How Groupon Works

Since its inception in 2008, the daily deal Web site Groupon has become tremendously popular and so much money – making that it passed on a $6 billion buyout offer from Google in the December of 2010! Groupon has accomplished or gained with effort astonishing fame and fortune by putting a remarkable spin on the boring & old coupons. But in order to get to understand that how Groupon works, let’s start with focusing on how coupons work in the first place. A coupon is what is called an item sold very cheaply to get people in a store. It is any kind of sale, promotion, discount or special offer that attracts customers to walk in the door.

How Groupon Works1

The business will usually lose money on the discounted items, but they speculate that the customer will also spend money on other items, and who knows, might even become a regular customer. Coupons usually have an expiration date and offer modest discounts; maybe a dollar off specific grocery store items or a 15 percent discount at a major store. Groupons are like coupons on steroids. The kind of deals which are offered by Groupon on a daily basis start at around 50 % off while can spike as high as 90 % cheaper than the usual or commonly price. Groupon can offer such great discounts because it pitches the business owners with a guarantee of a minimum return on their investment and the possibility of becoming an overnight popularity and exciting thing. Groupon states that the service which the company offers is a complete win – win for both the people and businessmen who are using a product or service through Groupon; however, there are some disadvantages. To better understand how Groupon actually works, we’ll use the example of Oliver Queen, the person who loves eating burgers and a local restaurant called The Big Belly Burger. Now, the fun starts when Mr. Queen (who uses a product or service) visits Groupon and signs up to get to know the featured deals in his city every single day. One fine morning, when he opens his Groupon e – mail, Mr. Queen finds a deal for $20 worth of food from The Big Belly Burger for only $10. Now as Oliver loves burgers but has not tried the Big Belly burger, so he clicks on the “Buy” link and purchases the regarding Groupon!

The first big difference between a usual or commonly and regular used coupons and a Groupon is that Mr. Queen pays the discounted price in the first place, even before he has gone to the Big Belly Burger. The $10 is split between v and the Big Belly Burger, which is normally done with a 50 % share for the both of them. The other major difference between a Groupon and a coupon is that Mr. Queen will be able to get the deal if some 20 more people buy the same Groupon!

This is how the “group” part of Groupon is justified. On the other hand, with predefined minimum number of instances of buying products, The Big Belly Burger is guaranteed a minimum dollar amount of sales, or else the deal is off. In this case, The Big Belly Burger wants to make sure it gets at least $100 in sales (20 people x $10 – 50 percent) if it’s going to offer such a generous discount. To help reach the lowest possible value, Groupon encourages Oliver to share the deal with friends on social networks like Facebook and Twitter. Lucky for Mr. Queen, the deal “tips” in a matter of minutes, meaning the deal is on. Moreover, every Groupon has two expirees; first is the one that restricts the availability of the deal and for how long they remain “live” on the Groupon Web site (a limited number of days; the Groupon Web site also provides a countdown clock). Once the deal is purchased, there is a second deadline by which the deal must be redeemed. After that date, an unredeemed Groupon is just a useless piece of paper (or barcode). To redeem the Groupon, Mr. Queen will have to either print the Groupon redemption code or use the Groupon app to upload the barcode to the screen of his Smartphone. At this point, the Groupon is just like a regular coupon. Mr. Queen orders a Swiss mushroom and cream along with a drink for a total of $22. With the Groupon, he only has to pay $12 (the $10 Groupon plus $2 over the $20 deal).