Home Marketing & Media What is the Groupon-model and why is it relevant to your business?

What is the Groupon-model and why is it relevant to your business?

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The Groupon model has infiltrated Australia faster than a bargain-hunter at a Boxing Day Sale. We asked US-based Anthill contributor Stefan Abrutat to explain what all the fuss is about and why Australian SMEs should listen up.

A short (but significant) surge of joy flutters through my predilection for penny-pinching whenever I get an email from Groupon’s deal-of-the-day. Not every offer is something useful to me, at least, not until I find out (and oh, I fully intend to) just exactly what a 51% Off Brazilian Blow ‘n’ Wax Job is!

(My honest enquiries of female friends and colleagues has largely been met with exasperated verbal affectations and occasionally dodged violence, which fills me with the kind of boyish glee usually elicited when accidentally offered the largest slice of chocolate cake or on discovering that the bistro I’ve been dragged to by the missus, to meet her loud bridge friends for brunch, actually serves beer in magnificent, ridiculously-oversized frozen glass steins, indicating I might come here again, sans missus, with my own equally dismissive confederates. But I digress.)

Beyond the occasional cut-price pizza binge or a yelled “Honey! Do we like Peruvian food?!” down the stairs, there’s a shrewd business model at work here.

What is Groupon?

In business circles, Groupon will, for a long time, be known as the Chicago-based startup that scored itself a $1.35 billion valuation within a year of launch. For the rest of the world, it is a website that harnesses collective buying to get consumers cheap products and services.

The way Groupon’s mutually beneficial system works is by applying an ingenious model that exploits economies-of-scale by offering consumers discounted offers if a minimum number of ‘units’ are purchased. If not enough people sign up for the deal, the deal becomes unavailable and all purchases are refunded (everyone misses out).

Thus, by giving consumers a reason to promote their purchases and, therefore, these offers (i.e. You’ll only get the Limited Edition Imitation Moose Head Wall-Hanging at half price if you convince 200 of your friends to get in on the deal), the model exploits consumers’ growing use of social media platforms and peer-to-peer recommendation services to spread the word.

Rather than purchasing advertising to promote the deal, it empowers (and incites) its users to promote the deals on platforms such as Facebook and Twitter, exposing an exponentially large number of consumers to deals from Groupon-promoted companies.

How does Groupon work?

With the surge of subsequent purchasing this creates, the thin profit margin normally associated with such offers, ordinarily manifested by the industry of door-to-door, under-the-wiper fliers, is fattened by sheer non-paper volume.

Consumers get a great deal and companies can pre-emptively assess their minimums and assure they take no financial risk (or, at least, a manageable one) before engaging in such marketing.

So popular is the process in America, Groupon has millions of followers, a consequence of presenting a powerful market conduit for businesses hungrily chasing exposure. It keeps its deal limited to states and capital cities. This localised market structure means community businesses are the focus of the action.

It makes its money by getting a cut of the deal. It’s a win-win all round, and markets in America have embraced the concept with a zeal that’s seen Groupon generate an estimated US$350 million for its investors.

The Groupon Promo Video

Of course, Groupon’s savvy marketers explain the concept a lot better than I ever could, in sound and moving pictures!

Australian-born ‘Groupons’

The concept has quickly spread into markets in Europe, Japan and Russia, and, while not yet available in Australia, many similar services have emerged.

Jump On It, Spreets and Ouffer are local outfits that are currently employing Groupon-esque models in Australia, attracting significant investment in this simple concept.

However, this might be at their own peril.

This week, according to smartcompany.com.au, Groupon has hit local rival Scoopon with a trademark lawsuit in a United States District Court, alleging Scoopon’s name is too similar to its own and claiming that Scoopon’s owners even registered a company called Groupon Pty Ltd and the Groupon.com.au URL in Australia.

I guess that’s one way to spend a $1.35 billion valuation; aggressively litigating against international rivals.

For the rest (with less similar names), building as large a network as one can before Groupon iteself comes a-knocking could be in their best interest; creating a significant asset for their inevitable sale. At least, that’s what many of the people backing these deals are likely to think.

How is this good for your business?

Through Groupon, companies have access to a buzzing throng of potential customers they normally wouldn’t; it’s a chance for more expensive services to demonstrate their superior product, and for cheaper services to show their product ain’t that bad.

But, for ambitious startups, the model could also be employed to sell their own goods and services, through their own channels.

For example, I noticed earlier this week that Anthill (you may have heard of this awesome website before) is dabbling with the model to promote an Online Marketing Masterclass in Brisbane (which I understand is equally awesome).

The course is heavily discounted but will only go ahead if 15 people register (by awesomely savvy Brisbanites). This means that the onus is on attendees to spread the word and fill the room to get the cheap rate. (Did I say it was awesome? Do I still have my job?)

By exploiting the tools that form the foundation of social media platforms, almost any business now has the potential to catapult itself to the tip of localised marketing.

And cash-strapped startups take note, if your product is worth sharing, this could well be the only advertising a new company needs. Serioulsy. If you can empower your customers to do your marketing for you, who needs advertising in the first place?

And, by the way, if you’re selling ridiculously sized beer steins, I’m likely to be your first customer. And I have friends who like ridiculously sized beer steins too.

Stefan Abrutat is an award-winning freelance writer, blogger and editor in a wide variety of fields, from sports to science, the philosophy of science, humourism, history, travel and food.

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