Groupon round up -paul jan 24-2011

Is GroupOn good for your business?
Paul Cubbon Presentation to BCAIM, January 2011
Paul.cubbon@sauder.ubc.ca
www.blogs.ubc.ca/paulcubbon/
Speaker notes in each slide provide reference links and more resources
A fuller version of this presentation can be found at www.slideshare.net/pcubbon

A brief history
Before Groupon
Aggregating buyer volume to gain price reductions
B2B
B2C
Groupon launch: Nov. 2008

Less than $15 to the salon for 1.5 hrs?!
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……?

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

Variations with upside
If 2 people consume $40, Pivo gets $25 & possible repeat
Expiring inventory; plus time controlled entry slots - $11 vs. $0

Groupon Gap deal
Aug 19th 2010 - $25 for $50 value
441,000 groupons sold = $11m+
First national deal for “local” model
Mutually attractive advertising?

The cocaine analogy
“High-low pricing is devastating
to the consumer’s opinion
of your brand.”

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

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

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.

Living Social
Competition

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.

Swarmjam
More competitors. Barriers to entry?

eConsultancy view
“Group buying and the new customer acquisition lie” Jan 20th 2011

eConsultancy cont.
Patricia Robles:

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

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?

Demand peaks and valleys
B
The conventional result of a price promotion (lower price,
non-perishable). A= price down, volume up; B = price back up,
Volume down; C= volume eventually recovers to pre-discount level.
OUTCOME: only existing customers forward buy, at reduced cost:
Diluted margin, disrupted supply chain.
A
C
In this scenario, as price drops volume goes up as new buyers
trial at the lower price; but they abandon when price returns to
normal. Existing buyer keep buying. Typically, lower cost,
perishable items. New buyers saw little appeal except low price.
New buyers trial, attracted by low price, but appreciate the
brand benefits to the extent that they re-purchase at the full price
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.

IF price discounting, alternative choices to Groupon, etc
2:1 coupons in existing media
Fundraiser books
Direct promotion

Should Groupon have accepted Google’s $6 billion offer?
Google
Offers
News
leaked
Jan 20th 2011

“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.

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?

Q&A
Questions?
Comments?

Helpful info-graphic (link in notes)

Resources: some places for context on discount buying and online behaviour
http://www.web-strategist.com/blog/jeremiahowyang
http://www.altimetergroup.com/charleneli
http://forrester.typepad.com/groundswell/ josh bernoff
www.emarketer.com
www.mashable.com
www.iab.com
www.econsultancy.com

http://calebesantos.wordpress.com	196
http://sheilahv3.blogspot.com	2
http://www.saatchiwellness.com	1

Groupon round up -paul jan 24-2011

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