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Here is a thorough explanation of the groupon business model.
The company offers one "Groupon" per day in each of the markets it serves. The Groupon works as an assurance contract using ThePoint's platform: if a certain number of people sign up for the offer, then the deal becomes available to all if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools. Groupon makes money by keeping approximately half the money the customer pays for the coupon.
For example, an $80 massage could be purchased by the consumer for $40 and then Groupon and the retailer would split the $40. That is, the retailer gives a massage valued at $80 and gets approximately $20 from Groupon for it. And the consumer gets the massage, in this example, from the retailer for which they have paid $40 to Groupon. There are certain businesses to which Groupon will not offer its services, including shooting ranges, abortion clinics and strip clubs.
Unlike classified advertising, the merchant does not pay any upfront cost to participate: Groupon collects personal information from willing consumers and then contacts only those consumers, primarily by daily email, who may possibly be interested in a particular product or service.
Groupon employs a sizable number of creative staff who draft descriptions for the deals featured by email and on the website. Groupon's promotional text for the 'deals' has been seen as a contributing factor to the popularity of the site, featuring a distinctive mix of thorough fact-checking and witty humor.
Owing to Groupon's market being primarily composed of female customers, the deals are often focused on the health, fitness and beauty markets.
There are potential problems with the business model. For example, a successful deal could temporarily swamp a small business with too many customers, risking a possibility that customers will be unsatisfied, or that there won't be enough product to meet the demand. Gap, a large clothing retailer, was able to handle 445,000 coupons in a national deal (although it experienced server problems at one point), but a smaller business could become suddenly flooded with customers. One coffee shop in Portland struggled with an increase in customers for three months, when it sold close to 1,000 Groupons on the one day it was offered, according to one report. In response to similar problems, Groupon officials state that 'deal' subscriptions should be capped in advance to a reasonable number.
Many merchants have believed that their Groupon deals would help them build a loyal customer base which shops directly with the merchant, without Groupon in the middle. However, in many cases a Groupon deal merely attracts one-time bargain hunters who do not return until they encounter another Groupon deal that suits them. This in turn has affected the loyalty of many Groupon merchants themselves. In a January 2012 survey of 400 merchants, more than half said they did not plan to run a daily deal in the ensuing six months.
In 2010, it was reported that local merchants found it difficult to get Groupon interested in agreeing to a particular deal. According to the Wall Street Journal, seven of every eight possible deals suggested by merchants were dismissed by Groupon.
The site has recently launched a mobile application available on Wap, Android, Blackberry, iPhone and Windows Phone 7. It allows users to buy deals on their phones and retrieve them using the screen as a coupon.
In February 2011, Groupon Russia announced it would join the Russian Company Mail.ru in order to start offering deals on its social network Odnoklassniki. This way, users would be able to buy and share deals from Groupon on their profiles.
Please see even more info here:http://en.wikipedia.org/wiki/Groupon
I hope this helps you.