NB: This is guest post by Daniele Beccari, vice president at Isango and a technology consultant.
Talking about Groupon gets people hot under the collar - and Stephen Joyce's excellent post last week, with all the related comments, proved it once again.
But although it is not immediately obvious, the model might just work for some tourism-related businesses, without them all seemingly "racing to the bottom".
Groupon simply channels the advertising budget of a merchant into the buyer's pockets (and in Groupon's, too).
It's like a cashback model on steroids. No wonder consumers love it - anyone selling at a 70% discount would make a splash.
The model simply doesn't work at these over-doped discount levels for most travel business structures.
But there are some cases where it can work:
1. Where there is either very low (or even zero) cost for the merchant.
For example, a restaurant, hotel or a cruise in low season, where the fixed costs remain the same whatever the number of guests.
Or a theatre with empty seats during weekdays. Or a museum empty most of the time.
At least, filling low season rooms at 25% of high season rate is better than nothing. And the empty theatre seats can be filled by customers who will enjoy the experience and hopefully buzz about it.
Here is one example sent to the Paris list.
2. When the merchant can afford a virtually zero margin, but manage to cross-sell something else.
For example, a theme park/resort ticket (ideally in low season) where people will end up buying souvenirs and eating at on-resort restaurants.
Cooking classes, where the course is free but you end up buying the book, the pan and the ingredients kit. Coffee vouchers at Starbucks where you'll end up buying the muffin and the nuts bar too.
Here from the San Francisco list.
3. When there is a chance to create viral buzz.
For example, a fitness center with amazing new machines, an exceptional dining experience, anything with such a unique service that people would not have tried otherwise, but once tried customer will absolutely tell all their friends.
Here is one from London - ever tried floating in salt water?
4. When someone had planned to splash money on advertising anyway.
An $8,000 billboard campaign for the launch of a new attraction or hotel/resort near big cities could have much higher impact by spending $8,000 with Groupon to get real footfall, and carefully manage the buzz generated (social).
Here is an example (although I don't think this was for a launch).
Let's also not forget that a decent-sized operation is required.
This provides not only lower marginal operating costs, but also the ability to absorb the impact of hundreds of customers that a small café with 4 tables would take years to absorb.
Wrapping up
Groupon's own CEO, Andrew Mason, says that 97% of merchants surveyed would repeat. But a recent Rice University study found that 42% would NOT repeat.
Clearly, there is still a learning opportunity in all sectors. But the global success of the Groupon model clearly shows it's not a fad: it appears to work everywhere at the moment.
We'll soon see Groupon-like deals showing up on travel sites as ancillary services: "hey, you're going to Barcelona, here are amazing deals for your stay in Barcelona".
But remember one final rule of thumb: customer segmentation. And, yes, Groupon customers can be loyal: to Groupon!
Some live their entire week with Groupon deals, and there are sites like LiveOffGroupon to help out. Let's not forget these are dealseekers, and they have subscribed to a daily deal site.
The next time a dealseeker goes out for dinner, they will first wait for the new Groupon offer to come in at 70% off, or worst case, get a decent coupon at restaurant.com.
If this is your target segment, then there might be something in it for you.
NB: This is guest post by Daniele Beccari, vice president at Isango and a technology consultant.