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Paul Cubbon - Is GroupOn Good for Your Business Paul Cubbon


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Paul Cubbon prepared this presentation for a talk to BCAIM, Jan 26th, 2011.

It represents a compilation of a range of reports, some research based and some opinion/commentary.

I have tried to distill them into something helpful for businesses considering Groupon or other deep discounters, at this stage of the evolution of model.

Published in: Business, Technology
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Paul Cubbon - Is GroupOn Good for Your Business Paul Cubbon

  1. 1. Is GroupOn Good for Your Business? Paul Cubbon Presentation to BCAIM, January 2011 [email_address] Speaker notes in each slide provide reference links and more resources A fuller version of this presentation can be found at
  2. 2. A brief history <ul><li>Before Groupon </li></ul><ul><ul><ul><li>Aggregating buyer volume to gain price reductions </li></ul></ul></ul><ul><ul><ul><ul><ul><li>B2B </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>B2C </li></ul></ul></ul></ul></ul><ul><li>Groupon launch: Nov. 2008 </li></ul>
  3. 3. <ul><li>Follow the money. </li></ul><ul><li>Consumer pays Groupon $29 </li></ul><ul><li>Salon gets $14.50 from Group-on; installments over ~4 months </li></ul><ul><li>Salon costs include staff, product, rent, utilities etc. </li></ul><ul><li>Some costs fixed, some variable </li></ul><ul><li>BUT, a loss maker on the single transaction </li></ul><ul><li>SO, WHAT HAPPENS NEXT….? </li></ul>Less than $15 to the salon for 1.5 hrs?!
  4. 4. What happens next……? <ul><li>IF Groupon customer is a NEW customer she could: </li></ul><ul><li>Return to buy at full price; </li></ul><ul><li>Only return when deep discounts are offered; </li></ul><ul><li>Influence other consumers, positive/negative </li></ul><ul><li>Impact staff morale, positive/negative </li></ul><ul><li>Impact customer service, positive/negative </li></ul>
  5. 5. Variations with upside If 2 people consume $40, Pivo gets $25 & possible repeat Expiring inventory; plus time controlled entry slots - $11 vs. $0
  6. 6. Groupon Gap deal <ul><li>Aug 19 th 2010 - $25 for $50 value </li></ul><ul><li>441,000 groupons sold = $11m+ </li></ul><ul><li>First national deal for “local” model </li></ul><ul><li>Mutually attractive advertising? </li></ul>
  7. 7. The cocaine analogy “ High-low pricing is devastating to the consumer’s opinion of your brand.” 
  8. 8. <ul><li>Sees potential based on: </li></ul><ul><li>Fun </li></ul><ul><li>High margin items </li></ul><ul><li>Working with baskets of aligned goods </li></ul><ul><li>IF an improved permission based customization ability is developed </li></ul>Seth on Groupon
  9. 9. Academic Study 1 <ul><li>Harvard: “Is Groupon good for retailers?” Jan 10 th 2011 </li></ul><ul><li>Working paper: “To Groupon or not to Groupon?” </li></ul><ul><li>Key themes </li></ul><ul><ul><li>- Price discrimination </li></ul></ul><ul><ul><li>- Advertising benefit </li></ul></ul><ul><li>Structured approach to questions businesses should ask before deciding </li></ul>
  10. 10. Academic Study 2 <ul><li>Rice University, Fall 2010 </li></ul><ul><li>150 Groupon businesses in 19 cities (6/09-8/10) 66% profitable; 32% unprofitable. </li></ul><ul><ul><li>Restaurants were the most unprofitable category, describing Groupon customers as &quot;entitled,&quot; poor tippers, and definitely not repeat customers. </li></ul></ul><ul><ul><li>Spas, on the other hand, were the most profitable (though their Groupon-using customers were still bad tippers).” </li></ul></ul><ul><ul><li>42% said they would not use Groupon again </li></ul></ul><ul><li>Recommendations include: selective, partial offers, designed to link to repeat behaviour. </li></ul>
  11. 11. Living Social Competition
  12. 12. Jan 19 th 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 .
  13. 13. Swarmjam More competitors. Barriers to entry?
  14. 15. eConsultancy view <ul><li>“ Group buying and the new customer acquisition lie” Jan 20 th 2011 </li></ul>
  15. 16. eConsultancy cont. <ul><li>Patricia Robles : </li></ul>
  16. 17. Experiments with higher price, higher margin items <ul><li>Example: Men’s Fashion start-up </li></ul><ul><li>Average consumer spend = $500 </li></ul><ul><li>Groupon is -$150 at $50 cost to consumer </li></ul><ul><li>Run in multiple cities Fall 2010 </li></ul><ul><li>Net from consumer on purchase = $350 </li></ul><ul><li>Company also gets $25 from Group-on, in 3 staggered installments. </li></ul><ul><li>So far, only ~10% redeemed </li></ul><ul><li>Intent is to follow-up with custom messaging to gain repeat purchase and leverage word of mouth </li></ul>
  17. 18. Business strategy and potential role for deep price discounts? <ul><li>STEP BACK </li></ul><ul><li>Why offer discounted pricing at all? </li></ul><ul><li>How does it fit your business model for </li></ul><ul><ul><ul><ul><ul><li>Customer acquisition </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Retention </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Revenue growth </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Margin management and profitability? </li></ul></ul></ul></ul></ul><ul><li>What are the long-term as well as short-term implications? </li></ul><ul><li>Will deep discounting be the new norm in your category? </li></ul><ul><li>Can you WIN with this tool? </li></ul><ul><li>Will you start a price war? </li></ul>
  18. 19. 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.
  19. 20. IF price discounting, alternative choices to Groupon, etc <ul><li>2:1 coupons in existing media </li></ul><ul><li>Fundraiser books </li></ul><ul><li>Direct promotion </li></ul>
  20. 21. Should Groupon have accepted Google’s $6 billion offer? Google Offers News leaked Jan 20 th 2011
  21. 22. “ Why we invested in Groupon”… the power of data <ul><li>VC Greylock explains investment as a focus on the data and potential to customize offerings </li></ul><ul><ul><li>- Techcrunch interview, Jan 11 th ,2011. </li></ul></ul>
  22. 23. Takeaways <ul><li>What is your marketing strategy? </li></ul><ul><li>Where does price discounting fit into this? (if at all.) </li></ul><ul><li>Work through margin as well as revenue implications. </li></ul><ul><li>Look at longer-term as well as short-term: </li></ul><ul><ul><ul><li>Financial </li></ul></ul></ul><ul><ul><ul><li>brand </li></ul></ul></ul><ul><li>Can you customize to improve effectiveness? </li></ul><ul><ul><ul><li>Partial discounts </li></ul></ul></ul><ul><ul><ul><li>Time controlled </li></ul></ul></ul><ul><ul><ul><li>Linking to subsequent behaviour </li></ul></ul></ul><ul><ul><ul><li>Leveraging social media during and after usage. </li></ul></ul></ul><ul><li>If you decide to price-discount, is Groupon (or a similar aggregator) your best choice? </li></ul>
  23. 24. Q & A Questions? Comments?
  24. 25. Helpful info-graphic (link in notes)
  25. 26. Resources: some places for context on discount buying and online behaviour <ul><li> jeremiah owyang </li></ul><ul><li> charlene li </li></ul><ul><li> josh bernoff </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>