This article in the New York Times, plus my interview in Fast Company, got me thinking again about Groupon economics. To be clear, I’m talking here about the Daily Deal type offers, not more sophisticated customer-targeted, location-based, fill-up-empty-seats-right-now types of offers.
Here’s the crux, a restaurateur describing a successful Groupon in which a consumer receives a voucher for $14 worth of food by paying Groupon $7 ($3.50 of which Groupon pays the restaurant) :
“You don’t make money on the deal,” Mr. Massari acknowledged, “but in the end we are even.”
That’s because “people spend more than on the coupon amount,” he said. “They’ve been ordering about double the $14 from us. And people usually bring other customers, who are paying full price.”
Beyond that, among those who are redeeming coupons, “80 percent have come back without a coupon,” he said.
Let’s think through each piece of that, imagining for the moment we sold 1000 Groupons: (more…)