September 30, 2010

Is GroupOn selling rotten tomatoes?

And not the digital rotten tomatoes but the natural ones.

The heading is not just sensational; it is the kind of behavior that results from GroupOn’s business model.

GroupOn is a hugely successful company with a phenomenal method of helping businesses sell their products/services. When a deal is locked-down, the business is guaranteed revenue/customers and then they only have to spend effort in servicing the customers. What more can a business ask for from a marketing campaign

GroupOn is also very creative in marketing the deals from the businesses, which is part of the reason for their success. The creativity ranges from leveraging social networks to running unique campaigns to get their message out together with heavy advertising on the Internet. In return for the results it generates, GroupOn takes a large % of the deal.

Businesses benefit by using GroupOn in a variety of ways – guaranteed revenue, attracting new customers and a slick marketing campaign. However, for many businesses, it also becomes a tool to sell ‘rotten tomatoes’ to customers who are not knowledgeable. The rotten tomatoes could be overpriced or substandard products/services or getting rid of inventory that is not selling otherwise. Such deal examples are there in every business category - spas, restaurants, gym memberships, …

To continue growing as it has GroupOn has to vet each deal properly and keep their % reasonable which helps make the deals profitable for the businesses and incents them to provide better value. The businesses in turn should be focused on providing good deals to customers and resist the urge to unload the rotten tomatoes. A business model that ensures that each group (customer, business, groupon) benefits every single time, can last for a long time and help the deal renewal rates stay high.