Groupon adds interesting twist to the business model

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I received an interesting email from Groupon enticing me to join the Groupon VIP program. The program offers Groupon users the option to:

  • Book First: Get early access to deals and first dibs on making reservations.
  • Buy Past Deals: Get exclusive access to our Deal Vault to grab previously closed and sold-out deals.
  • Get Anytime Refunds: Swap any deal for Groupon Bucks—even after it’s expired.

For $29.95/year, Groupon users can upgrade to this service. At first glance, this program looks like a nice revenue enhancement to the Groupon business model. Thirty dollars per year per user to deliver items that cost little or nothing. With millions of potential buyers- Way to go Groupon!


On the flip side, if I were a Groupon retailer, I might not be as excited about the program. Groupon asks retailers to discount to extra-deep levels as well as split any money received. The only upside of the Groupon deal is the money received for unused Groupons. From the retailer’s perspective, these unused Groupon help to offset the super-deep discount. Now Groupon is throwing the retailer under the bus and refunding the unused moneys.

There also may be an issue with extension of the deals past sold-out status. Everyone has heard the stories of retailers being driven to the breaking point by Groupon deals. Now Groupon can potentially pile on past the breaking point.

My guess is that retailers will gripe about this program, but continue to use Groupon. The retailer knows what they are getting into when they sign up for a Groupon deal. This VIP program is a new and creative revenue stream for Groupon that should not negatively affect existing revenues.

Groupon has endured significant criticism of their business model. Let’s give credit where credit is due as this program is a solid business model innovation.

My instinct is that Groupon is not done innovating their business model. Cheap food and massages are great, but the model currently is just 21st century coupons. However, Groupon is also collecting massive amounts of data for an attractive customer segment. Before long, Groupon will have significant data on:

  • Upscale buyers buying patterns. What items do they not typically purchase but can be coerced to buy through a deep discount? What buyers can and cannot be coerced? What relationship a buyer has between products they can be coerced into buying vs. the ones they stay loyal to?
  • Millions of relatively affluent buyers that like deep discounts. Forget vacation deals, think cars. Let’s say Chrysler has 10,000 Dodge Chargers to blow out by the end of the year. Why bother spending millions on TV ads? Simply partner with Groupon to deep discount the Chargers to a group of buyers that can afford them and like a deal. The list of possibilities for once-a-month deals on just about anything could be a big winner for Groupon. Groupon has created a significant asset in their list of price-sensitive and impulsive buyers. Imagine how much money Groupon could raise for a charity by bundling a discount restaurant coupon with a charitable donation. With the high cost of fundraising, I bet charities would give Groupon the same fifty percent cut that retailers do.

Do you agree that Groupon has more upside than just electronic couponing? Do you think this VIP program is a good idea?

Republished with author's permission from original post.

Jim Muehlhausen
Aside from his books "The 51 Fatal Business Errors and How to Avoid Them" and "Business Models for Dummies," Mr. Muehlhausen has been published in various publications including Inc., Entrepreneur, The Washington Post, MSNBC, The Small Business Report, The Indianapolis Business Journal, Undercar Digest, Digitrends, and NAICC Journal.

2 COMMENTS

  1. In some ways yes, this is a good idea especially if I am a consistent shopper with Groupon. Now if retailers are not happy with this turn of events, chances are the discounts may somewhat reduce slightly so they can also benefit or the number of retailers will reduce. Either way will not be good for Groupon. I hope they did they homework well.

  2. Groupon isn’t gutting their business model, but they have to do something to grow from a faddish coupon site to a sustainable business model. Many retailers try it once and then swear it off. What happens once Groupon has burned up all the one-time retailers?

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