Group buying has been around for eons starting in China known as tuangou. Although there are lots of new competitors in the space, there is clearly a great deal of pent up demand from local businesses in the marketplace. I doubt that this form of consumer purchasing will die anytime soon.
One should ask themselves why there is so much pent up demand for group buying in the marketplace?
Some critics focus on poor efficacy rates for repeat business from Groupon customers. Others will claim that it is a fad. Still others will argue that the business running a Groupon campaign will not make money from the deal.
But what is the alternative?
The alternative for most businesses is to purchase ads in local print newspapers, create print flyers, and other more traditional means of marketing, which all require upfront costs from the local business. Most small businesses do not use online SEM.
The great advantage with Groupon is there are no upfront costs. (1) Businesses get thousands of impressions from the email marketing campaigns showcasing their deal. (2) If a deal gets executed the business gets guaranteed foot traffic and revenue from customers, which is trackable. (3) There is the potential to acquire a percentage of new customers as repeat customers. All of this with no upfront costs.
The reason I am very optimistic on the continued growth of this model of purchasing is that the market is validating it. You can see this from the explosive revenue growth numbers of group buying companies. And businesses recognize that it is much more cost effective and measurable to launch a Groupon than invest in the alternative.
So the analysis should not be what is the best or perfect solution for local businesses to acquire customers, but what is a marginally better alternative for customer acquisition. Group buying is.
For large businesses, I see a similar value. I would make an educated guess that Gap and Amazon spend a great deal of money on customer acquisition. Thus the group buying economics probably work in their favor. I would have a hard time believing that they lost money on their Groupon campaigns. Even if they broke even, it is a campaign that successfully drove millions of paying customers to their site, broke major headlines, and was great PR for both companies. Just because you are a big company doesn't mean that you do not appreciate this kind of attention.
We are witnessing the nascent stages in the evolution of group buying. Larger companies like Groupon and LivingSocial will build an incredible amount of data to mine for new initiatives like determining their customers' preferences and targeting them for secondary purchases. This is just the beginning.
One should ask themselves why there is so much pent up demand for group buying in the marketplace?
Some critics focus on poor efficacy rates for repeat business from Groupon customers. Others will claim that it is a fad. Still others will argue that the business running a Groupon campaign will not make money from the deal.
But what is the alternative?
The alternative for most businesses is to purchase ads in local print newspapers, create print flyers, and other more traditional means of marketing, which all require upfront costs from the local business. Most small businesses do not use online SEM.
The great advantage with Groupon is there are no upfront costs. (1) Businesses get thousands of impressions from the email marketing campaigns showcasing their deal. (2) If a deal gets executed the business gets guaranteed foot traffic and revenue from customers, which is trackable. (3) There is the potential to acquire a percentage of new customers as repeat customers. All of this with no upfront costs.
The reason I am very optimistic on the continued growth of this model of purchasing is that the market is validating it. You can see this from the explosive revenue growth numbers of group buying companies. And businesses recognize that it is much more cost effective and measurable to launch a Groupon than invest in the alternative.
So the analysis should not be what is the best or perfect solution for local businesses to acquire customers, but what is a marginally better alternative for customer acquisition. Group buying is.
For large businesses, I see a similar value. I would make an educated guess that Gap and Amazon spend a great deal of money on customer acquisition. Thus the group buying economics probably work in their favor. I would have a hard time believing that they lost money on their Groupon campaigns. Even if they broke even, it is a campaign that successfully drove millions of paying customers to their site, broke major headlines, and was great PR for both companies. Just because you are a big company doesn't mean that you do not appreciate this kind of attention.
We are witnessing the nascent stages in the evolution of group buying. Larger companies like Groupon and LivingSocial will build an incredible amount of data to mine for new initiatives like determining their customers' preferences and targeting them for secondary purchases. This is just the beginning.