We asked some of the top business bloggers for their take on the Groupon business model. Over the next several weeks, we will be posting these articles on the Groupon business model.
Our first post is by Vicki Thomas- Groupon is in the news more and more these days and particularly so with the rise in competitors in its space including Livingsocial and Wagjag. All three companies offer daily deals that include categories such as restaurants, travel, clothing, and salons.
The premise and business model is fairly simple: a location specific daily deal is sent out via email to subscribers and offers a substantial discount on a product or service. For example, in my city of Ottawa, ON, Canada, today’s Groupon featured a 50% savings on tickets purchased for the Rideau Canal Festival, allowing me to buy tickets for $10 instead of $20 – a substantial savings particularly for families. But the catch is that a specific number of people must also buy the deal in order activate the deal. As of writing, already 10 people have purchased today’s Groupon – so the deal is on.
I get a daily Groupon email and I’ve never bought a deal. Perhaps I’m jaded and I’ve read too many articles about how Groupon has hurt small businesses or maybe I’m simply not an impulse buyer? I wonder how many people simply scan the email and send it to the trash? Based on Groupon’s apparent success rate and the number of competitors, it is obvious that more people are following through on these deal emails than sending them directly to the trash.
This got me thinking about coupons, and more specifically the coupons that arrive weekly in my mailbox – yes I’m talking Val-Pak. For some, coupons are dead and are a relic of the older days. I’m a heavily Internet-connected late 30s tech-aware consumer and yet I still open my envelope of Val-Pak coupons. I look at each and every coupon and from time-to-time I keep a coupon or two.
This has me wonder if the Val-Pak business model can still survive in the age of Groupon? Are the business models of these seemingly different businesses really that different? Both companies want you to take them up on their offer and seek out the businesses they are effectively advertising and promoting. The difference seems to be that Val-Pak sticks with a steady roster of companies, showing that there is a value for the investment for these companies and on the flipside, it is very rare for a company to follow-through with a second Groupon deal.
In fact many companies have tasked their marketing folks with writing very popular and at times inflammatory blog posts and articles about how the Groupon daily deal has cost them more money and caused them to lose regular clientele. Once café reported losing $8,000 from a Groupon deal. You never hear this kind of backlash or loss of profits when it comes to Val-Pak coupons.
So does this come down to business model or is there something else behind the longevity of Val-Pak and similar coupon companies? The power of negative publicity really can do a lot to impact how consumers perceive a company. While Groupon has lots of great press in business magazines, for example Fast Company wrote “Groupon is the most exciting thing to happened in retail since eBay” and proceeded to shower founder and CEO Andrew Mason with multiple accolades. It is interesting to learn that Groupon really was an accident, Mason originally started a company called the Point, formulated as social justice platform that existed to help solve the world’s unsolvable problems. But the problem was, the Point wasn’t paying the bills or generating revenue – hence the creation of Groupon with the idea that Mason says “Groupon would let us pay the bills while we continue on this altruistic change”. Mason goes on to say that he is still holding his earlier mission in focus and that when “people buy half-off deals they were playing a part in revitalizing the local economy”.
Ah, so this is all well and good, for Groupon but the small businesses who decided to get involved often end up losing money and they aren’t quiet about it. A quick search on the Internet reveals a high number of companies who are outspoken about their Groupon deal that did the opposite of expectations.
And Val-Pak? Well this business has seen some shifts in its business model but has managed to survive the Internet boom. You can now download coupons directly from the website and an Internet search finds many testimonials and reports from companies lauding the success rate they’ve had with the Val-Pak relationship.
What this really comes down to is whether Groupon can survive the negative publicity to continue to make money and convince companies to buy-into the benefits of the 50% savings deal. Groupon obviously has a strong team of marketers and accountants behind it to keep a keen eye on spinning the media churn as well as keeping an eye on the financials. Groupon probably could benefit from looking at the Val-Pak model, how can a company that has weathered the shift from coupon clipping to online buying managed to adjust and change and remain a trusted and reliable way for consumers and businesses to profit.
The Groupon versus Val-Pak dichotomy is an interesting one. On paper it seems that the business models for each company are closer than an initial glance reveals – who will be around five years from now? Can Groupon and Val-Pak co-exist?
