Groupon Reinvents Retail Rhythms

I’ve been following the Groupon phenomenon since my visit last summer to Chicago, where the two-year-old company is headquartered. Almost everybody I talked to was familiar with Groupon, many had success stories to share. It was “all the buzz.” This was before the company aired their first Super Bowl ad, and before they refused to be purchased by Google for $5.5 billion.

Somebody thinks that Groupon is the Next Big Thing. Hundreds of companies are copying the model. This newspaper introduced its version, DealTIP, earlier this week. The Groupon concept rearranges several business models that will be familiar to you, but the rearrangement represents something entirely new.

Remember those coupon books that arrived in your mailbox every month? Groupon adapts that model to the Internet, saving the printing and mailing costs. Once you sign up, a new discount offer arrives with your e-mail every morning. But Groupon is much more than a coupon program.

It’s easiest to describe the difference if you follow the process backwards, beginning at the end. A groupon is not a coupon at all. In the end, what you have is a gift certificate. If you like the deal, you buy it. You’re not only told, you’re sold.

But before it even becomes a deal, it’s only the potential of a deal. Each deal has a “tipping point,” meaning that nobody gets the discount until a certain number have claimed it. That motivates each recipient to “spread the news” about the deal, recruiting other buyers to help the deal reach its tipping point. Groupon starts with “group.” Coupon Clipper meets Amway.

But we’re still not at the beginning. Groupon doesn’t allow you a place in the queue to receive the deal until you’ve done two things. You must tell Groupon who you are and how you will pay for any deals you want. That doesn’t seem strange, until you consider the level of trust involved, because the steps are out of order.

Imagine a restaurant that asked for your credit card before you saw the menu, chose your entree, or had your meal. Now imagine they warned you that there may be no food served tonight — no deal — but they want your credit card on file, just in case.

I think I know where Groupon founder Andrew Mason got the idea to invert the retail sequence. Twenty years ago in Chicago, there was a trendy downtown restaurant that had a crazy twist on the dining experience. The hostess would walk you past the dessert case on your way to your table, and then she would offer to sell you “dessert insurance.” I still remember her pitch.

“Our desserts are so irresistible — you saw them a moment ago — that we sell dessert insurance. It’s a dollar per person, but then after dinner if you can’t resist, every dessert is half the price.” Life is uncertain, right?

With dessert halfway ordered before contemplating dinner, the restaurant sold lots of desserts. The hostess kept the “insurance” dollars as tip income.

Groupon likewise meddles with the traditional rhythm of retail, but without a friendly hostess or a growling stomach urging you on. It certainly attracted Google’s attention, and has created a brand new category of business marketing.

Groupon started in November, 2008. They have several national competitors, including Living Social. Both arrived in Eugene around the first of the year, along with a local version called Crusader Deals and now the Register-Guard’s DealTIP.

The Glenwood recently offered half-price dinners and sold almost 2,000 gift certificates in a matter of hours. It’s a new sort of power. Is it people power?

Motivating the public to spread the word brings them into the marketing equation as a partner. That can feel empowering. “It’s not a deal — or it’s not the best deal possible — unless you do something. Share it on your facebook page, e-mail it to buddies, get the word out.”

Mason set out to build a system that would produce social change. It turned into this unexpected commercial success. But there’s still a chance that this radical reinvention of retail rhythm called Groupon may yet achieve Mason’s original goal.

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Don Kahle (fridays@dksez.com) owns a small marketing media management company. He writes a weekly column for The Register-Guard and blogs here.