The success that is Groupon, just keeps getting bigger (back story here). They recently tested a new concept whereby instead of promoting local businesses, they ran a national GAP campaign, offering $50 worth of apparel at half price that can be redeemed at stores (not online). It was a smashing success selling 441,000 units. In addition, GAP is hopeful more bucks will be spent once customers are instore. Benefits of the promotion don’t end there…
"It's a significant chunk of sales. I'm pretty sure if they ran a national TV campaign, they wouldn't have gotten nearly 500,000 paying buyers in the store," said Rob Solomon, Groupon’s President-Chief Operating Officer.
Good point, so let’s just look at the numbers for a second. Let’s say Groupon takes a 50% cut, which is what Rob Solomon said was the typical scenario, when interviewed by Ad Age. With 441k units sold at $25 each, GAP generated $11M in sales overnight. Groupon says people are expected to spend more once instore, around $75-$100 per voucher, however generally only around 80% of vouchers are used. So GAP makes between $17-$26M, out of which Groupon takes a $5.5M cut (if the rev.share is determined after items sold). Neat.
Furthermore, continuing on Solomon’s idea above, not only do I doubt that a national TV campaign would have generated the same amount of instore foot traffic, but GAP would have had to fork out that $5.5M or perhaps more to pay for the TV campaign, plus the creative, and offer the discount never the less.
What do you think? In the current value driven market, is the Groupon business model the way to go?
