December 21, 2010 Leave a comment
Groupon, the king of Local Commerce, has taken the world by storm. Within 2 years the company is worth more than $6 billions. And they might be on verge of IPO sometime next year. Local commerce accounts for the biggest chunk of user spending all over the world. Here is an analysis about the current market scenario and the opportunities that it opens for new players who want to enter this nascent industry:
Benefits – Retailers
Groupon provides following benefits to retailers:
1. It brings customers to the store/shop.
2. Retailers pay only when the customers come in (performance based marketing)
3. There is a “minimum threshold” for the number of groupons to be sold. This provides incentive to retailers because it increases their footfalls.
4. “Free marketing” for retailers: They do not have to pay “cash” to do the marketing. Groupon does it on their behalf. Although retailers pay in the form of “service” but they prefer to do that because that’s what most small retailers are more comfortable with.
Benefits – Customers
Groupon provides following benefits to customers:
1. It offers them deep discounts (around 50%) to use the retailers’ services.
2. It introduces good /exciting unheard services to the users.
3. It is very simple to use.
4. Daily deals via email keeps things simple and exciting.
Groupon’s success Factors:
1. First mover’s advantage
2. It creates a sense of urgency with buyers because the deal will close in one day.
3. It is simple to use
4. Brand value
5. Users find the anticipation of a new deal exciting. “What’s the Groupon of today?”
Issues – Retailers:
1. Most retailers are not used to handling a sudden rush of customers in their premises. Groupon provides them walk-ins that are multiple times their usual walk-ins. This puts a lot of pressure on the operations of the business. It affects their customers service also, impacting the regular customers as well as the groupon customers.
2. Retailers give deep discounts to get new customers in hope that these customers will become their permanent customers. Unfortunately, most groupon customers are “price-sensitive” customers who usually do not return to the retailer after their “groupon” discount is over. In short: This acquisition strategy does not work because the customers are not “acquired”.
Issues – Customers:
1. Customers want to use groupon (upto 50% discount) and also want to get good service. Usually these 2 do not happen together. This is because of 2 main reasons: a) When a retailer is promoted on groupon, their customer service suffers (due to above said reason), and this impacts the groupon custoemer. b) Retailers sometimes do not “treat” groupon customers with 100% customer service and attention because they know that these customers are “disounted” customers and therefore most likely not “return customers”.
1. “Acquisition” strategy should acquire customers. Groupon provides new walk-ins into the stores, but it is not able to “acquire” customers for retailers. In the end, retailers end up paying deep discounts without getting new regular customers for this business.
2. A new solution is required that would “acquire” customers for Local Retailers. This is a nascent market and any new comer who focuses on converting a new customer into a regular customer will have an edge.