The Golden Football and the Economics of Groupon
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The Golden Football and the Economics of Groupon
1–10 of 21 posts
Re: The Golden Football and the Economics of Groupon
#2"Gory" detail, I like it.
Re: The Golden Football and the Economics of Groupon
#3None of this carries over for non-monopolistic markets. Are monopolies the only place Groupon makes sense?
Re: The Golden Football and the Economics of Groupon
#4None of this carries over for non-monopolistic markets. Are monopolies the only place Groupon makes sense?
Depends on how you define monopoly. The analysis is intended to cover any business that faces a downward sloping demand curve. That is, any one who is not a price-taker. A monopoly certainly does.
Re: The Golden Football and the Economics of Groupon
#5I was under the impression that this was a good deal for businesses because they'd just offer the product less their normal costs for advertising/marketing, since groupon did that for them.
They spend less getting the product out (and get an almost guaranteed big order!), it costs less for the consumer, groupon takes a small cut, everyone wins (in theory).
Re: The Golden Football and the Economics of Groupon
#6Like the Bucaneers did with their debut season, no one scores with a golden football.
I like the framing of the problem. For SMBs, their path to happiness is determined as either an economics or a marketing problem. And frankly, most business owners just aren't that savvy and they don't know what they want but desperation, and no layers of bureaucracy, lets them try crazy things.
Your product or service is valued accordingly, if it's not garnering as much demand then change the pricing. That's economics.
If you want more people to buy your products at your price then you spend more money research capture that top happiness triangle. That's a marketing problem.
Companies will pitch to SMBs and conflate the two problems. Their ad copy and sales team will tell you all the tantalizing promises of success in the far off mountains, if only you are hardened and wise enough to climb it.
MacHeist came along and tried to solve the economics problem for developers. People clamored that it's good to sell $500 software packages for $49 but don't consider the additional 2,000 low-end customers--customers that wouldn't try the software anyways--indie studios have to support. Not all customers are the same.
Foursquare came along and is trying to solve the marketing problem for SMBs but where's the value proposition? What do you advertise to people that have already checked in to somewhere?
Groupon is the Digg of foot traffic.
Re: The Golden Football and the Economics of Groupon
#7I wonder if part of the reason for groupon's success is that businesses need to drop their prices because of the recession. Instead of directly dropping prices though, Groupon allows businesses to keep their headline prices as they were, but run these deals. The business owner feels better and more secure - it isn't a price reduction, it's a marketing exercise. But I wonder what the rates of repeat deals are? Any research on that?
Re: The Golden Football and the Economics of Groupon
#8[deleted]
Re: The Golden Football and the Economics of Groupon
#9I was under the impression that this was a good deal for businesses because they'd just offer the product less their normal costs for advertising/marketing, since groupon did that for them. They spend less getting the product out (and get an almost guaranteed big order!), it costs less for the consumer, groupon takes a small cut, everyone wins (in theory).
GroupOn isn't taking a small cut, they're taking 50% of each deal.
Your theory may be correct if they were only offering the discount, but in addition to the 30% a business has to offer, they then have to pay 50% of the deal to GroupOn. So, GroupOn allows them to eliminate ad costs via the discount, but then tacks their fee on top of it, which crushes any hope of margins for the business.
Re: The Golden Football and the Economics of Groupon
#10I was under the impression that this was a good deal for businesses because they'd just offer the product less their normal costs for advertising/marketing, since groupon did that for them. They spend less getting the product out (and get an almost guaranteed big order!), it costs less for the consumer, groupon takes a small cut, everyone wins (in theory).
GroupOn isn't taking a small cut, they're taking 50% of each deal. Your theory may be correct if they were only offering the discount, but in addition to the 30% a business has to offer, they then have to pay 50% of the deal to GroupOn. So, GroupOn allows them to eliminate ad costs via the discount, but then tacks their fee on top of it, which crushes any hope of margins for the business.
Which is why ultimately group-on will be squeezed. There are group-on clones springing up like crazy, primarily focused on increasingly small niches. Hell I just heard about a mommy-focused version that launched only two months ago and is doing really well. They're also taking a much smaller cut. It's really hard for group-on to defend it's turf, as you only need penetration in one city to supplant them in that city (or at least compete really effectively).
Ultimately those cuts are going to be under constant assault. It's really a race to the bottom, but it's going to be a money train until they get there.