Last Friday I had a fun night out with my other 5 girlfriends and we decided to watch a ‘girl movie’ together instead of clubbing as usual! That’s because one of my friends got a great deal from Groupon Australia to get 7 $ instead of 11$ at Hoyts cinema. It’s not bad right? However to get this good deal, my friend had to buy 10 tickets! The more amounts you buy, the less you pay!! The movie was great, only it got me nostalgic of my teenage’s leisure time.
This can refer to ‘aggregated buying’ which is one of pricing approaches that buyers as a group buy a number of items to receive a volume discount (Chaffey et al 2009). You can see the introduction to Groupon video as below:
It makes me wonder whether this is a really effective strategy for business or not? From the strategic perspective, it seems like another kind of direct-mail marketing and coupon. Later on I read Are We Approaching the End of the Daily Deals Era? from Mashable by Ben Parr who states that there is a decline market of daily deal in the U.S. This can be seen from the movement of two massive players in the market –Facebook and Yelp who called off their deal offer product. This is because they have faced a declining market of the daily deal. Facebook has tested the Deals products for four months by using Ads, Pages, Sponsored Stories, and Check-in Deals to assist local business. After four months, Facebook decided not to continue the Deals product. Because it has turned out that the daily deals didn’t work for the users. The same as Yelp who has a core business of giving local reviews begin to diminish their daily deals product after 11 months of running the . Groupon as the first company who started this business also lost 50% of its website’s traffic since July 2011.
The reasons this happens maybe because the oversupply of daily deals market as there is a high competition in daily deals offering. Groupon’s business is so easy to copy. Subscribers are overwhelmed by the large amount of offer emails. Another reason is consumers will only take the best deal with the lowest price and will continue to look for one. It seems like Groupon has becomes just one the pricing strategy for those businesses, which doesn’t seem to address the problem of creating long term relationship with customers or customer retention. Customers who are attracted by deals are also likely to expect the goods and services at the deep discount priced offered in the future. With many of the same deals being offered by Groupon and its competitors, customer retention will be hard to achieved. As businesses continue to compete in offering deals, customers are likely to shift to other providers who offer a better deal with a better price. This will likely drive the overall profits down for many businesses.
One more important thing is that, instead of attracting new customers with the deals through Groupon, some of the deals might actually be used by existing customers instead. Advertising with discounts through Groupon might not always have the intended effects of getting new customers! And I’m telling you Groupon is not cheap they take 50% commission !
Next Friday my girlfriend will definitelyask me to watch movie at Village cinema instead of Hoyts cinema if she gets a lower price!