Wednesday, November 18, 2015
Business Insight: Failure of Groupon
TechCrunch reported that the end of Groupon is in sight.
Unfortunately, Groupon's demise was something that we had predicted as early as 3 years ago. Starting out with a bang and flushed with investor cash, Groupon was able to rapidly build an initial client base. Unfortunately, Groupon's business model was fundamentally flawed as they did not seek to make money with their business partners (the retailers), but from them.
This is seen in Groupon's demand for high commission rates of 30-35% while insisting that retailers offer customers "exceptional" deals. What happens at the end of the transaction is that Groupon and the customer wins with the big loser being the retailer. Adding fuel to the fire is that the low pricing self-selects bargain hunters who, by their nature, will never pay full price for the retailer's service. Thus what was supposed to be an introductory offer, often became a one-off sale.
Given the lose-lose situation facing retailers, it was inevitable that retailers would abandon using Groupon as a marketing platform. Couple this with the negative feedback on the effectiveness of using Groupon's services, Groupon's demise was inevitable.
About CWFA. As part of CWFA's PR consulting work, understanding the business model of our client and the industry they operate in is imperative. Without a clear sense, CWFA would be unable to adequately advise our clients. This unique business perspective is what separates us from other PR firms.
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