Can Groupon's Business Model Endure Over Time?

Groupon is just another way to advertise your company, products or services. It competes directly with existing advertising models offered by the today’s media advertisers like Newspapers, TV and Radio. Groupon hype has attracted many clones because of the overwhelming attention and potential revenue stream to be made. But the business model is not a true Win-Win and it has to be a true Win-Win for both the merchant and the Advertiser. Today, only Groupon Wins! “No Merchant! There is No Groupon!”

Most merchant’s loose money after they do a groupon. A $100 selling price becomes a $50 Groupon price and the merchant receives less than $25, as the merchant is responsible for taxes and other costs. If the groupon is now a $15.00 loss or a $7,500 loss based on 500 units, how can the merchant justify doing the groupon? Some merchants don't loose money as they have inflated the selling price so the groupon price is close to selling price.

Merchants can’t loose money and stay in business. Today businesses are testing out the groupon phenomena, which claims it will bring new customers to justify the groupon expense. Groupons bring new customers, but the type of customers the merchant is not looking for. Groupon buyers do not pay full price. Groupon is creating a 50% OFF buying mentality. A mindset that says "Why should I pay full price if there hundreds of groupon deals everyday at 50% off. The groupon buyers have loyalty to 50% OFF deals, not to the merchants. So there is No Win here for the merchant.

This business model is successful and will continue to be in the short term. It is a new marketing gimmick and the merchants are testing it. Groupon is another Fad, like Beanie Babies, Pet Rocks and Slinkies. It is not a sustainable business over the long term. After the merchant tries it and realizes how much it truly costs they ask themselves why would I do a second groupon and they don't! The Groupon backlash has started. Small today but it is growing. Just read the blog posts. There are a lot of unhappy merchants and buyers. The merchants are changing the groupon rules and the buyers do not like it. The business model dictates that a merchant must play by Groupon’s rules to have a groupon. If the Merchant says No, then there is No Groupon! This is the beginning of the end of unless a groupon becomes more of a Win-Win for the merchant.