Groupon, the billionaire baby, learns to get picky

The two-year-old group coupon website that turned down a £4bn bid from Google has five winning marketing tricks.

Where did you buy your Christmas gifts? For some of my friends, the retailer of choice was the website Groupon. The site offers daily discount deals by email – “£299 tooth whitening for £79” – that proved just too alluring to my cash-strapped pals.

So popular did the two-year-old business become in 2010 that Google deemed it worth a $6bn (£4bn) bid. While most of us would run to Google’s offices clutching our bank account details in our sweaty palms, Groupon has turned it down, choosing instead to seek other funding ahead of a rumoured flotation this year.

So what is the Groupon marketing formula that means it is worth so much? After all, it’s just a coupon discount website. Isn’t it?
Actually, I think that there are five marketing wins for Groupon that other brands need to understand. Companies should note how it combines a local strategy, low-risk advertising model, organic merchant growth, scalability and smart employee training techniques.

If you’re unclear how Groupon operates, it involves signing up for a discount email which hits your inbox each day. You reveal where you live so the offers can be tailored to your local area. Once it arrives and you choose to take up an offer, the deal has to receive a certain number of customers to activate. For example, 200 people may need to apply for the £79 tooth whitening for the deal to be available. Group buying + coupon = Groupon.

This is where the clever stuff starts. By making the offers available by locality, such as London or Edinburgh, Groupon manages to be relevant to everyone despite its massive size. It avoids offering only bland deals from global chains and instead presents deals appropriate to people in each distinct location.

In coming months, we may see this targeting become even more sophisticated. For the past few months, the company has offered opt-ins by gender and age. This should prevent those people who have perfect teeth getting quite so many emails about tooth whitening.

Groupon has achieved constant organic growth without having to spend money promoting itself heavily to potential partners. When it comes to a new market or city, there is already a demand for its services before it even begins.

Which brings me to the content of the offers themselves. The local nature of the site means that often non-chain and small-scale businesses get a level of advertising to millions of people that they would never otherwise experience. Unlike classified ad services, you don’t have to pay to appear on Groupon if you are selected to be showcased on the site.

This is an ideal, low-risk way for smaller businesses to build their brands. Sure, companies have to discount heavily and share the proceeds with Groupon, but their audience is potentially enormous. The site’s audience is young, educated and predominantly female. And these people consider the Groupon deals to be incredible deals on desirable brands, rather than seeing the participating companies as downmarket because they are discounted.

This means that recruiting business partners – which is often tricky for a relatively new model or company – is easy for Groupon. It claims that it has to turn away many new merchants who are keen to take advantage of its platform. Indeed, its 29-year-old CEO, Andrew Mason, claims that it turns down seven out of every eight business requests.

Groupon has achieved constant organic growth without having to spend money promoting itself heavily to potential partners. When it comes to a new market or city, there is already a demand for its services before it even begins.

Speaking of new markets, Groupon is also a great idea because its own model is so scaleable. After all, you don’t get 44 million members in one city alone. By using such a simple formula based on location, the concept works equally well in Brighton or Boston. Everyone loves a good deal. It seems equally relevant wherever it appears and doesn’t require mass infrastructure to build a global brand.

It also scales well due to the use of group buying. The problem with offering enormous discounts is often that too few people take them up. Groupon avoids that problem by ensuring that each deal reaches a certain amount of people before it becomes available, so companies can ensure that they are getting enough take-up of their deals to make them financially viable.

And, of course, no brand should neglect training their employees or giving them somewhere to go. For Groupon, this has meant developing the Groupon Academy for Writers. The firm apparently discovered that there was a dearth of skilled copywriters for its marketing literature, so it has opened its own training school to equip people with writing abilities.

This is excellent on two levels. It means that the brand gets practised writers for its marketing material, all up to a certain standard and familiar with what works for the brand. And those people attending the academy learn a valuable transferable skill, which can be taken to a variety of careers.

So is it any surprise that Google felt Groupon was worth so much? Not if you look at how well it employs a variety of marketing elements to create a business perfectly suited to these frugal times. But since group coupon buying is now so popular, there are already a number of similar companies out there and Google may well decide to throw its weight behind one of those.

That might be a mistake. There are already claims that Groupon is on target to make a billion dollars in sales, faster than any other company in history. This is ambitious talk with so many rivals out there. But then, it once seemed unlikely that Google would become the world’s largest advertising platform. And we all know how that story goes.

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