Have you ever purchased anything using discount coupons? If yes, you might have probably come across Groupon. This company is a platform where you find tons of discount coupons for merchants. If anyone wants to avail or search for any discount deal – Groupon can be the exact thing you should look into. But how Groupon provides you with great discount deals and earns for itself?
What exactly is the business model of Groupon?
In this article, I would aim to explain the business model of Groupon.
A Brief Overview Of Groupon
Before we begin with the business model of Groupon, we should look into a brief overview of this company.
Groupon was launched in 2008 and is an American company based out of Chicago. The name is a portmanteau of “group” and “coupon”. The company went through an initial public offering (IPO) in 2011. They put 35 million shares of its Class A stock at $20 per share. In this IPO, they were able to raise $700 million. This was one of the largest offerings by an internet company at the time after Google went public in 2004. Groupon was valued at over $1 billion after just 16 months in business, the fastest company ever to reach this milestone.
Groupon has served markets in several countries including, the United States, Canada, Ukraine, Germany, Greece, France, the Netherlands, Belgium, the United Kingdom, India, Indonesia, Ireland, Israel, Denmark, Thailand, United Arab Emirates, New Zealand, and others
- Founders: Andrew Mason, Eric Lefkofsky, and Brad Keywell
- Headquarters: Chicago, Illinois, U.S.
- Employees (As of March 2023): 1200+
- Total Revenue (As of Dec 2022): $148 Million
- Official Website: Groupon
Business Model Of Groupon
Like many companies, the business model of Groupon has evolved and changed over time. Having discussed a brief overview of Groupon, let us go straight to understanding the business model of Groupon.
The Initial Business Model Of Groupon
The initial business strategy of Groupon was based on the “Tipping Principle”. In simple terms, the tipping principle states that if a small percentage of people hold a particular belief or try doing something, the other members of the same group would follow. It means that when certain people at the right time would do something, it can cause a chain reaction and others would follow to do the same thing. Now here is how this relates to Groupon!
- One of the founders, Andrew Mason launched a website called “ThePoint”.
- The main purpose was to bring people to this website for a common goal. If a certain amount of people came, the others would follow and the goal would be accomplished. (Tipping Principle)
- Some people thought the common goal for us should be to “Save Money”.
- The group of people thought to buy the same product together and avail a group discount in return.
- This would connect all people who are in the need of the same product and help all of them save some money.
- This would also help the seller do quick sales. Even after a discount price, a large number of customers compensated, and it resulted in a profitable deal for everyone.
Let’s understand it this way
When you sell 2 books for $100 – you earn $200
But What If
You sell 10 books for $50 – you earn $500
Even after a discount of 50%, you are making a profitable deal.
Many people would argue that if you sell 10 books for $100 – you make $1000. Isn’t that the most profitable deal? My question to everyone is – how would you convince 10 people to buy the books for $100 each? This is where the tipping principle comes into play. You give everyone a discount and everyone then gets convinced to purchase the books.
This idea transitioned into the current business model of Groupon.
Current Business Model Of Groupon
Groupon helps customers to purchase products and services at a discounted price from local merchants and businesses. The idea remains the same. If many people are buying the same product, the seller introduces a discount and everyone buying the product enjoys a good deal. Hence, Groupon is a marketplace where you can sign in and get updated on deals for your favorite brands and merchants. Local merchants and businesses get connected with Groupon to reach more customers and generate more sales. Groupon acts as a middleman and connects the customers with the businesses by marketing the discount deals provided by the businesses.
Here is how a simple Groupon process would work
- Groupon places a deal on its platform.
Let’s say 50% off on men’s formal wear from a company named Men’s Fashion. - A customer would come on Groupon’s platform and buy this coupon for a particular amount of money.
- The customer would then use this coupon and purchase from Men’s Fashion company at a discounted price.
- This helps the customer save money and the merchant generates a sale.
One practical example of the above process can be like this
- A formal suit is around $150 at a local merchant’s website.
- You purchase a Groupon code for $100 for buying the same formal suit.
- You then use the Groupon code at the local merchant’s website and you can buy the formal suit for $100.
- Groupon gets a small percentage of $100 from it – Groupon’s profit
- The merchants get the remaining portion of the money – the merchant’s profit.
How Groupon Works For Businesses
So, having understood the basic principle of Groupon business, how it works for any business?
If you are a business that is trying to use Groupon to generate more sales, here is how it would look for you.
- You will sign and create an account with Groupon
- A Groupon content creator will create the entire deal content for you. It would include what lines to write, how much should be the discount, and what designing the deal should contain.
- The marketing team of Groupon would then send this deal to the Groupon users depending on their location and shopping preferences to advertise your deal efficiently.
- Groupon sends your deal material for promotion through emails, social media advertising, its website, and mobile application notifications.
- If any customer gets interested, they may purchase the deal and you get your share of the money.
How Groupon Works For Consumers
As a consumer, Groupon is just like another e-commerce marketplace. You can create an account on Groupon and start using it right away.
Searching for a deal or Groupon coupon code
- Create your account with manual information or use Facebook.
- Search for the deal you are looking for. You can search as per the categories. You can search for deals on Food, Drinks, Travel, Automotive, and much more.
- Purchase the deal you are interested in.
Using the Groupon coupon code
- You can print the Groupon voucher and present it at the merchant’s store. You will also get an email with the voucher or coupon code in your email.
- Or you can download Groupon’s mobile application for using a digital copy of the coupon code.
- In Groupon’s mobile application, go to the menu in the app corner. You will see three dots or a “G.” Select My Groupons.
How Much Groupon Charges To Any Business
As discussed above, whenever a customer purchases any deal through Groupon, a certain percentage goes to Groupon and the rest is to the merchant. Now, as a business, you might think about how much Groupon charges as their commission. Now, the percentage which goes to Groupon as a commission depends on a lot of factors.
The Groupon charge depends mainly on three factors
- Deal’s listed price
- Category of your product,
- The shipping fee
Although, there are other factors too depending on the service and product you are trying to sell.
If you want a detailed description about how much Groupon will charge your product by what percentage, you can visit their official rates here
What Are Some Similar Sites As Groupon
Although Groupon has been a pioneer in this sort of business model, many competitors of Groupon have emerged over the years. In this article, explaining the other competitors in detail would be out of scope. Thus, I am mentioning some similar sites as Groupon that you can check.
- Capital One Shopping
- LivingSocial
- Woot
- RetailMeNot
- SlickDeals
- Entertainment.com
- DealCatcher
- DealNews
- Travelzoo
- DealsPlus
Some Frequently Asked Questions About Groupon
As of December 2022, Groupon had 22.2 Million active users.
Groupon will refund your money if the business refuses to accept the Groupon coupon code you purchased. This may be in some exceptional cases when the Groupon code gets expired. As Groupon earns if the purchase is made using the Groupon code, they refund the money as there is no purchase made from the consumer that would allow Groupon to get its revenue share.
Groupon is partnered with merchants for providing discounts. The merchants have their Groupon membership wherein they use the platform to promote their online products and services. Hence, the products are authentic. Still, there can be exceptions depending on a certain scenario.
Groupon is a middleman between the customer and the seller. The parcel will be delivered using some of the approved carriers by Groupon.
For small carriers,
- DHL
- FedEx
- UPS, UPS Mail
- Innovations
- USPS
For LTL carriers,
- ABF
- AIT Worldwide
- Associated Global Systems
- CEVA
- JB Hunt
- MXD Group
- Manna
- R&L Carriers
- STI
Bottom Line
Groupon has established itself as a great middleman for customers and merchants. Groupon is a pioneer in this business model. Moreover, as today’s era is of online shopping, Groupon gets a great position in the online marketplace. The merchants can promote their products and services to a wide variety of consumers within a few clicks. It can help your business reach more consumers with a great support team from Groupon. As Groupon has a dedicated team to promote your deals for all users, it becomes a win-win situation for you. The entire marketing is done through Groupon. Moreover, consumers also get massive benefits from using Groupon and save money. It is very difficult to find deals directly from local merchants through other means. Groupon makes it easy for you to search for a great number of deals daily.