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The Groupon Experience – To Good to be True?

Unlike most social media startups, Groupon has an organic revenue stream at the core of their business model. Local businesses benefit from terrific viral Word-of-Mouth buzz that clears shelves of excess inventory or provides an introduction to new product and services at Internet speed.

For consumers there doesn’t appear to be a downside short of “fatigue” at the relentless stream of online offers. Daily deals offering 40 to 60 to even 90% certainly seems like a great opportunity that borders on being “too good to be true”.

Is it too good to be true? It depends on what side of the equation you are on: Consumer or Merchant? For many businesses acquisition of new customers may come at too high of cost, often a 75% premium (e.g., 50% discount and 50% fee based on discounted amount = 75%). If there is no incentive to remain a loyal customer and few tools to ensure retention, then this is a business model in trouble as the economy improves and merchants no longer need–or can afford–deep discounts.

The model is even less favorable when repeat customers use Groupon for their ordinary shopping or services purchase. From Mashable to mainstream financial observers, questions abound when it comes to the long-term success of Groupon’s current business model.

Despite a hefty IPO and cash generation, the future of Groupon depends on lower customer acquisition costs moving forward and much more robust customer retention tools. Heavyweights like Goggle, Foursquare and a wide array of new startups only further illustrate that the Groupon model is relatively simple to clone. At the end of the day, most merchants will opt for a marketing solution with lower acquisition costs and higher repeat business.

As a consumer I personally take advantage of special offers and coupons (often via Staples Rewards and some manufacturer’s coupons). However, the daily dose from Groupon grew to be yet another email management issue. After a few weeks I cancelled my subscription. In all fairness, my focus probably doesn’t fit the normal profile.

As a business entrepreneur, I would desire additional retention and tracking tools for engaging prospects or repeat customers. It would have to be a very special market awareness need or one-time offer for me to consider anything close to a 75% premium.

But that’s just me — what about you? Are you a Groupon Fan, or Pan?

Sources Cited:

 

Catone. (26 O). Why Groupon Must Change Its Bsiness Model For Long-Term Success: Retrieved from http://mashable.com/2011/10/23/groupon-success-doubt/

Mourdoukoutas. (22 O). Is Groupo’s Business Model Sustainable? Retrieved from http://www.forbes.com/sites/panosmourdoukoutas/2011/10/22/is-groupons-business-model-sustainable/

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