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Of course it isn't a good deal. In order to make money on groupon your "standard" rate needs to have a profit margin of 200%. Advertising costs money so whenev
by fleitz 15y ago
Of course it isn't a good deal. In order to make money on groupon your "standard" rate needs to have a profit margin of 200%.
Advertising costs money so whenever something is "advertised" you're going to pay more unless the advertising generates enough business to get an economy of scale greater than the cost of advertising. Advertising makes a lot of sense when you have something with high capital costs but low per unit costs. (Think CPUs or software based businesses). When you're buying a service such as cleaning where most of the costs come from labour it's going to be difficult to generate an economy of scale great enough for advertising to pay for itself. In businesses with out great economies of scale the increased cost of advertising is going to be passed to the consumer.
You're always going to get a better rate on a service business by doing a little leg work yourself and cutting out the "middle man".
- martian 15y agoI think what is particularly interesting about the data surfaced in this article is the baseline prices from Groupon et al are so grossly exaggerated in this particular vertical (service industry). For the service industry in particular, hourly rates can vary drastically by geography and type of business, whereas for spas, restaurants, or other store-front businesses, it's clear whether or not you're getting an actual deal/coupon because you can compare the deal to the base menu or pricing packages.
- veyron 15y agoThis happens for products as well. There was a controversy with FTD over flowers because the discount was based on the full prices, but the normal prices shown on the website was a sale price.
- tptacek 15y agoHype and promotion to the contrary, the place Daily Deals make the most sense isn't in driving more people through a lower-margin but still-profitable offering. It's as a substitute for local advertising, which is for many businesses akin to just flushing money down the toilet. Sensible Groupon offerings don't have to make money, or even fail to lose money. They just have to do so within the bounds of a marketing budget, and provide a better ROI than what the budget would have gone to otherwise.
- fleitz 15y agoActually, sensible groupon offerings DO have to make money (in the long term, or short term if you don't have credit). The amount of money a rational organization should spend on negative ROI activities is exactly zero. It's just as stupid to spend your money on a -25% ROI as it is on a -50% ROI, you'd be better off putting the money in a GIC.
- radu_floricica 15y agoWhat the parent meant is that these kind of offers make more money long term. Partly by exposing your business to new customers, and partly by the simple fact that many people see your company name. So if you set aside a 10k yearly advertising budget, offering deals which make you lose 2k is perfectly reasonable - if you think the exposure and new customers are worth it. The advertising budget is already accounted in the yearly ROI, so you don't have to worry on each deal's bottom line being in red.