Offers Groupon launched by traders produce substantial losses if poorly designed. The powerful advertising through Groupon lets you expand the customer base, but can destroy the profits if a trader were to launch an offer without thinking about the determinants of value and actions to maximize returns. We try to investigate in three posts related returns for a trader, creating a simplified model for estimating the net present value of a Groupon offer and then checking its sensitivity to the levers that mostly affect it (this article, the post I Grouponers and the Customer LifeTime Value (CLTV) , and the post Groupon value of a merchant deal: NPV model results).
The operation of Groupon is consciutissimo: coupon discounts highly significant (50-70%) purchased in group ( crowdsourcing ) via groupon for services of local merchants, from restaurants to travel, care for the person and another. The availability of large groups allows to obtain high discounts. Groupn is another case of a model two-sided-markets , where an aggregator (or economic platform) puts allows transactions between two distinct groups of users who benefit from the effects of the network platform. Customers benefit from other customers and therefore significant discounts, traders of a local community to attract huge. Feature is that trade groups give rise to transactions that are not necessarily paid by both groups: in some cases one of the groups recognize the platform committee for access to the other group. Groupon is no exception: it is totally free for users discount coupons and requires high commissions to dealers who want to promote their service to Groupon extensive list of potential buyers.
For the end user the value is immediate; traders have a new tool of advertising: instead of investing ‘ex-ante’ on potential contacts in mix traditional advertising, the dealer is drawn to the fact that the commission paid to Groupon only for each customer “already converted” into a sale of His service. This trend has created a new segment of Grouponers: customers looking for high discounts in Daily Offer Groupon. The risk is to make advertising in segments to the hunting of one offer and not interested in a long-term relationship. In fact, no not all traders get profits and two research dealing with this risk:
- ” To Groupon or not to Groupon: the profitability of Deep Discounts “dell’Harward Business School, which describes a model for estimating the profits and losses for traders who use Groupon
- ” How effective are gorupon pormotions for business “Rice Univesity, who LIST IS an interesting market research on over 150 commerciant the United States: 48% of catering operations recorded a net loss for the offer Groupon and is not interested in present it again, while 80% of the SPA (wellness) achieved profits. The article reports the minutes of interviews with traders about their experience.
Because this difference between the two types of exercises? Just because they carattetistiche business profoundly different that allow seconds to better use the levers of value offered by Groupon.
We define better the end of the merchant who makes an offer: incurs a cost to attract a customer via groupon (customer acquisition cost) with the aim to introduce its services so that the customer will become loyal and generate subsequent repeat purchases (at full price ) all along duration of the relationship with the dealer, who hopes to be as long as possible (!). The offer Groupon has produced value if the accumulated revenue will be higher than invested acquisirloe what was spent to serve. Although said in simplified terms, this is what is most strictly formalized by LifeTime Customer Value (CLTV). The CLTV is used by major companies of e-commerce, telephone, etc. to decide huge investments in B2C marketing, but it is less well known in the small shops that cater to Groupon for the first time.
To understand the importance of CLTV with an immediate example, we see the simple realistic numbers. What is the acquisition cost (SAC) that the trader claims in the case of the Groupon deal? As shown in the figure, it is equal to the revenues that the trader waiver, ie the sum of the discount to the customer and the Committee on Groupon. The analysis of tenders shows that coupons have an average discount of 50% (reaching 70%) compared to the normal price without bidding. This value is imposed by Groupon, because Groupon deals you have to characterize for senior discounts, given that this is the proposition of Groupon to end customers. Let’s assume for now, simplifying, that this price ante-off in the ads Groupon is real and not increased (some exercises then raise to compensate for the discount). The discount price is nominal coupon on the daily deals and is paid by the end customer (the Grouponers) to Groupon. Groupon holds on average 50% of this value as commission for his service to the merchant, turning the rest of the Merchant as its revenue. Ergo, the proceeds final offer (Rg) that the merchant receives is on average 25% of the revenue of the normal service. For example, a restaurant that offers a complete meal for 50 euros, will issue a coupon on Groupon value of 25 Euro ; of these 12.5 Euro are withheld from Groupon, and 12.5 euros are transferred from Groupon the caterer. This means that to use Groupon as marketing – marketing Groupon merchant has supported an acquisition cost per customer of 37.5 Euro per meal (transaction).
Normally, a restaurant has profit margin (PM%) final varies from 5 to 15% of revenues (We Simplify, depends on how you measure it, with respect to taxes, etc … see margins catering ). So normally on a meal (say high-end) 50 euroè plausible that the net gain is about 5-10 euro if we assume 20% excess. So no offer, the trader would have had a profit of EUR 10, spending 40 in service costs (food, service personnel, local costs. Conversely, the SAC supported the single meal with Groupon generates a loss of EUR -27.5 ( 50-37.5-40). We can understand that the dealer is available to this initiative if the customer acuquista other property in the same meal is not included in the offer and if, above all, will return several times to dine at full price. But already this trivialization, with a profit of 10 Euro for a normal dinner, the customer must return at least 3 times to get back to being profitable and recover the cost of an acquisition in the first offer.
The interviews in ” How effective are gorupon pormotions for business “speculate that, in the case of catering, Grouponers, ie the customers acquired by the particular model of discounts Groupon, are mostly” hit and run “: taking an offer, seek the next with no real interest to look for a favorite restaurant in town where boosting customer loyalty. If customers who accepted the offer, only a small part returns (retention rate), we can already see that there could be the basis for a loss. At best, the desiderìio not put limits to the customers who come from a merchant impulsive and not careful, would place him in the conditions also have to employ an i niezione of working capital is not planned for existing customers. Recall that Groupon, in its business model, strongly discourages limitations maximum number of coupons sold to offer. This is important given that often the exercises launch Groupon without guard to further profile customers, in order to postpone their offers direct and targeted to attract back.
Moreover, in the case of a restaurant, it also said that the places are limited, and there is also a risk that the Groupon deal is used not only by the new potential prospects, but also from regular customers enrolled in the local groupon, thus generating cannibalization of a transaction in full margins. After this first simplified analysis we are ready to return to the Customer Lifetime Value more rigorously in the post Grouponers LifeTime Customer Value (CLTV) , before the quantitative simulation in the post: Value Groupon for traders: NPV model results.
Published by Carlo Arioli