Groupon- Another Price Strategy?

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! 

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3 responses

  1. Groupon provides a win-win situation for them (as a company aiming to generate profits) and their customers. This is because they provide a product or a service at a discounted price but the catch is that there must be a certain number of people. Groupon managed to combine ‘the-more-the-merrier’ will be fun at AND at a cheaper price. With such great deals, it is why it makes people invite others to participate.

    I guess there is always a good and bad side to everything, so we have to know where to draw the line. Interesting post about Groupon. Hope you had a fun girls’ night out! =)

  2. In my opinion, Groupon is kind of effective promotion and great opportunity to let consumer understand those brands that provide Groupon service and product. Groupon pattern is getting popular all over world, lots of local services and products lay out on varies Chinese Groupon websites, most of teenage already accepted this win-win promotion approach. I think the prospect of Groupon pattern sale strategy is good in the worldwide range, because the original sale pattern and those offered services and products are relative with regular lives.

    • I see your point! But from the business point of view, I don’t think Groupon can be only a short-term strategy to rise some awareness to their stores.
      Companies can’t rely on Groupon for long term strategy or to earn profit from that. So I mentioned in the article that this strategy is too easy to copy.
      Customers will switch to other providers as soon as they find a cheaper offers. I still believe in developing and leveraging competitive advantages strategy- offering a superior customer service and consumer relationship management rather than focus on lower the price to attract customers. Thank you for your comment! ^^

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