Group Think

26 02 2011

Quick: What’s the fastest growing company in America right now?

Nope. Not Facebook. Not Amazon. Not Google.

It’s Groupon, the Chicago-based company that blossomed from 400 employees and $33 million in 2009 revenues to 4000 employees and $760 million revenues in 2010.

Yeah, that’s fast.

And if you have never heard of Groupon, you really do need to leave your cave a little more often.

The Groupon business model includes all of the big buzz words of the 20-teens: Group. Coupon. Social. Viral. Cheap.

Yep, cheap. We’re still in a recession, remember?

In case you aren’t already a Groupon Groupie, here’s the plan: You sign up at the Groupon site to receive a daily deal by email. The offers primarily feature local businesses, but occasionally a national firm will slip in. Customers are enticed with deals that range from 50-80% off normal list price. Groupon’s commission on the sale is 50% of that heavily discounted price, leaving the company with, at most, 25% of retail. Each vendor associated with a daily deal sets the minimum number of sales that must be reached in order for the Groupon to tip. Once that magic number (different every day) is reached, the deal proceeds.

And if you are really sharp, you will quickly realize that the whole idea is to get new customers in the door, to try out something they might not otherwise have tried out. At a ridiculously cheap price.

Naturally, Groupon is not without wannabe competitors, the biggest of which is LivingSocial. There are other smaller deal providers. Locally, the arrival of Groupon has awakened the sleeping media outlets, who have all been mobilized to hit the streets in search of stores and service providers to offer similar deals…but keep the revenue all here in Amarillo.

To be honest, I really do not care who facilitates the bargain. The main point is that, since Groupon came to town, the deals have been flying. And it is consumers who are the winners in this transaction.

Naturally, not all types of businesses work with the Groupon model. Wherever margins are slim, it makes little point to participate, because you will end up selling for a loss. Thus, either high-margin sellers or service providers are the best fit, and really only if the customer is new, not a deal-prone regular. Wherever there is some degree of wiggle room, heavily discounted couponing to induce trial makes perfect sense. But because Groupon built in the social and viral aspects of this (you would want to tell your friends, wouldn’t you?), it has become insanely successful. It’s is yet another example of crowdsourcing.

And since everyone loves a sale with no limits, we love it. We don’t have to push, shove, fight, claw with other shoppers vying for a finite amount of merchandise. Rather, it is incumbent upon else to help recruit ever more people, so that today’s deal tips.

I can see why local media outlets are nervous. Groupon is an enormous threat, because they can easily siphon off local advertising dollars (in exchange for the Groupon) that would have otherwise gone to these local media outlets. The battle is on to beat the Groupon rep to the next untapped business.

I’ll step back while the locals and the wannabes try to figure out how to do battle with Groupon. In the mean time, I’m just watching the daily bargains, and pouncing like a pack of coyotes at meal time.

Because that’s the group I hang with.

Dr “Sorry About That Dangling Preposition” Gerlich



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