From what we know on Groupon, we can say that for the entrepreneur it is the solution when he has absolutely nothing to lose.
This can be seen as a form of advertising campaign, but with perverse effects as we shall see.
The word Groupon is shorthand for "group coupon". The site offers reduced price providing a sufficient number of customers is reached.
The principle is to make an offer on the site, where a product is sold for a fraction of its usual price. When a minimum number of buyers is declared, the contract becomes effective.
There is no upper limit unless the seller has the good idea to include a clause to this effect, otherwise it could be overwhelmed by the number of sales at reduced prices, and be ruined.
Customers are familiar with the site: they are contacted each time an offer corresponding to their types of purchases is available.
Its first contract was completed in October 2008 and was selling at half price pizza at a restaurant in Chicago.
The site employs an army of writers whose task is to present products in an attractive manner to the public.
Groupon has local versions in most industrialized countries.
The company grew by acquiring a number of similar sites, such as MyCityDeal in Europe, and others in every country in the world.
That's what makes his future financially rather uncertain.
Google has tried to acquired the company for US $ 6 billion in November 2010. The case was not done, which is very rare in the history of Google.
But it has already happened with the Digg website, which is a mere shadow of itself today.
The company wants to enter the stock market and expects to sell 25 billion shares. But the initial offer is 750 million. Knowing that it makes not profit, it pays its debts by contracting new ones, and that its economic model necessarily has limits, you can expect it to become part of a new Internet bubble who will die like the previous one.
Some journalists compare the economic model Groupon a Ponzi scheme. Read this article for example: Groupon is virtually insolvent. With 290 million dollars in assets and 520 million dollars in debt, the company is doomed to incur new debt to pay previous ones.
The main shareholder, Eric Lefkofsky has a long history of companies he founded and which collapse to the detriment of investors but to his benefit. Will he be the next Madoff?
See article on the checkered past of Lefkofsky.
Since the IPO, Groupon's shares price continues to decline. One can not say that investors were not warned!
In June 2012, the price fell from the offering price of $ 20 to $ 9, so that the total value has fallen below the 6 billion that Google offered! In August 2012, its value is $ 5.95. In November 2012, the value is at 2.7 dollars, a 86% drop!
Finally, the product of which Groupon can provide the best reduction is on its action!
The classic pattern is as follows. Your company sells a product 150 € and offers a deal with Groupon. Groupon proposes to sell it at 75 € instead of 150. Of these 75 €, you will receive 50%, so 37.5 €. Sometimes less.
It goes without saying that the contractor does no longer make any profit and that the only benefit is that customers would be kept after the campaign.
But it is also possible that customers then turn to another supplier in a similar campaign on Groupon.
It is still absolutely possible and even recommended to negotiate for better terms and especially to impose a limit on the number of coupons. In fact this is accepted in most cases. The initial conditions offered are only the beginning of bargaining.
Customers got by the seller in this way are generally used for bargains and never come back after the campaign. It is a form of advertising that we must consider every aspect, as part of a financial plan very well defined and that can be advantageous in some cases, but can also be disastrous in others.
This can be especially interesting when one wants to liquidate unsold inventory.
Vendors also tend sometimes, as is done with false discounts in shops, to display a price inflated to offer an apparent discount on Groupon. In this case, it is the customer who loses.