The power of the consumer collective is raging full steam ahead and Groupon.com is cleaning up in its wake!
The Chicago based startup, that offers extreme discounts on local products if enough people opt-in to the deal, just announced a series B round of financing of $30 million. Their success over the last year can be attributed to a firm understanding of the consumer psychology.
The magic formula is part economic theory and part social psychology. Groupon offers extreme discounts on local products to consumers by acquiring the critical mass of participants necessary to drive down the customer acquisition costs for businesses, and therefore, increase the profit margin. This increase in profit margin is then shared by Groupon, in the form of high commission rates, and consumers, in the form of discounted products. However to attain this critical mass of participants, Groupon ingeniously calls on the individual user to spread the news of deals virally, as users require the help of the collective group to receive the deal themselves.
Groupon has changed the economics of consumption. Purchases are no longer personal self-interested actions. They require group participation.
Groupon addresses the local small business niche – a group that would not otherwise have the exposure or consumer base to reach a participant critical mass and the economies of scale to offer such deals.
However, Groupon’s success begs another question: what untapped opportunities are there for larger corporations that DO have the necessary exposure to create a viral buzz on their own? For example, what if airlines could offer specials, similar to Jet Blue’s Unlimited Flight special, that require a certain number of participants for the deals to take effect?
Consumers would win in the form of amazing discounts on quality products, and companies would win in the form of powerful RISK-FREE, low cost campaigns that increase sales and improve brand awareness.
And who doesn’t like a win-win?
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Hacking Consumer Psychology: The Power of the Group (and Groupon.com)
The power of the consumer collective is raging full steam ahead and Groupon.com is cleaning up in its wake!
The Chicago based startup, that offers extreme discounts on local products if enough people opt-in to the deal, just announced a series B round of financing of $30 million. Their success over the last year can be attributed to a firm understanding of the consumer psychology.
The magic formula is part economic theory and part social psychology. Groupon offers extreme discounts on local products to consumers by acquiring the critical mass of participants necessary to drive down the customer acquisition costs for businesses, and therefore, increase the profit margin. This increase in profit margin is then shared by Groupon, in the form of high commission rates, and consumers, in the form of discounted products. However to attain this critical mass of participants, Groupon ingeniously calls on the individual user to spread the news of deals virally, as users require the help of the collective group to receive the deal themselves.
Groupon has changed the economics of consumption. Purchases are no longer personal self-interested actions. They require group participation.
Groupon addresses the local small business niche – a group that would not otherwise have the exposure or consumer base to reach a participant critical mass and the economies of scale to offer such deals.
However, Groupon’s success begs another question: what untapped opportunities are there for larger corporations that DO have the necessary exposure to create a viral buzz on their own? For example, what if airlines could offer specials, similar to Jet Blue’s Unlimited Flight special, that require a certain number of participants for the deals to take effect?
Consumers would win in the form of amazing discounts on quality products, and companies would win in the form of powerful RISK-FREE, low cost campaigns that increase sales and improve brand awareness.
And who doesn’t like a win-win?