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Is GroupOn Good for Your Business?Paul Cubbon Presentation to BCAIM, January 2011
[email protected]/paulcubbon/Speaker notes in each slide provide reference links and more resourcesA fuller version of this presentation can be found at www.slideshare.net/pcubbon
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A brief history
• Before Groupon– Aggregating buyer volume to gain price
reductions• B2B• B2C
• Groupon launch: Nov. 2008
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Follow the money.• Consumer pays Groupon $29• Salon gets $14.50 from Group-
on; installments over ~4 months
• Salon costs include staff, product, rent, utilities etc.
• Some costs fixed, some variable
• BUT, a loss maker on the single transaction
• SO, WHAT HAPPENS NEXT….?
Less than $15 to the salon for 1.5 hrs?!
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What happens next……?
• IF Groupon customer is a NEW customer she could:
• Return to buy at full price;
• Only return when deep discounts are offered;
• Influence other consumers, positive/negative
• Impact staff morale, positive/negative
• Impact customer service, positive/negative
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Variations with upside
If 2 people consume $40, Pivo gets $25 & possible repeat
Expiring inventory; plus time controlled entry slots - $11 vs. $0
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Groupon Gap deal
• Aug 19th 2010 - $25 for $50 value
• 441,000 groupons sold = $11m+
• First national deal for “local” model
• Mutually attractive advertising?
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The cocaine analogy
“High-low pricing is devastating to the consumer’s opinion of your brand.”
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Seth on Groupon
Sees potential based on:• Fun• High margin items• Working with baskets of aligned goods• IF an improved permission based
customization ability is developed
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Academic Study 1
• Harvard: “Is Groupon good for retailers?” Jan 10th 2011
• Working paper: “To Groupon or not to Groupon?” http://www.hbs.edu/research/pdf/11-063.pdf
• Key themes - Price discrimination - Advertising benefit
• Structured approach to questions businesses should ask before deciding
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Academic Study 2
Rice University, Fall 2010
•150 Groupon businesses in 19 cities (6/09-8/10) 66% profitable; 32% unprofitable.
– Restaurants were the most unprofitable category, describing Groupon customers as "entitled," poor tippers, and definitely not repeat customers.
– Spas, on the other hand, were the most profitable (though their Groupon-using customers were still bad tippers).”
– 42% said they would not use Groupon again
•Recommendations include: selective, partial offers, designed to link to repeat behaviour.
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Living Social
Competition
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Jan 19th 2011: Living Social Sells >1 million Amazon coupons: $13m+
Like Gap Groupon
A national, mass advertising play for Amazon, a $15 discount off of normal basket.
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Swarmjam
More competitors. Barriers to entry?
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eConsultancy view
• “Group buying and the new customer acquisition lie” Jan 20th 2011
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eConsultancy cont.
• Patricia Robles:
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Experiments with higher price, higher margin items
Example: Men’s Fashion start-up
•Average consumer spend = $500•Groupon is -$150 at $50 cost to consumer•Run in multiple cities Fall 2010•Net from consumer on purchase = $350•Company also gets $25 from Group-on, in 3 staggered installments.•So far, only ~10% redeemed•Intent is to follow-up with custom messaging to gain repeat purchase and leverage word of mouth
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Business strategy and potential role for deep price discounts?• STEP BACK• Why offer discounted pricing at all?• How does it fit your business model for
• Customer acquisition• Retention• Revenue growth• Margin management and profitability?
• What are the long-term as well as short-term implications?
• Will deep discounting be the new norm in your category?
• Can you WIN with this tool?• Will you start a price war?
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Demand peaks and valleys
A
B
C
The last scenario is what you should be trying to achieve – with any price discounting. But for it to work, your core offering, the brand experience and perceived benefit has to superior to the next discounting competitor.
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IF price discounting, alternative choices to Groupon, etc
• 2:1 coupons in existing media
• Fundraiser books
• Direct promotion
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Should Groupon have accepted Google’s $6 billion offer?
Google OffersNewsleakedJan 20th 2011
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“Why we invested in Groupon”… the power of data
•VC Greylock explains investment as a focus on the data and potential to customize offerings
- Techcrunch interview, Jan 11th,2011.
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Takeaways
• What is your marketing strategy?• Where does price discounting fit into this? (if at all.)• Work through margin as well as revenue implications.• Look at longer-term as well as short-term:– Financial– brand
• Can you customize to improve effectiveness?– Partial discounts– Time controlled– Linking to subsequent behaviour– Leveraging social media during and after usage.
• If you decide to price-discount, is Groupon (or a similar aggregator) your best choice?
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Q & A
Questions?
Comments?
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Helpful info-graphic (link in notes)
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Resources: some places for context on discount buying and online behaviour
• http://www.web-strategist.com/blog/ jeremiah owyang• http://www.altimetergroup.com/ charlene li• http://forrester.typepad.com/groundswell/ josh
bernoff• www.emarketer.com • www.mashable.com • www.iab.com • www.econsultancy.com
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