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That works in the short term: you have ten paying customers, but you can accommodate twenty-five with very little additional cost. So you bring in fifteen peopl

That works in the short term: you have ten paying customers, but you can accommodate twenty-five with very little additional cost. So you bring in fifteen people at a lower cost. Presto, found money. However, eventually the market catches on and your existing ten people start waiting for the GroupOn deals, and now only five people are willing to pay the full price. Selling unused capacity at a discount without cannibalizing your existing business is non-trivial, especially in this age of rapid peer-peer sharing of information. I suggest that the problem GroupOn solves--selling the capacity--is not the hard problem for this scenario, the hard problem is getting away with pricing discrimination. (running a "sale" every once in a while is a different scenario, of course. I am only talking about regularly selling off excess capacity.)

JoachimSchipper 16y ago
I'm confused - I thought GroupOn did one-off offers, not a long-term discount. (Of course, if you're willing to go to a different business every week and there are plenty of one-off deals, the difference isn't that large.)
tptacek 16y ago
Selling excess capacity is not the problem Groupon is intended to solve. Groupon is a promotional tool, not an inventory management system.
- raganwald 16y ago
  Yes of course, but I am not responding to the article being discussed: I am responding to a comment suggesting that a local fitness service is successfully using Groupon to generate marginal sales. My comment absolutely does not suggest that Groupon tries to solve that problem :-)
  - tptacek 16y ago
    I guess I'm sensitive to the different lights in which people tend to cast Groupon. Newspapers also have ad salespeople who, at the end of the day, are motivated entirely by their revenue targets and not by the well-being of their customers. It is entirely possible to overspend on newspaper ads (for a lot of businesses, $1 is an overspend on it). At the end of the day, as a business owner, you are responsible for creating a marketing plan with a budget and allocating it in the best possible way for your business. You cannot push off any of that responsibility to a salesperson at another company. You are clearly right: using Groupon as an inventory management valve is probably a very bad idea.
deleted 16y ago
[deleted]
lylejohnson 16y ago
> However, eventually the market catches on and your existing ten people start waiting for the GroupOn deals, and now only five people are willing to pay the full price. > Selling unused capacity at a discount without cannibalizing your existing business is non-trivial, especially in this age of rapid peer-peer sharing of information. I suggest that the problem GroupOn solves--selling the capacity--is not the hard problem for this scenario, the hard problem is getting away with pricing discrimination. Maybe, but it depends on the product or service too. For example, is there any evidence sites like Hotwire and Priceline, that sell unused capacity for hotels or car rental agencies, really cannibalize the existing (i.e. non-discounted) sales that much?
- raganwald 16y ago
  I can't speak to Hotwire, but in the case of airline seats and hotel rooms, one of the dynamics of the market is the uncertainty of availability. What you are really buying in the case of an airline seat is the guarantee of a seat on that flight. Couple this with businesspeople who absolutely, positively have to be in a certain city at a certain time, and you have a market where there is a limit on how much leakage you will have between classes of customer. That might play out for seats in a spin class, but it might not. It would depend on whether customers have flexibility about which classes they take and whether they care about which gyms they attend. The more flexible and mobile they are, the harder a business has to work to do this kind of price discrimination. I'm not suggesting it's impossible or that web businesses can't help, just that ONLY selling excess capacity at a discount is a problem. I posit that you must sell excess capacity and do something else to succeed.

JoachimSchipper 16y ago

I'm confused - I thought GroupOn did one-off offers, not a long-term discount. (Of course, if you're willing to go to a different business every week and there are plenty of one-off deals, the difference isn't that large.)

tptacek 16y ago

Selling excess capacity is not the problem Groupon is intended to solve. Groupon is a promotional tool, not an inventory management system.

raganwald 16y ago
Yes of course, but I am not responding to the article being discussed: I am responding to a comment suggesting that a local fitness service is successfully using Groupon to generate marginal sales. My comment absolutely does not suggest that Groupon tries to solve that problem :-)
- tptacek 16y ago
  I guess I'm sensitive to the different lights in which people tend to cast Groupon. Newspapers also have ad salespeople who, at the end of the day, are motivated entirely by their revenue targets and not by the well-being of their customers. It is entirely possible to overspend on newspaper ads (for a lot of businesses, $1 is an overspend on it). At the end of the day, as a business owner, you are responsible for creating a marketing plan with a budget and allocating it in the best possible way for your business. You cannot push off any of that responsibility to a salesperson at another company. You are clearly right: using Groupon as an inventory management valve is probably a very bad idea.

deleted 16y ago

[deleted]

lylejohnson 16y ago

> However, eventually the market catches on and your existing ten people start waiting for the GroupOn deals, and now only five people are willing to pay the full price. > Selling unused capacity at a discount without cannibalizing your existing business is non-trivial, especially in this age of rapid peer-peer sharing of information. I suggest that the problem GroupOn solves--selling the capacity--is not the hard problem for this scenario, the hard problem is getting away with pricing discrimination. Maybe, but it depends on the product or service too. For example, is there any evidence sites like Hotwire and Priceline, that sell unused capacity for hotels or car rental agencies, really cannibalize the existing (i.e. non-discounted) sales that much?

raganwald 16y ago
I can't speak to Hotwire, but in the case of airline seats and hotel rooms, one of the dynamics of the market is the uncertainty of availability. What you are really buying in the case of an airline seat is the guarantee of a seat on that flight. Couple this with businesspeople who absolutely, positively have to be in a certain city at a certain time, and you have a market where there is a limit on how much leakage you will have between classes of customer. That might play out for seats in a spin class, but it might not. It would depend on whether customers have flexibility about which classes they take and whether they care about which gyms they attend. The more flexible and mobile they are, the harder a business has to work to do this kind of price discrimination. I'm not suggesting it's impossible or that web businesses can't help, just that ONLY selling excess capacity at a discount is a problem. I posit that you must sell excess capacity and do something else to succeed.