You bought a what!?

Social coupons are clearly hot right now in the Internet world. I remember when Groupon first launched, I thought to myself…”this is actually a good idea, except why would you ever need (insert useless deal here)”? In a year, more big names are starting to appear and the trend is also catching fire in Europe. Some guy even proposed to his girlfriend on Groupon.

Groupon is apparently now overvalued at $15 billion, more than double the $6 billion Google offered a couple of months ago. (Source) On the same day as its IPO rumour surfaced, Groupon also announced that they have saved users over $1 billion…well sort of. If I look at my “Purchased Groupons” right now, you will find that I have a yet unused spa voucher, a paddleboat lesson voucher from last summer, a 50% deal on American Apparel merchandise, and a two-for-one movie voucher at a sketchy cinema in East Vancouver. The question is, how do social coupon websites make you buy so many things you don’t actually need?

That's in thousands, by the way.

Looking at this from the store’s perspective, being featured on Groupon is like a glorified news ad. The time needed to browse Groupon is about 5 seconds. Traffic is growing like crazy. Those smart bastards also have an iPhone/Blackberry/Android app that sends you push notifications, forcing you to stay updated with their daily deal. Additionally, when you sign up for the service, you get the privilege of receiving a daily reminder in your inbox about what deal they’re currently feature.

The worse case scenario from a business’s perspective is not selling enough vouchers and ending up losing money for those they do sell. Solution: companies can set up a minimum amount required to be sold before the deal becomes valid. Today, Groupon has a 50% deal for hats at Edie Hats and Tart Boutique. You pay $25 right away but you actually get a $50 voucher redeemable at the store. Yes, 644 people as of 11:14pm actually bought this voucher. 644 people will likely be sporting new hats in Vancouver…that is, if they ever redeem the coupon before it expires. Assuming that all the purchased coupons are redeemed, it should be a win-win situation for everyone. You also have a choice to publicly announce your recent purchase via Facebook or Twitter, creating free advertising of them and a referral link for you.

Whoever thought of this website is a marketing genius, and I must tip my hat to you. When companies choose to feature themselves on Groupon, they are hoping to make their regulars buy more but mainly to get introduce non-supporters to their brand. Basically, they want to attract new customers and develop a relationship with them. In this value-based marketing era, it’s more than just trying to sell a $40 product for $20 and hoping to compensate for your smaller profit margins with a larger volume of sales, it’s about seeing that $20 customer as a potential lifetime supporter. The marketing textbook example is Starbucks coffee. Starbucks spends tons of money on their brand and image, because if their loyal customers buy their coffee every day for a year, they’re no long looking at $2 customers, but at $730 customers.

Breaking down Groupon’s strategy into the marketing mix learned in class, we have.

• Product – Anything!! Food, movies, clothes, services, luxury goods are all excellent products to market.
• Price – Doesn’t matter as long as it’s discounted. Groupon promises 50-90% off. Sounds good, doesn’t it?
• Place – They have services in almost all the major cities in North America. Convenience of online purchasing is a plus. Distribution is instant!
• Promotion – Discounts provide customers motivation to buy. Time ticker adds urgency: do I buy or not??? Many people buy things on impulse.

As I mentioned before, whoever came up with this idea is a marketing genius. In the future, we will not only start to see more look-a-likes emerge in the existing market, but we’ll also start seeing perhaps lesser-developed countries come up with their own versions. I, for one, cannot wait to see what their IPO will be.