General

The Rise Of Group Buying Sites

Written by WSI
― 06 January 2011

In 2008, Andrew Mason was given $1 million by Eric Lefkofsky to fund an idea he had, this idea was Groupon. Today, Groupon has over 35 million registered users in 22 countries.

Forbes have described it as – “the fastest growing company ever.” – as it is on track to become the quickest company in history to reach $1 billion in sales (a feat it will achieve by early 2011) beating the likes of Apple, Amazon and eBay.

Groupon is available in the UK and is called – Groupon MyCityDeal. There is even a daily City Deal for Belfast.

Google clearly saw the potential of Groupon, offering $6 billion in November 2010, in December 2010, but the bid was rejected.

In 2010, GAP in the US ran offered a Groupon National deal, they generated sales of $11 million in one day!

But there has been some criticism of Groupon, they reportedly reject 7/8 City Deals offered by small businesses, and they had to remove a City Deal in Atlanta as it offered a fraudulent photography service.

It is important if you are considering offering a City or National Deal on Groupon that you fully assess the impact on your business. A small business will need to ensure they can cope with a dramatic short term increase in footfall and product demand. It is also worth noting that Groupon will take their cut of the revenue, usually around 50%, so your margins will be squeezed. The ideal candidate for a successful Groupon City Deal would be a business who offers a service, not a product, that way, the only cost of staff time, which would be used anyway.

There is one story, from a Coffee shop in Portland, USA. The coffee shop offered $13 of coffee and cookies for $6 dollars, they agreed a 50/50 split with Groupon. Over 1,000 buyers took up the promotion, the shop owner was swamped with customers on the first day, many of who ignored the Groupon rules of one voucher per customer. The owner found she had lost around $8,000 over the 6 months the campaign was running.

There are many, many rivals for Groupon, as many as 500 in the USA and 100 in China, but only one of them has been identified as a possible rival for Groupon, and that is Living Social. Living Social received investment of $175 million from Amazon in 2010.

On China’s Group buying site, TaoBao, they teamed up with Mercedes Benz who offered 205 of their Smart Cars, they expected to sell out in 21 days. In 6 minutes they had sold 55, and all cars had sold within three and a half hours.

Groupon is definitely geared towards the buyer, it has been described as a profit killer, as it drastically squeezes profit margins. When a small business decides to offer a Groupon City Deal, the hope is, that they get many new customers and turn them into loyal customers. Although this is not always the case. Groupon also goes against one of the fundamental rules of marketing, which is target the customer. Groupon simply does not offer targeted marketing, it sorts buyers only by location.

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