Local deals business model

Local deals business model

Local deals business model

Groupon, the group buying site offering daily deals, has proven to be wildly popular with consumers. Great discounts are given for restaurants, retail stores, spas, theaters and much more. People love discounts, especially during hard times when money is tight. Investors also are enamored with Groupon. Now all eyes are on the Chicago-based firm to file for an initial public offering before the year ends. A Groupon IPO will likely generate a fortune for early investors, according to market analysts.

How Does Groupon Make Money? Groupon Business Model In A Nutshell

Groupon, the group buying site offering daily deals, has proven to be wildly popular with consumers. Great discounts are given for restaurants, retail stores, spas, theaters and much more. People love discounts, especially during hard times when money is tight. Investors also are enamored with Groupon.

Now all eyes are on the Chicago-based firm to file for an initial public offering before the year ends. A Groupon IPO will likely generate a fortune for early investors, according to market analysts. Launched in , Groupon is a fast growing company, having transformed the world of online shopping. It has boosted the number of markets where it operates to and has 70 million subscribers. It has a staff of 1, working at locations in cities throughout the U.

Who s not loving Groupon? It appears to be merchants. A study by Rice University s Jesse H. Jones Graduate School of Business surveyed small to midsize businesses in 19 cities spanning 13 product categories. Findings revealed 66 percent of the merchants said the Groupon promotions were profitable while 32 percent said they were not. More than 40 percent of the companies wouldn t run a Groupon offer again.

Restaurants fared the worst among service businesses with Groupon deals, while spas and salons were the most successful. The real deal is that any business looking to use Groupon, or one of its competitors like LivingSocial, must have a much broader perspective. You don t want to devote a lot of your budget to these daily deal sites. Such a promotion has to be part of your overall marketing plan along with how you are using Facebook, Twitter, Google Adwords, and so on.

You can make a deal as long as it s the right one for your line of business. The problem is that businesses often go into a promotion without a good understanding of what they want to accomplish. The Rice study found that the ability of employees to handle the surge of business from bargain shoppers, for example, was critical to the success of that company s particular promotion.

The way it works is that Groupon offers different deals each day for a local good, service or event in a city where it operates. Discounts range from 50 percent to 90 percent off. The promotion is only valid if a certain number of consumers purchase the deal within 24 hours. Groupon keeps 50 percent of the revenues from each coupon deal.

Business owners don t think through their costs and how they are going to make money on the promotion. They don t recover it from customer behavior," he explains. Take for instance a massage therapist who complained that everyone who came in for his promotion got a massage and then walked out. Most of them didn t spend anything beyond getting the freebie. He lost money on the promotion itself and there was no way to recoup that lost. Dholakia suggests that instead of promoting a particular service such as a massage or a facial, the owner should have promoted a particular dollar amount.

This increases the chance that the consumer will come in and buy more than just one item. Now a newbie might come in to get a massage but then decide to get a facial as well. You have to prepare your staff to engage customers. You have to be careful how you structure the promotion," says Dholakia. Groupon has its pros and cons, so, you need to decide if this is something worth your business getting into.

Here are five reasons in favor of and five reasons against group buying promotions. Dig Deeper: It attracts a lot of consumers. You can reach new customers by appealing to those who are looking for inexpensive deals and a chance to save money. You get to charge lower prices to new customers who aren t willing to pay more. Existing customers are willing to pay full price for products or services.

Dholakia says that Groupon promotions offer the most benefit for businesses in which the promotion does not cannibalize sales to existing customers. It advertises your business. A Groupon promotion can be a way to announce the existence of your business to consumers who are unfamiliar with your products or services. You get to entice potential customers to try your goods. The idea is that they are going to like it so much that they will come back and buy from you again.

You must make your promotion grab consumers but at the same time increase your potential conversion rate for repeat customers, says Dholakia. It helps move inventory. Use Groupon deals to sell slow moving items in your inventory or unutilized services. Discounts seem to be most compelling for merchants with low cost of goods sold. Use price deals to promote a product that is not that expensive.

A Groupon type promotion should be something that you do once in a while for a specific, narrow, limited reason, adds Dholakia. It builds relationships. Use price promotion deals for building customer relationships rather than just creating one-time buys, recommends Dholakia. Don t offer discounts on a total bill, rather offer a specialized discount for various products or services.

It generates incremental revenue. If you have a low-cost or fixed-cost structure, you can make money on promotions. Take an owner of a rock-climbing business that has existing equipment and a storefront. The operating costs don t change based on the number of people who show up. A coupon deal can actually generate some extra cash by getting more bodies into the facility. Dholakia says each merchant must know their costs, factor in a price that draws customers, project the number of costumers that will buy the coupon, and estimate incremental revenues.

How Groupon Works for Small Businesses. Cons 1. Deals attract low-end bargain seekers. Because the Groupon customer base is made up of deal-seekers and bargain shoppers they might not be willing to purchase beyond the value of the coupon. So, there are low rates of spending and low rates of return. One problem with price deals is diminishing returns; thus, merchants need to put a cap on the number of deal coupons that are to be sold, says Dholakia.

Deals hurt the brand. The obsession with price doesn t necessarily make for a lot of brand loyalty or even brand awareness. One negative aspect of daily deal sites is that price promotions usually hurt the brand of the company offering it, says Dholakia. It makes customers price sensitive. When they get something at a much lower price, they then become less inclined to pay full price for that same product or service in the future.

Deals don t generate repeat customers. Groupon has a low conversion rate for repeat customers, according to marketing experts. You may never see the person again once they use your coupon. Or that person may not be willing to buy from you again without a coupon in hand. The percent of new customers that redeem the voucher that becomes repeat visitors of the business is estimated at around 19 percent. It varies by product categories. Deals are not profitable.

Another problem is the split. If you do the math, merchants need to gross margins well in excess of 50 percent for Groupon to work for them. The promotion is very steep, usually 50 percent or more. Most businesses are built on margins of 75 percent, which means if the customer just comes in and buys the deal, the owner is going to loose money, says Dholakia.

Restaurants usually have higher margins. There are better deals out there. Daily deals sites are not the only game in town. You can run a similar promotion for less money. There are plenty of marketing programs you can use; does it make sense to use this one, asks Dholakia. For example, you can offer a discount or promotion on a Facebook fan page. It s an effective way to engage new and existing customers at a very low cost, he adds.

How Groupon Can Boost Your Company s Exposure The bottom line is that a good deal or promotion should attract customers, give them the flavor for your company s products and services, and then let them buy whatever they want at full price. You re about to be redirected We notice you re visiting us from a region where we have a local version of Inc. Today s Must Reads. Forgot Password? Enter your email to reset your password.

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Should I Use Groupon? Don’t Be Tempted By The Dark Side

Groupon has been hailed as the new miracle advertising tool. It has also been accused of being a ruthless corporate giant, preying on the ignorance of small businesses. Since its inception in November , Groupon think social media meets coupons has transformed the way local businesses promote their products and services. First, you agree to become a featured business on their network.

This post is sponsored by Hot Sauce.

As traditional media options fade away, mom and pop merchants are desperate for new, effective marketing avenues that build their business and their brands. Groupon and the other daily deal sites appear to be the answer by bringing in new clients with no upfront expense. Read More: Groupon Is Good for Business.

Bice: Groupon Isn’t a Good Deal for Businesses

Presently, thousands of websites are generating revenue from daily deals business model introduced by Groupon. The deal-of-the-day concept that Andrew Mason introduced in become a global phenomena. Even after so many years, it has not lost its sheen and entrepreneurs are still willing to invest in the deals idea. However, how to get started is a major challenge. This resource will simplify the task for you if you want to create a daily deals website.

WATCH THE VIDEO ON THEME: The Business to Business Shout - Simple Local Deals

Will Groupon Really Boost Your Local Business?

The other day, a friend and I were chatting about our wedding linens business and the topic of Groupon came up in our conversation. For all of you who are not familiar with Groupon , Groupon is a service that offers a really great deal for a product or service once per day. On the surface, it sounds like a great way to market your business and I was really excited about the idea until I thought about it some more and did some analysis. If you are interested in learning how to start your own business, click here to take my FREE 6 day mini course on ecommerce. You might have read some Groupon horror stories already, but the reality is that Groupon is extremely expensive. If you look at their faq, they give off the impression that running a Groupon campaign is free. They collect the money online from prospective customers, send you a check and mail out the coupons automatically. For our online wedding linens business, most of our customers are one off wedding customers and the other half are party planners and small business owners.

The 4 Types of Online Discount Websites You Could Start

Click on the Add to next to any video to save to your queue. Click on the Add to next to any article to save to your queue. Click on the Add to next to any podcast episode to save to your queue. Click the Follow button on any author page to keep up with the latest content from your favorite authors. This excerpt is part of Entrepreneur. In this edited excerpt, the authors describe the four kinds of online coupon or daily deal sites you could choose to start.

How to Make a Deal of the Day Business

Kirk Jamison is a savvy guy. The daily deal sites rang his phone non-stop, yet the concept never made sense. I couldn t provide a 50 percent discount and then give half of what s left to a deal provider. I need to be able to control the type of deal that goes out, how many are sold and retain the ability to make a profit," he told me recently. New customers through word-of-mouth, the ability to control the type and amount of deals offered, and making a profit. Those sound like pretty reasonable requests from a local business owner trying to make a living. Sadly, he is right that the daily deal industry often falls short on not one, not two, but all of these goals. In the meteoric rise of the deals industry, local merchants have found that they receive once-and-done boatloads of deal-seekers, must customize their offer to meet the needs of the deal provider and are unable to create offers that are profitable because of the strict constraints imposed by deal vendors. It s a world set up for the deal providers success, not the local merchants and it must change. Incentivize word-of-mouth:

Groupon s Evolving Business Strategy

Two different "deal of the day" business models exist on the Internet. Deal of the day sites sell an actual product, such as deeply discounted cell phones or refurbished computers, instead selling the discount itself. Startup processes for the two businesses overlap before branching off into the unique needs of each service. Draft a rough business plan specifying the type of daily deal business you want to operate. Zero in a name for your business and the geographical area your site will serve. Register your business name with state or local authorities depending upon your state s requirements. Secure a sales tax authorization from the state department of revenue. Buy a domain name for your deal website and begin setting up the site.

Groupon business model has substantially developed over time. The company is a marketplace, just like Amazon or Alibaba, but at the same time it operates differently from a usual marketplace.

Hot Business Trend: The Deal Of The Day Model

Click on the Add to next to any video to save to your queue. Click on the Add to next to any article to save to your queue. Click on the Add to next to any podcast episode to save to your queue. Click the Follow button on any author page to keep up with the latest content from your favorite authors. This excerpt is part of Entrepreneur. In this edited excerpt, the authors discuss how to locate and attract merchants so you can populate your site with deals your customers will love. Daily deal sites need deals and coupon sites need coupons. While there are several ways in which you can procure coupons, daily deals will come primarily through building relationships with merchants or having sales reps do that for you. With a little salesmanship, you can get those first merchants on board. Merchants need to know that you understand their needs and their parameters, such as how many customers they could possibly serve. For example, a seat restaurant can t manage people redeeming a voucher in one night.

Groupon business model is a two-sided marketplace where local consumers meet deals from local merchants. The company makes money by selling local and travel services and goods. Its value proposition based on attracting local customers to local merchants is quite compelling. Local consumers instead get savings and discounts that they would not get elsewhere. The company measures its financial success in gross billings and revenues growth. How Does Airbnb Make Money? Groupon business model is based on a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Groupon in part replaces the traditional media that local businesses have used over the years to generate sales at a local level. This includes: The value proposition is quite simple:

Two of the best ways to make money from home is to help people save money or time. With a coupon or daily deal site, you can do both. Although the Internet is littered with savings sites, if you can find your niche and provide a great service, you can do well. Here are tips to starting your own coupon or daily deal site. If you re ready to make money helping others save money, here s how to get started with a coupon and daily deal site. Coupon sites offer coupons or resources for coupons whereas daily deals offer deals for a product or service. Running a coupon site allows you to use affiliate or aggregator sources and pays a percentage. It is possible to have a site that offers both. Instead, pick a market you want to cater too. For example, you can provide health, wellness and fitness coupons or deals. Or focus on baby product deals. Also check that the name isn t already taken or tradmarked. Your goal is to create a website that is easy for your visitors to use.

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