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What is Groupon? How Does it work?

Groupon – a deal a day website, brings buyers and sellers together through a web and mobile application that offers the customers a great deal, while businesses get a large number of new customers.

Groupon Picture

The idea behind it is the power of group buying. The deal Groupon does with businesses specifies a minimum number of buyers. If enough people sign up, the deal will become active. If less than this minimum of people sign up, the deal is canceled. This way, businesses can offer great deals because they rely on valium.

The company offers one deal per day per a certain geographic location. It doesn’t cost the merchant a thing, but he has to share in the profits with Groupon. There are certain businesses that Groupon is staying away from; shooting ranges, abortion clinics, plastic surgeons and strip clubs, top their list.

The company sends scouts to different cities to research the businesses, and when they identify the potential, salespeople approach the business. By helping shoppers save while letting local businesses advertise, Groupon seems to have tapped into the intersection of the internet’s social media and physical shopping.

An example – 1,600 people in one day bought skydiving lessons in Chicago, getting a 44% discount on the $229 price. The company making the offer normally sells 6,000 lessons per year.  On one day they got 25% of their yearly business. They sacrificed some profit, but got lots of new customers.

And it sure feels like they hit a nerve. Groupon’s spectacular rise since 2008 turned meteoric in 2010. What started in Chicago with the first deal – half price off pizza in the building where their office was located – turned within a few short years into an amazing success. Groupon has expanded to 35 countries, growing their subscriber base by 2,500%, from 2 million to over 50 million.

With the sign of this huge success came attempts to buy them out. In October Yahoo was rumored to try and buy Groupon for $3 billion. A month later, Google offered $5.3 billion. Google was rejected in December 2010.

They now have a few competitors:  LivingSocial, Group Swoop and Scoop Street have tried to cash in, as have social networks like Facebook, with Places, and Foursquare, with Deals.

The main market of Groupon is composed of young, educated women. Deals are often focused on health, fitness and beauty.

Sources:

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