers are compelling. Just consider John Wanamakers famous line: "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

The fact that this quip still has plenty of currency a century later indicates just how exposed the advertising business really is.

Correction: When I specified whose lunch Groupon was eating, I said 'advertisers'. I should have said 'advertising agencies'.

From an advertiser's perspective, Groupon's pitch is really compelling. Instead of spending money on traditional media-buys to generate some interest and a few sales, spend the same money generating a lot of actual sales, and call it a day.

[Groupon Employee Speaking]

Keep in mind that when that study was done (June 2009), Groupon was 9 months old. Since then, Groupon has expanded to dozens of countries and hundreds of cities, raised over $1B, hired thousands of employees, and refined its processes a zillion-fold.

It's no secret in the company that our long term success is based on a) customers having great experiences, and b) merchants getting a return on the cost of their discount and fees to us. Everything is viewed through those two values. Deals are scheduled so that customers are always delighted (e.g. so there aren't 4 steakhouses in one week), and sized so that merchants don't get raped by the economics (e.g. if a typical bill at a restaurant is $100, then the deal might be $60 for $30. Also, quantity is estimated based on the merchant's capacity as well so that merchants don't get overwhelmed and customers still get a good experience. In the video for the recent Japanese new year debacle (http://news.ycombinator.com/item?id=2111609), Andrew mentions that deal sizing and scaling is already done in some markets and in response to the Japan incident, will now be done in all markets to ensure the experience continues to be good for everyone. Short-term profit maximization isn't what builds lasting businesses, and the execs here know it.

With something growing as ridiculously fast as Groupon, data get stale fast. It's like if you found a study from 2006 where someone complained that they couldn't find anyone they knew on Facebook.

It's always wise to take a company's numbers with a grain of sale, but with a fast growing company, the numbers they selectively release are usually the best you're going to get.

I have a friend in SF that loves your service. The only problem is that every time she goes to redeem a groupon, she gets berated by the staff and feels like she's a different class of customer.

This rainbows and unicorns thing isn't the reality from what I'm getting.

I've bought probably 5 or so groupons, and I've been happy with them. I do feel a little sheepish using them, but the staff have seemed fine with it so far.

Sounds like he's pretty much saying "Groupon is a great tool for a specific purpose, but don't use it without thinking about it." Which is good advice.

Specifically, it will attract a lot of customers, but runs the risk of reducing customer perception of the value of your product. Sounds like a good match if bargain-seekers are your target market -- your promotion ends, and you're still among the best deals.

But it sounds like a terrible thing if you're selling the equivalent of a Lexus or Acura in your market -- luxury products defined by the perception of their extreme worth/status.

Not necessarily - groupon being on the internet and relatively 'cool' still doesn't have the public perception of a newspaper coupon.

I have used it to buy stuff at high end clothes stores (well Gap - but anything other than $3 black T shirts is high end for me!). If I ever needed more clothes I might go back to Gap, it did get me to go into a store I wouldn't have entered and was probably cheaper and more effective than them putting their name on a yacht race.

Gap is hardly the issue here. Most people who shop at the Gap won't really care if people wearing $3 black tshirts descend on the store every now and then and start wearing the clothes. For actually high-end products, making it more popular with the hoi polloi can mean the end of popularity with the original target audience, and the new market can often be more difficult to make decent profit in.

If everyone who heard about it on the internet could afford a Lamborghini, no movie star would own one, no matter how fast it went.

This article is of negligible value and not sure I found any "dirty secret" contained, but the title did make me click.


(1) Marketing tactics are not always effective. Groupon is a marketing tactic, and like other marketing efforts, it is not fullproof.

(2) If you give 50% off to customer and 25% to Groupon, you may not make money.

Groupon's real "dirty secret" is that they've brilliantly navigated the seedy world of affiliate marketing. As far as I know, Groupon uses the same affiliate networks as Acai scam artists (as opposed to say, building their own a la Amazon) and is (was?) willing to pay several dollars for a single email address.

How they managed that is the real secret and I would be extremely interested in that story.

As Groupon Employee pchristensen has pointed out in this thread, Groupon has hired thousands of employees. According to the Wall Street Journal, "about half" of them are in sales (I suspect it's more). The real measure of Groupon (which I haven't seen yet, and it is probably because it's too early to measure) is going to be small business retention rate. Groupon is very much in the same space as web Yellow Page/directory companies, but with a much more profitable business model. It is likewise vulnerable to the problem of churn. Those thousands of telemarketers can burn through all the local businesses fairly quickly. How many will stick around 2 years from now?


You know- Groupon offers an incredible service to many small businesses. Particular to those with high-margins or where the marketing of lifetime value of customers makes up for the potential loss in revenue. It seems like they have put together a top notch salesforce and technical team to bring their business model to market.

But, they really need a better team helping clients make their decisions on whether to use Groupon. While this article I thought offered little in the way of a "dirty secret" and wasn't particularly different than others on the topic, it shows a PR problem endemic to Groupon. This definitely needs to be fixed to ensure the long term success of Groupon, which I guess will be include a Yelplike/Yellow Book service.

He's using a local survey and comparing it to Groupon's full statistics. Very biased comparisons.

How trustworthy is the feedback from these dissatisfied businesses?

People have a strong tendency to blame others for their problems and this case is no different. Groupon and its "disloyal" customers are an easy scapegoat for the business' own problems.

Groupon just brings customers in, they don't magically make the business better.

When analyzing the effectiveness of Groupon we should be most concerned with how well businesses with a good product or service did using Groupon.

The Groupon CEO is saying that businesses have a chance to make more bulk sales. I can't see what's wrong with that.

Distributors will normally set a hefty markup to cover the costs of goods not moving. If you have a semi-guarantee that they would move, that markup can be lowered.

Agreed, and isn't that the whole point of group buying in the first place? Groupon didn't invent the group buying model, they're just enabling / automating it. I see nothing wrong with that. If a business can't benefit enough from the higher volume guaranteed buys to cover the fees, then they probably shouldn't expect miracles from any group buying service.

Using it purely for advertising / marketing seems secondary and questionable to me.

that isn't untrue, but "bulk" for a food preparation or certain services won't usually have the margins that bulk for a retail business will.

I think Groupon has one small problem, and that's when they sell a holiday in Wales in an offer in, say, Sheffield. So the business isn't actually in the city it's selling into.

Also, Groupon offering deals in towns (not just cities) would be great for us non-city dwellers.

But it sounds like an honest business, and I hope I find a deal I like.

ooh, pie charts!

I recently stated that I would very much like to short Facebook.

I would like to add that I would also like to short Groupon.

I'll let you guys draw out the parallels, I have some roti canai to nibble on.

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