Was the Groupon Business Model ever sustainable?

Avatar_DM_MoneyvsToolsI read a news item on the BBC’s website today about the Chief Executive and Founder of Groupon losing his job after the on-line voucher company confirmed another quarterly loss which resulted in a 24% slide in its share price last week. In total, Groupon’s shares have lost 77% of their value since the firm was floated on the Nasdaq in November 2011. It seems the biggest concern for investors was that its business model (offering bulk discount deals) was unsustainable.

I have plenty of discussions with clients about the benefits (or not!) of offering discounts as a means to attract new customers. I have always recommended against this type of strategy as 1) it reduces your margins for sales that should be able to stand up to their own value and 2) it attracts customers whose prime focus is cost-saving.

Business owners often believe – mistakenly – that customers only buy on price. Whilst this may be true for commodity type products, more typically there is a whole range of factors that contribute to buying behaviour, from the customer’s perception of the brand to their expectations of what the product/service can do for them. The key factor is ‘value for money’ and this does not mean ‘cheap’.

This is particularly pertinent to businesses who provide services rather than products, as the value proposition is influenced by many aspects, of which ‘low cost’ is usually the least important. If you do wish to use offers to attract new business, then always make them ‘add more’ to your usual product or service, and never let them ‘cost less’.

If you’d like to know more about how Dangerous Marketing can advise you to use this approach to grow your business, contact us now.

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One thought on “Was the Groupon Business Model ever sustainable?

  1. Interesting question and something I thought of as well. I don’t think its sustainable for a lone company but maybe as part of a conglomerate.

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