Why is Groupon so important? | Hacker News Reader

Why is Groupon so important?

measuringmeasures.com

61 pointsplinkplonk32 comments

[Groupon employee speaking]

Group buying is still relevant in new markets. In established markets almost every deal tips.

many merchants are not sophisticated enough to structure their deals properly such that it is economically beneficial to them

One of the services that the margin on the deal pays for. G wants the merchants to have a good experience (95%+ report that they do) and continue to use G as opposed to other deal sites. Deal makers here structure the deal to maximize benefit to the business. That's why you'll get $20 for $10 to a sandwich place, $10 for $4 at an ice cream shop, and $50 for $25 at a steak house. This is with the insight of all the other deals made in your city.

Merchants must give blanket discounts, and have no ability to segment or run comprehensive campaigns. In particular, merchants can not do things like target existing customers with reward programs, and new customers with enticement programs

This is true for the "Daily Deal" which gets the most exposure and are outsized deals. These are basically a marketing budget spend, but the money goes to G and the customers instead of advertising media.

New personalization and deal feed features (currently out in limited markets) let merchants put deals at will to previous and interested customers completely outside of the daily email.

Also, G's intention is to get customers to the business, not to take over the business relationship. Businesses should have their own rewards programs, etc.

We have three problems to solve; 1) long term economic viability for merchants through assisted program creation, 2) segmentation and campaigning for merchants, 3) relevance for customers.

#1 is already something we do. #2,3 exist to a limited extent but we're working (a lot) on improving them)

What if we had a "personal fingerprint" for each consumer that is subscribing or consuming from a stream, as well as the attributes of merchants and their individual campaigns? If that fingerprint contained rich information about their interests, demographic information, and so on, then we could both assist the user in subscribing to only those promotions that meet their interests, and assist the merchant in very fine grained segmenting and targeting.

It's like you read our mind. But just as most small businesses aren't good at or interested in marketing, it's the same for segmenting and targeting. I think as a data-head, Bradford is overestimating how much merchants want to do that. They just want a stream of customers coming through the door and Groupon does that in a very hassle-free way.

G wants the merchants to have a good experience (95%+ report that they do)

How does that match with the rice university study where 42% wouldn't run a promotion again? It seems unlikely that half of your clients have a good experience they wouldn't repeat.

I don't know about the Rice study. 95%+ is the number we get told by the bosses, based on our followup surveys with them. I'm not sure what the real truth is but based on the wild inaccuracies in the public numbers about Groupon's business, I tend to trust the internal numbers. Pre and post-deal experience and handling is part of what the fat margins get spent on, to make sure that it is a good experience for the merchant.

EDIT: Found results in question - http://www.screenwerk.com/2010/10/01/survey-42-of-groupon-sm...

Caveats about the study: 1) It was sent to 360 total businesses (Groupon deals with 10Ks of businesses) 2) 150 responded. 3) No mention of when these businesses ran their deals - 6 months earlier or later would make a huge difference in a company as young and fast-growing as Groupon.

Since people with a negative experience are much more likely to respond, this should be taken with a grain of salt. Also, 42% of 150 means that they found 63 businesses that would not repeat.

This was a very helpful response, thanks for taking the time to do it!

There seem to be two definitions of why Groupon is important: the first is why the model works, and the second is why this particular company has a lock on that model. I can mostly agree with the arguments for the model, but don't see what particular advantage Groupon has as a company that would justify its proposed valuations.

As a merchant, I've been in contact with Groupon and have looked closely at their system. Everything makes sense to me about it other than the cost. To use them, I'd need to be selling something at a 70% discount (their take is half of the discounted price), which for me means selling for about 50% of my cost to produce. For some businesses, this is a justifiable marketing expense, but for me, I think there are better ways to benefit from giving away things for free.

While there is considerable consumer loyalty to Groupon, I don't see any such merchant loyalty. As soon as someone offers me a Groupon clone that offers to take only 10% of the sales, I'm there. Why doesn't Google put its $Billions into attracting merchants to a new site rather than buying an existing site that looks extremely vulnerable to future competition? Is there some lock in I'm not seeing?

Excellent point. A two-sided market is vulnerable on both sides.

The model works. No matter what Groupon does in the future, fat deals as customer acquisition are a fact of commerce now. Black Friday is another manifestation of this.

One reason Groupon hasn't had downward pressure on margins is that none of the competitors drive enough customers to businesses. As far as the two-sided market goes, no one else has the customers so merchants are still best served by going to Groupon (unless, as in your case, the cost to acquire those customers is too high).

Groupon = online advertising for people who don't understand 'cost per user'.

The majority of small business owners fall into this category, and that's why Groupon prints money.

I'm sure there's a market for what they're doing but don't forget: 1) it's a freaking coupon 2) it's ONE coupon, un-targeted, delivered to a wide audience

In an era where print publications are becoming extinct, of course there's going to be a growing market for ads that are delivered to a wide audience and presented in a "legit" manner (eg not spam). This is a new thing only insofar as it is now happening in electronic media rather than print.

Well said, and in far fewer words than my essay. ;-)

Bradford, I'm continually impressed on the level of insight you provide on topics outside of what I think are your core competencies. As an analytical person myself, I can see how you took supporting information and made well reasoned insights and inferences, but I'm curious as to how you laid the groundwork. You've obviously mastered researching as a general skill and not just as a means to deepen your area of expertise. I hope you will consider writing a future blog post about effective research as a topic a la your "7 Tips for Successful Self Learning".

One key difference is the retailer gets all the money up front rather than having to wait for you to actually buy something. In that sense it's more like a gift card than a coupon.

Yep.

I think the reason this works is threefold;

1. Expanded (geographically targetted) reach for participating companies.

2. Increased chance of full sales conversion (via money up front) - participating companies are better off even if full conversion doesn't take place.

3. Financial incentives turn Groupon's users into a sales team.

Not up front. Don't know if the terms are public but merchants do have to wait a little while to get the money Groupon collects.

"it's ONE coupon, un-targeted, delivered to a wide audience"

Name me the best company in the world to solve that problem with Groupon.

This may not be coincidence.

Google thinks it is Google. I don't agree.

Who do you think it is?

I wouldn't exactly call them un-targeted; the recipients have asked to receive them. Also, this is an audience that is open to using the offers as a way to get ideas for new experiences.

un-targeted

(Groupon employee speaking)

Not true. Before you even see the first deal, there's a popover asking you to personalize your deals. You can put gender, birthday, interests, education, relationship status, etc. G knows the zip code of every person that buys a Groupon, open rates on emails sent, deals viewed, purchase history, etc.

The demographic information you have on the users still doesn't make them more targeted beyond the geographic segmentation.

If however you're doing multiple deals per city, per day based on more than one demographic metric then it's targeted. ie. I'm a local brick-and-mortar business (I'm not) who wants to advertise to men between the ages of 25-35 in my city and only those. Then you've got a targeted play. Otherwise it isn't more targeted than the local newspaper other than your particular demographics are likely younger. It's still a shotgun approach to your entire user base in each location = not targeted.

Is that what Groupon is doing?

EDIT: Case in point. The owner of the beauty salon that's the current deal of the day in my city is a friend of mine. I am not her target market, yet I'm seeing the deal. That's a missed opportunity for her and you.

How does including "gender, birthday, interests, education, relationship status, etc. G knows the zip code of every person that buys a Groupon, open rates on emails sent, deals viewed, purchase history, etc." not make it more customized?

The Deal of the Day and "Nearby Deals" are customized based on all those things I mentioned. Merchants don't get to specify because we make it simple for them and have access to a whole lot more data and resources to determine who should see their deal. It is however limited by the merchant pipeline. In Chicago, the oldest and most mature Groupon market, I always see restaurants, entertainment, or sports things, never spas or salons.

Which city are you in? If it's smaller or newer to Groupon there's likely much less variety.

That's what my second paragraph was trying to say, if you're doing multiple deals per day and targeting those based on the demographics you collect then it is in fact a more targeted approach.

My current understanding is that it's just one deal per day, per city. If you're saying it's one deal per day, per city, per person then that's quite different and more interesting.

I'm in Winnipeg, Manitoba, Canada. Smaller (~700,000 people) AND newer (I think Groupon showed up a couple months ago?)

Bigger Groupon cities get 10 or more deals a day, but each person gets 1 featured deal and some secondary deals.

Winnipeg explains why you're only seeing one.

Groupon, Facebook, eBay all build products that solve big problems, felt by your average joe. No explanation of product necessary. People like gossip, people like stalking, people like a bargain. It is as simple as that.

<i>Advertising has become quite spammy and irrelevant. We've gotten away from the core issue, which is not inherently spammy at all - merchants interacting with people to retain their existing customers and win new customers. There is noting evil about that, and the direction that advertising has taken for decades has been largely disrespectful, manipulative, misleading, and lacking in creativity. As a result, it has become quite boring.</i>

Advertising has always been misleading and disrespectful, at least going back to the Romans. I had never heard about Groupon until today, and find it mildly interesting, but the problem with it is that I have to pony up cash in advance for something sigh unseen (usually a service or a meal!) and I guess I am too cheap for that.

Rddle me this: how is Groupon different from one of those coupon books the local school kids sell?

The main difference from the merchants' point of view is that when they do an offer with Groupon they receive half of the proceeds from the 'coupon', whereas in for a 'discount book' they receive nothing. The Groupon offer is thus better viewed as a heavily discounted gift certificate. Otherwise there is little difference other than the scale.

As to whether you are too cheap to buy a coupon? Unlikely. More likely you are insufficiently cheap for the idea to hold appeal, as you are OK with buying the product you want when you want it, rather than jumping through all sorts of hoops and advance planning to save a few dollars. You are welcome and possibly correct to view this as 'wise'.

You might be right, in a sense. But on the other hand things like meals out and skydiving lessons hold little appeal to me. Half off veggies or vehicle repair could be more up my alley.

Hi Brad,

You are 100% correct in your analysis here. One of the biggest problems from the merchant's perspective is being able to be successful with these tools and actually benefitting in the long run. They need a way to be able to test these deals to see how they are working for their business and then measure if these deals are driving traffic and revenue and continually tweak them. For services based businesses, being able to fill last minute availabilities instead of selling vouchers that can be used at anytime are also extremely critical to sustainability. Without this, this advertising method won't be able to serve these local businesses. These are the very things we are focusing on at bTreated.

Thanks for the great food for thought!

Andrew Hersch COO bTreated

I've thought that Groupon is important because it has created a new online sales niche. Creating new niches is extremely rare.

This seems almost too simple to be correct. However, Groupon has created a niche / vertical / category that enables local deals to be promoted to the masses in a new and interesting way online.

Aren't AdWords limited to $20/click now?

EDIT: I cannot find a reference to this anywhere. I thought they were capped, maybe it is just $50, and I am not yet fully awake.

Really, I wasn't aware? Do you have link as reference?

I sort of doubt it. From my experience at Overture/Yahoo there were certainly multiple classes of words where advertisers were willing to pay more than $20 (cars, jewelry, mortgages (at the height of the bubble), lawyer services (particularly malpractice and mesothelioma, which was the highest priced keyword for many years)).

OTOH, maybe AdSense is limited to $20? Contextual advertising is a lot less valuable than search advertising.

Reply on news.ycombinator.com