Let's strike Groupon-ohm on common sense: Analysis of errors of businessmen and the analysis of business model of service

Epigraph

To sell a valuable product below cost to the masses is a subtle mockery of common sense. Maxim Krainov

The secret of success Groupon

Groupon emerged in 2008 based on the idea of ​​buying at collective discounts. At the time of its launch, the system had 500 subscribers, which the founder of the service, Andrew Mason, was able to attract from his earlier project. The company immediately embraced rapid growth. The conditions for this growth against the backdrop of the global financial crisis were very favorable. Among impoverished buyers, demand for discounts has never been high, and sellers often did not have a chance to sell their goods at all. Therefore, participation in the actions of Groupon was considered by many as an opportunity to somehow minimize losses.

From the very beginning of its activities, Grupon made a substitution of the meaning of the idea of ​​collective discounts. Selling a product or service to a team or, as they say, in bulk should be profitable for the seller and always bring him profit. Grupon, on the other hand, offered sellers to work to zero or more often to minus, selling goods / services below cost and providing buyers with something like a free trial. But not in the size of a regular sample, but in the size of a full service. For this, he promised them fame among the masses. It is not surprising that there were a lot of fans of freebies and the project has caused an unprecedented excitement. Grupon has soared by leaps and bounds, becoming the most rapid startup in the history of the Internet. Using modern means of disseminating information and competent marketing, Grupon created an unprecedented opportunity for consumers to massively benefit from the mistakes of entrepreneurs. However, the opposite is also true. But this is a separate issue.
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The fact that there were a lot of people willing to receive services or goods as a gift is not surprising. But why was there a lot of businessmen who wanted to make such gifts to customers? In my opinion, one of the reasons is the short-sightedness or marketing illiteracy of the latter.

What do businesspeople working with Groupon do not understand

1. Grupon says: we will overwhelm you with customers, we have terrible power - mass character, we will bring a bunch of people to you. But a businessman himself will easily achieve the same or even greater mass if he starts distributing his goods for free. But why does an entrepreneur need such “masses”? To, as in the joke, to compensate for their losses by their number? Entrepreneurs are hypnotizing the word "mass" and they refuse to think that "mass" does not mean "profit". In the case of Grupon profit is just not foreseen. Because Profit in the long term can only provide a targeted audience. And Groupon gives no trust and insolvent.

2. Groupon trades freebies. Not by courses, not by sessions, not by meals or travel, as many entrepreneurs naively believe. Namely a freebie. In Grupon's offers, the buyer sees only one distinguishing feature - price. If an entrepreneur wants his products to be remembered by the buyer with something else, he is clearly not at the address. All distinctive signs, except the price, are absolutely indifferent to the subscriber of Grupon. Otherwise he would not have been a bargain hunter. So businessmen hope in vain that through Groupon they can make a name for themselves. The only one who is able to make a name for himself is Groupon.

3. Grupon manipulates the desire of entrepreneurs to be in the "elite club". He declares - “we select only the best institutions in the city for partnership”. Businessmen for some reason strongly hypnotized these words. And they do not think that, upon careful consideration, this “elite club” may turn out to be a club of fools who sign their marketing and financial illiteracy. Who else except fools will give away their goods for nothing, believing that in this way you can acquire the status of exclusivity?

4. Having learned that competitors or other “best institutions in the city” have become Grupon's partners, businessmen start to consider that it is time for them to cooperate with this system. To keep up with others and keep up with the times. They blindly believe that a fashionable and massive phenomenon cannot be destructive. Well, can not everyone around be wrong!
Can Otherwise, we would not know such phenomena as the worldwide spread of tobacco smoking, massive ruin on the purchase of securities and financial pyramids. If you blindly follow the masses, it is very easy to be fools.

5. Groupon creates the illusion of free advertising, because the entrepreneur does not pay anything for participating in the action. He only makes a promise to make a discount. Those who do not understand that financial obligations also have their price come across this bait, and the entrepreneur is obliged to pay it (with a delay) at the very moment when it concludes an agreement with Grupon. After all, coupons are a kind of securities. And agreeing to sell coupons, the entrepreneur practically becomes an issuer. But on some completely absurd for themselves conditions. Indeed, in essence, Grupon buys securities from the entrepreneur (something like futures for his services) at a fabulously low price - for only 15% (!!!) of their real value, offering in return only a promise to sell them, which he ingeniously calls "Advertising". Then Groupon easily sells these "futures" twice as expensive as it acquired. Well, win-win?

At the same time, if you remain honest, advertising Groupon still does. But not the services of entrepreneurs, but only their newly acquired extremely cheap futures. So for what kind of advertising does an entrepreneur pay Group with its debt obligations? Whose path to fame and wealth does he finance? Is this a really beneficial model of cooperation for an entrepreneur and an effective way to make a name for yourself?

It is not surprising that Grupon is looking for partners only among small and medium-sized firms. Since only their owners may not have enough financial literacy, recognize this scheme. In large enterprises with regular financial analysts such tricks do not work.

What is Groupon for the market?

This is a bubble. At least in the framework of the business model that is used now. Since Grupon literally “trades large volumes of 'securities' at prices that differ significantly from the fair price”.

A huge part of the proposal in the Grupon system was created artificially due to the skillful exploitation of fears, financial illiteracy and the herd feelings of entrepreneurs. Thus, Groupon’s levers are very similar to speculative levers in the securities market. Like any other bubble, Grupon destabilizes the market, introduces an element of economic nonsense into the seller-buyer relationship, which in general cannot negatively affect the market.

For example, Groupon produces local dumping products. Moreover, dumping is completely meaningless. Because it is not intended to re-divide the market. This is simply a side effect of Grupon's activities, and it is disadvantageous to him. Because the demand for a local service at a regular price drops sharply, which means that some entrepreneurs will be ravaged and taken out of the game (I am just watching how this happens in Berlin). And for the very same Groupon, thus, the opportunity to buy the offer will run out uncontrollably. Such a parasitic scheme cannot work for a long time in one place. That is why Groupon and forced to expand aggressively.

What is all this over?

In my opinion, option two - or Group will find another business model, or collapse as soon as it hits the expansion ceiling. The markets of some types of services will be agitated, some entrepreneurs will go bankrupt due to dumping, some will be able to find a way to cut costs, increase benefits, and start working more efficiently. Many businessmen will be vaccinated against stupidity and will realize that a massive desire to kill competitors at a price below the cost price is a great destabilization minus for the industry as a whole, including themselves.

At the same time, 70% discounts will never become a significant part of the market, they will not appear more than at all times before. Since this is impossible for economic reasons. But something still can be spread on the wave of the current coupon hysteria, namely, special trial offers that are very limited in volume and skillfully set for gigantic discounts. Well, or offers like “buy a subscription for a year, get a 70% discount for the first month”. Such business-friendly deals within the Group's system still exist, but in my opinion, they are a minority there. The majority of businessmen, looking at each other, just massively playing a fashionable fool, which I wanted to write about.

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To the idea of ​​writing this analysis, along with the observation of what is happening around, I was led by reading the following materials: Habrahabr 1 , Habrahabr 2 , Slon.ru , Your business , Olyapka Blog , blog johov83 .