Lately, group-buying sites and other companies that use discount-deals as the core of their business have become a red-hot trend, with Groupon spreading through cities around the world at a frantic pace and countless competitors and clones trying to catch some of the spotlight. Perhaps the reason for the sites’ traction is that the group-buying model is easy to understand.
For those that haven’t tried them, companies like Groupon find local restaurants, spas, or other businesses that are willing to provide large discounts, provided that their name is spread to a number of new customers. Groupon advertises the business by offering the coupons online, and takes a cut of the money spent on them. However, there are plenty of variations on the model and the differences can be confusing, so we’re going to give a primer on some of them below (note that there are plenty of similar companies abroad — these are some of the big names in the US, though some of the companies below are international too).
Groupon is the market leader in the online “group buying” industry, and according to Crunchbase Groupon has raised a whopping $172.8M in funding to date. Available in 140 cities world wide, Groupon offers deals in more cities than any other group buying company. For every city, every day, Groupon presents a discount for a niche market item (such as a spa, restaurant, or a paintball outing), and if enough people sign up for the deal, they get the discount. The coupons are sent to the buyers by email. Conversely, if the quota is not reached, the deal is off, and no one is charged for what they promised to buy. Of course, if the deal doesn’t work out, the company that Groupon was “advertising” through the discounts, and the people who signed up to buy them will be a little bummed.
Because the success of each deal relies on getting enough people to sign up, Groupon has created some incentives for their users to spread the word about the discounts they offer. Groupon encourages its customers to share news about deals through email, Facebook, and Twitter, and promises that if one of their users sends a Groupon link to a friend, and the friend buys a Groupon (coupon) within 72 hours, the one who sent the link gets $10 worth of Groupon credits in their account. Also, if a user sends a referral to a friend, who then subscribes within 72 hours, the person who sent the referral will get $10 worth of Groupon credits in their account when their friend buys their first deal on Groupon.