What is Group Purchase?
Group purchase or say “tuangou” in Chinese is an idea that integrates purchase power from a group of individual, and then bargains with shops or restaurants for better deal, for example, a big discount. The difficulty of this idea is how to attract and gather a group of people with same purchasing interest, so before the internet era it is almost impossible to make it as a business model, and even before 2007, over twenty years after internet was introduced, group purchase didn’t appear to be a good business model, until Groupon – a small America startup set up in 2008.
What is Groupon?
Adopted the group purchase idea, Andrew Mason, the CEO of Groupon started the his startup company – Groupon.com in November 2008. As its name which combined by “Group” and “Coupon” indicates, Groupon works as an assurance contract using The Point’s platform: if a certain number of people sign up for the offer, then the deal becomes available to all; if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools. And as the key of this business model, Groupon makes money by getting a cut of the deal from the retailers.
Furthermore, Groupon is localized to major cities, provide deal of the day service, and mainly focus on intangible service such as dinner, SPA or bar, in this way Groupon not only avoid delivery cost for tangible merchandise but also utilize the idle capacity of the service providers. The first market for Groupon was Chicago, soon thereafter by Boston and New York City and Toronto, Groupon business model gained huge success very quickly and therefore it attract much risk investment, which make its quick expansion possible – by October 2010, Groupon serves more than 150 cities in North America and global wide, with expected $500 million revenue and $1.3billion company value in 2010.
What is Groupon’s advantages?
One of its advantage is that, Groupon only provided one deal (product or service), a model that update every day with great discount, attract many people to join. Thus people can only know what is on sales by enter Groupon website every day, foods, SPA, etc. and share this information with friends via SNS, email, twitter. And another advantage is Groupon only sales intangible product (or service), so it can saves a lot money, resource, and people from inventory management and logistics which are need to delivery tangible products, and leverage small investment to grow very quickly.
Whom Groupon service for?
Groupon serves for two groups of customers, one is web users, and the other is shops or service providers.
For web users, Groupon get the interest point of users, who are attracted and pay for the services with large discount, and via the limit of success group deal and information share and invitation among users, to make users interact via the internet. With the increase of the people who join the group purchase, a message was promote among users that this deal was more and more trusted. Thus this kind of 2nd tier spontaneous promotion among web users made Groupon model very success, and more people join Groupon, more active the Groupon is, plus media promotion, the No. of Groupon registered user increases for 200million every month.
For shops and service providers, who are usually small or media size, they usually can’t afford for ad in traditional media, and also find difficult to promote themselves in the infinite internet world. However, Groupon provide an excellent platform for these small service providers, who can make promotion which not only utilize the idle service capacity, but also attracted potential customers who may have second purchase in future, just as a free ad
What is Groupon product?
Groupon doesn’t provide any tangible product to both web user and service providers, what it provides is just information. It is easy to understand that Groupon provides web surfers information of great deal they can purchase immediately.
Groupon provides information of customers to service providers. Most of these customers’ average age is between 29~33 in Groupon, and they have both purchasing power and intention, service providers are exposed to customers via Groupon, and generate great revenue from the huge No. of customers, then through their good service or products attract these customer to make second purchase. So for shops, Groupon is a platform who provides precise customers information with very low cost, and is the best place to advertise and promote themselves.
What’s the matter about e-marketing?
As described in previous paragraphs, Groupon model could be a media platform for small shops and service providers to “post” ad via discounted products and services. Actually, in China, the origin of group purchase idea, Groupon model was so hot that was intimated by thousands of companies over night, and after almost one year crazy competition, the business model starts evolving in China. For example, Groupon.com makes money via sharing the profit of group sales from the shops, however in China, some big web portals who have their own “Groupon” business, use this model as a pure media platform, that is – they even don’t expect revenue for short term, the platform was are completely free (no fee for ad and no share for the sales profit) for shops and service providers, what these web portals want is just the same of the shops – to accumulate customers and promote their brand; once they become the largest one in this group purchase market in China, that means tens of millions registered web surfers and tens of thousands shops, they can make huge revenue easily, and there are plenty of this kind of examples in internet history.
Group purchase model will impact current e-commerce and e-marketing method profoundly, and of course, there will be huge opportunities worth to pursue in it.