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Lets Disassemble / Reverse Engineer Groupon........ Please?

by momo3
15 replies
Hey guys

I hope this thread gets some love.

I am just curious


I know Groupon is, you know, real big.

And they must have MASSIVE ROI because their ads are now everywhere. Sometimes I see two ads on a page.

So they must have a very high Average customer value, right?

But how do they pull this off? I realize they sell a large number of things when they team up with a offline store.. but how is it done? what percentage of profits do they get? How much do they get per person? Is it such a great experience that people come back many times and establish a huge liftime customer value?

Anyone have any input on this?
#disassemble #engineer #groupon #reverse
  • Profile picture of the author RARMediaGroup
    Groupon works by getting companies to offer a coupon on their site. IF a certain amount of people pre-buy the coupon, people are able to buy the coupon for the store. Why is there a minimum quota per coupon? It forces people to spread word to their friends if they want the coupon. More customers, more money. Groupon receives up to 50% of what the coupon is sold at.
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  • Profile picture of the author Giani
    Groupon is a successful strategy and is present in almost every country. I know couple of people are trying to build similar product. But it requires large capital and resources.
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  • Profile picture of the author O0o0O
    Groupon is so successful because they're backed by Google. Google fronts millions of dollars in cash up front to get the business model going, and then uses its subscriber base of billions of users to get more participation. Without these starting parameters, it's virtually impossible for the average internet marketer to achieve these results. The only way to come close to that would be to create a Groupon-like business and sell it to a wealthy company, just like the previous owners of Groupon did when they sold it to Google.
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  • Profile picture of the author WillR
    I have heard that the most popular coupon site in Australia Cudo.com.au gets a 50/50 cut off the profits. So you can see where they start to make a lot of money very quickly.

    These sites have hundreds of thousands of members receiving their offers every single day of the week, and thousands of people buying them.
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  • Profile picture of the author MaxReferrals
    They also work based on breakage - or the % of people who buy the deal of the day, and don't redeem it prior to expiration.

    Think I read something indicating many in this space see 50% break or higher.

    So cash-in-hand today to Groupon and the Vendor.
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  • Profile picture of the author rafterman
    they siphon the life out of the profit the store makes
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  • Profile picture of the author jasonthewebmaster
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    I would be willing to bet that many businesses that decide to use groupon end up not being satisfied in the long run... due to over-inflated expectations.

    I mean... what business is going to be happy giving up 50% of their selling price... and that's AFTER a discount!!?!?

    Most offline businesses live and die by profit margins less than 10%.

    I just don't see how it's possible.. maybe I am missing something?
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    • Profile picture of the author Just_Mel
      Maybe something like this:

      A store agrees to place a coupon on Groupon. Say a $20 dinner for $10. They sell 1000 @ $10 = $10,000. For simplicity's sake, we'll say they break even with the food and labor costs for that. (We'll let the alcohol sales take care of the other bills for this little demonstration )

      Now let's say they pay Groupon $2 per action. That would be 1000 x $2 = $2000. So we have them down $2000 now (since they broke even on the dinner itself).

      As someone said above, there are many people who buy these deals (it can be quite addicting!) - but do not use them for one reason or another. 30-50% is a reasonable estimate. So, $10,000 x .3 - .5= $3,000 - $5,000

      Now we subtract what it cost per click ($2,000) & the company is in the black at $1,000 - $3,000.

      This is BEFORE the people who actually bought & USED the coupon come in - and many of them WILL spend more on top of their coupon. Maybe they bring a date. Or their family. Or drink a bottle of wine...

      Or come back...

      Anyway, that's my outtake on it...hope that it made sense!

      Originally Posted by jasonthewebmaster View Post

      I would be willing to bet that many businesses that decide to use groupon end up not being satisfied in the long run... due to over-inflated expectations.

      I mean... what business is going to be happy giving up 50% of their selling price... and that's AFTER a discount!!?!?

      Most offline businesses live and die by profit margins less than 10%.

      I just don't see how it's possible.. maybe I am missing something?
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  • Profile picture of the author MaxReferrals
    @jasonthewebmaster

    Yes, think of it as CPA. In many niches, they may have allowable CPA of -$5, -$10, $20, etc. cost to acuqire a customer, as their model is LTV. For example, catalogers like LLBean, Eddie Bauer, or multi-channels like 800Flowers or Omaha Steaks it's not unusual for them to run programs and pay up to those amts to acquire someone new.

    They do so simply to grow house lists and for LTV. So it's purely a customer acq play, rather than an immediate cash-flow/profitability play. Payback comes (hopefully) from retention and reorder, and during years 2, 3, etc.

    HIH
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    • Profile picture of the author johninmn
      Originally Posted by MaxReferrals View Post

      @jasonthewebmaster

      Yes, think of it as CPA. In many niches, they may have allowable CPA of -$5, -$10, $20, etc. cost to acuqire a customer, as their model is LTV. For example, catalogers like LLBean, Eddie Bauer, or multi-channels like 800Flowers or Omaha Steaks it's not unusual for them to run programs and pay up to those amts to acquire someone new.

      They do so simply to grow house lists and for LTV. So it's purely a customer acq play, rather than an immediate cash-flow/profitability play. Payback comes (hopefully) from retention and reorder, and during years 2, 3, etc.

      HIH
      HOWEVER, I have read quite a few articles saying that these customers are not turning into repeat customers. The Groupon customers are just bargain hunters moving from one deal to the next. Groupon is a good deal for a service business with no fixed overhead i.e.. a masseus who is slow will take $25 an hour as opposed to $50. But a restaurant that has fixed costs to it's food and staff can't afford to continually offer deals like this with customers not paying full price.

      Originally Posted by O0o0O View Post

      Groupon is so successful because they're backed by Google. Google fronts millions of dollars in cash up front to get the business model going, and then uses its subscriber base of billions of users to get more participation. Without these starting parameters, it's virtually impossible for the average internet marketer to achieve these results. The only way to come close to that would be to create a Groupon-like business and sell it to a wealthy company, just like the previous owners of Groupon did when they sold it to Google.
      That deal fell through. Groupon balked at the $6 billion from Google and now Google has their own local coupon thing called Google Offers.
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  • Profile picture of the author MichaelHiles
    Groupon customers ARE repeat customers if there's a backend program in place to train the repeat visitor behavior.

    And if you're trying to make money on your Groupon offer, you clearly don't understand the idea.

    Groupon allows people to incrementally pay you to sample your product or service. Instead of writing a check on the front end to buy visibility in the market, you are able to amortize the marketing cost of the campaign out of your operating overhead over a period of time (because not everyone redeems all at once).

    So it's really a CPA model that you pay for in the form of absorbing the cost for the Groupon deal into the operating overhead of the business.
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  • Profile picture of the author thomasmps
    The businesses do turn into repeat customers. The business does not have to do a 50/50 model. If you have any questions I would be happy to help out in thread because I have a wealth of info,fire away if you have questions.

    thomas
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    • Profile picture of the author Amber Jalink
      Originally Posted by O0o0O View Post

      Groupon is so successful because they're backed by Google. Google fronts millions of dollars in cash up front to get the business model going, and then uses its subscriber base of billions of users to get more participation. Without these starting parameters, it's virtually impossible for the average internet marketer to achieve these results. The only way to come close to that would be to create a Groupon-like business and sell it to a wealthy company, just like the previous owners of Groupon did when they sold it to Google.
      I saw it mentioned here, but thought I'd expand on it.

      Google did NOT buy Groupon - Groupon turned Google down, because they figured they could get more with an IPO (so far the $6 bill that Google offered is far below the current $25 bill the IPO is valued at, so looks like the owner wasn't fooled by Google's offer).

      Next: Google hasn't fronted anything to get these subscriber bases going - Groupon started off by mostly word of mouth in Chicago, friends joining - they have an incentive for friends to tell others. (Either $10 per referral OR a % of every purchase, your choice, but typically its not both, you have to decide which "referral" or "affiliate" program you want to use with them).

      Groupon pays ads up the wazzoooo across the adsense/doubleclick networks, that's why you see them all over the place.

      For the record, LivingSocial was apparently founded in 2007 - groupon in 2008, so LivingSocial was actually first. Groupon just looks like they did it "better", from what I've read, because of their aggressiveness. (Sales reps have been really aggressive and apparently some are "rogue", trying to get as much as 100% on deals rather than 50% of the profits).

      Hope this helps clear some stuff up.
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  • Profile picture of the author MilleronMarketing
    It's a great application of email marketing.

    Go to copyblogger and search for "kick groupon to the curb"
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  • Profile picture of the author Huskerdarren
    I'm not an expert on Groupon or Living Social but from my experience, they are addictive and we are only bargain hunting.

    My wife says proudly "I saved $20. The deal was $20 for $40 worth of stuff." I say, "you spent $20. If you had saved $20 it would be in our bank account, not in Groupon's. Nothing was saved, something was discounted, not the same thing." However, we're buying things that we would not normally buy because the discount is enticing. It can be a budget buster if you let it. I'm following the model closely to see how successful it is. So far, so good for them. I think their clients will have to see the value long term and use them more than once. For example, if a restaurant does it but deems it a failure, word will get out and other restaurants will be reluctant to try it.
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