Increases in the number of competitors made it more difficult to attract new Groupon subscribers, driving up the company’s customer acquisition costs and making it more difficult to offer a differentiated set of deal offerings. At the height of the daily deal craze, there was even a company called Groupon Clone which sold “build your own Groupon” software. Other daily deal sites like Living Social, Amazon Local, and Google Offers popped up to compete in the space. įrom the beginning, Groupon was aware that its model was extremely imitable and viewed scale as the largest barrier to entry they could create, leading them to pursue aggressive market and category growth.
Merchant profits might be further eroded as regular customers were replaced with coupon driven customers if a restaurant were full of Groupon-bearing customers on a Saturday night, it might turn away full-price customers unable to get a table.
Most deals were offered in unlimited quantities, resulting in huge influxes of unprofitable new customers that merchants struggled to convert into repeat customers willing to pay full price. For restaurants, one of the most popular deal categories, merchants often ultimately sold meals far below cost. Customers often received products and services at a 50% discount with Groupon taking half of the balance as commission, leaving the merchant with only 25% of the full stated value. Groupon pushed merchants to offer steep discounts to ensure compelling deals. Groupon would generate margin by serving as the platform between local merchants and customers.
Customers, on the other hand, gained access to compelling discounts and getting exposure to new products and services that they may not have been willing to purchase at full price. As companies evaluated against CPM rates for online marketing efforts, there was a strong appeal in Groupon’s proposition that merchants did not have to pay unless their offers generated sales. Merchants were able to access new customers without paying any marketing fees they’d see with other online and email marketing programs. Groupon was founded in 2008, offering online discounts for local businesses in the Chicago area.
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