Here is the deal!! On one side we have an economy crippled with recession and the lowest individual incomes recorded in a decade. Which means displaying stuff from Walmart at home is no longer socially awkward. On the other we have this amazing company which offers deep discounts on all the luxuries- (massage, fine dining, clothing... you name it!) that u were so used before the darned recession came along. Put them together and you have yourself a Jackpot business model!
And thats exactly what it is 'A jackpot!'. Its like winning a lottery, the founders of Groupon had the good business sense to see am opportunity where merchants were ready to negotiate any deal to increase their sales even infinitesimally and customers were relentlessly on the look out for better deals to save every penny they could. But minus the recession from the equation then the business model becomes a little wobbly. Groupon is betting on a reversible economic trend which may or may not revert back to times when people did not care as much to spend quality time looking for deals to buy a shirt. This is something only time will answer.
Even for merchants, the Groupon strategy only brings in a temporary spur in sales and is not sustainable. As long as the deal keep coming in retailers would keep afloat.. but if you do this long enough, how long would it take before there offers start losing their appeal??
With the competition quickly following, Groupon has milked the cow as much as they profitably could with 50-50 deals with merchants. Groupon's biggest strength currently is their market penetration and email list. It wouldn't be long before competition catches up and starts offering merchants better deals forcing Groupon to compromise on their current profit margin.
Is Groupon a good business model? I'd say it is but am not sure if it WILL be.
I do believe that Groupon is a viable and profitable business model; it is amazing to see how much that company has been able to grow in so little time; and they also have a very strong brand name.
ReplyDeleteYou are bringing a very intersting point: as the competition grows, will Groupon have to compete on margins? They will need to find a way to avoid that; and start differenciating themselves even more now. In what ways do you think Groupon can achieve this level of differenciation and remain the leader in its field?