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Shoppers crowd a Woolworths store during the Christmas rush of 1955. (Charles Hewitt/2004 Getty Images)
Shoppers crowd a Woolworths store during the Christmas rush of 1955. (Charles Hewitt/2004 Getty Images)

Your Business Magazine

Disgruntled employees give birth to Groupon Add to ...

Would Karl Marx appreciate the irony?

A few years ago, a University of Chicago master's student in public policy dreamed up a website called The Point to help people effect social change: Disgruntled employees could agitate for better benefits; neighbours could take on city hall.

But when it failed to make money, he realized it could also be used to amass a group of like-minded consumers interested in a hot deal. And so was born Groupon, a service that sends out daily e-mails with offers of, say, $100 worth of fitness classes for a $50 upfront payment. Since going live in November, 2008, Groupon has racked up 17 million subscribers across 29 countries (including 750,000 in Canada), and it is worth an estimated $1.25 billion.

The service effectively creates a new business model that helps small companies market themselves in a low-risk, targeted manner. Best of all, customers do a lot of the marketing for free, spreading the word through Facebook, Twitter and other social media.


The 800-pound gorillas

Based in Chicago, Groupon built its model on local businesses looking to attract new customers. But over the summer, an estimated 445,000 people bought its first national brand discount: an offer of $50 worth of merchandise at The Gap for $25. Still, it swears it won't stray from its main mission. “We're built as a marketing platform for small business,” says Groupon spokesperson Julie Mossler. “It kind of levels the playing field between the corner deli and Neiman Marcus: It's just as easy for that corner deli now to reach hundreds of thousands of people, if that's what they want. We love working with small businesses and that's where our focus is.”

The Canadian wannabes

Some days it can seem like there are as many online coupon start-ups ( TeamSave.com, DealOfTheDay.com) as there are online coupon deals, and each of them is looking for a way to stand out. Guelph, Ont.-based Steal the Deal was created after its founder spent about two decades selling similar coupons on the street, hand to hand. Being online creates a natural community. “We're very responsive to our members,” says Pete Gillespie, Steal the Deal's operations manager. “They suggest a deal; we go out and try to get it for them. You have this crowd-sourcing community effect that is a little more complete than just creating a site with a bunch of deals on it.”

Consumers are like Pavlov's dog

Toronto's Mirvish Productions has resisted using Groupon because of the company's high commission: A 50-per-cent discount offer with a 50-50 split means the theatre company receives only $25 on a $100 ticket, while Groupon keeps the other $25. But it has done a couple of promotions with Steal the Deal, selling it a block of tickets to a show at the usual group discount price. Mirvish spokesperson John Karastamatis says the company is wary of making too many such offers. “The downside is in creating a consumer base that is completely trained to respond only to discounts and not to the merits of the products themselves.”

This article originally appeared in the November, 2010 issue of Your Business magazine.

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