Groupon Strategy

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1. How have companies like Groupon affected the pricing strategy of firms? Historically, companies have issued coupons in order to attract new business or irregular customers that seldom purchase a company’s products and/or services, with the hope that they come back more often. This is consistent with the idea that getting new customers is more expensive that maintaining a customer base. Companies’ approaches when issuing coupons have usually been one of three: 1) taking a small hit (loss) in order to stimulate subsequent buys (“loss leaders”), 2) incentives and bonuses (free items when another one is purchased), or 3) making a lower profit, but nevertheless a profit, by issuing price discrimination coupons. All in all, these approaches usually constitute a minimal economic encouragement that only super-couponers seem to really take advantage of. Groupon and its competitors, on the other hand, offer discounts that are usually much more aggressive, usually 50% or more off the retail price (keeping half of the transaction value for itself). Since these social, mass deals reach high numbers of consumers, these daily coupons that make available large discounts have eroded from the consumers’ minds the idea of a fixed retail price. Companies that do use the Groupon approach hope in the mass success of the discount and that a portion of those new customers will become regulars. But for companies that don’t adopt the Groupon model for issuing discounts, they risk losing or never getting those customers that don’t want to pay the full retail price, specially if those customers never bought any goods or services from them. Nowadays, companies’ pricing strategies that don’t consider the effect of online social coupons on their own margins might lose their appeal if they continue issuing regular, unattractive coupons that average consumers would not consider appealing enough. The consumer is not necessarily dependent on the terms dictated by the vendor...
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