How Does Groupon Work?

THANKS in advance for refreshing my memory!

A business owner told me how his groupon worked once, but I forgot.

I downloaded a Groupon, Valpak, and MoneyMailer app on my phone just to be more familiar with the local advertising competition.

It reminded me that I have forgotten how Groupon works.

I've heard horror stories of businesses being overwhelmed by response but complaining they're going broke.

The local guy I asked said it basically was used by existing customers so was not meeting his goals at the time, though I fail to remember our discussion of it's mechanics.

Does groupon keep 50% of the advertised price they collect?

[Dien Rice]

Originally Posted by Chuck

THANKS in advance for refreshing my memory!

A business owner told me how his groupon worked once, but I forgot.

I downloaded a Groupon, Valpak, and MoneyMailer app on my phone just to be more familiar with the local advertising competition.

It reminded me that I have forgotten how Groupon works.

I've heard horror stories of businesses being overwhelmed by response but complaining they're going broke.

The local guy I asked said it basically was used by existing customers so was not meeting his goals at the time, though I fail to remember our discussion of it's mechanics.

Does groupon keep 50% of the advertised price they collect?

Hi Chuck,

I also had to refresh my memory...

It looks like you're right. You have to give a big discount, generally 50% to 90% off. Then, 50% of the money you collect goes to Groupon.

When you do the math, it means you're only taking in 5% to 25% of the normal "retail" price, once you give Groupon their portion...

So, if you normally charge $24 for a fancy meal, you're only really taking in $6 or less for that meal! (E.g. a 50% discount means you take in $12, then half of that goes to Groupon, so you only get $6.)

Most businesses will not make money directly on these offers, and many will lose money. However, they hope to make money by introducing their business to these new customers, and getting repeat customers who will later be happy to pay full price...

Where I've read there is often a problem for these businesses is that - quite sensibly - many people just get the Groupon discount, then never come back....

Best wishes,

Dien

Thanks Dien,

I'd wondered. I guess in theory (if you're a restaurant or service provider) that the "hard cost" (cost of food for instance) is covered by the cash receipts so you're never "out" anything... especially if you understand the "lifetime value of a customer".

Like the local business man I met implied (a restaurateur) that's only true 1) IF you're actually getting new customers from Groupon (instead of existing customers just trying to save money), 2) you may be able to "upsell" (breadsticks with that discounted pizza) and 3) it presumes the business UNDERSTANDS the concept and has SYSTEMS in place to exploit the concept. I'd bet most don't take these factors into account.

It looks like a business has to commit to "x" being sold as well... when as far as steep discounts go, you'd really only want to sell them or have them redeemed on SLOW days, not at peak times.

It seems like if you were just launching a restaurant that might be an ideal time to go heavy on Groupon to make the business look WILDLY popular if you pre plan the upsells and have plenty of ways to get people back in the door.

Chuck

Groupon does have a sliding scale. When i was heavy into offline one of
my clients was a popular BBQ and his split with Groupon was 80/20. When i asked him how he got such a great split he stated that they called him and he
just hold out.

Most businesses are doing Groupon wrong. The allow customers to come in redeem the promotion without getting a lick of information and hope that the like the place to come back.

Well good luck with that.

I noticed the "fine print"... the "promotional value" can be set to end at a certain date but the monetary value persists till used. That's some help I suppose. (I.e. if you pay $20 you still get that value towards normally priced food instead of the initial promotion.)

I think if I were running a restaurant, I'd only want the promotions to be good during times things would be slack anyway.