Just a little over two years ago, Groupon sent out its first deal, a half-price offer for pizzas in the restaurant on the first floor of its building in Chicago. Today, having recently rejected Google’s offering of $5.3 billion to acquire the company, it is currently exploring an IPO some analysts are valuing at $10+ billion. With 50 million subscribers world-wide, Groupon is currently on a buying binge, trying to gobble up as many collective-buying clones as possible across the world in an effort to build scale and eliminate its competition.

For consumers, the deals offered by Groupon and its competitors, whose ranks have grown too large to count, have been too irresistible to pass up. Even in our sagging economy with unemployment rates hovering in the 9% range, 50% discounts represent real savings on services and meals that consumers might have purchased anyway, so it’s hard to lose. For restaurants, service providers, and retailers, the sales boost Groupon offers also seems irresistible as these companies look for ways to lure back buyers in a market where it’s not so easy to get people to open their pocketbooks.

Is Group-buying Driving Groupon’s Success?

If you read the marketing spin, Groupon succeeds as a result of its unique crowd-buying concept. On its face, the group-buying concept makes sense. It’s a strategy that “mobs” in China have employed for years, gathering collectives of friends and marching into stores to negotiate their best deal on specific purchases. But analyze any Groupon deal and you’ll quickly realize that collective-buying is really not at the core of these deals, as the buying thresholds are so low as to really be irrelevant.

So What’s Really Under the Hood?

In building its success to date, Groupon is leveraging two important realities:

  1. 50% discounts drive sales (even in weak economies)
  2. Email is an incredibly powerful and cost-efficient communications channel

Could Groupon have been so successful if it were dependent on postal mail to deliver its offers? Doubtful!

As direct marketers, we are constantly bombarded with statistics from doomsayers who opine about how email is passé, how email usage is not growing among young people, and how other forms of electronic media are taking over. But Groupon (and its many competitors) are proving otherwise.

Groupon’s Loyal Followers

Groupon succeeds because it’s the ultimate loyalty program – who among its subscribers does not make it a point to check their Groupon email every day lest they miss another half price offer at The Gap. According to a new study by Experian, emails targeted to loyalty program members have 40% higher open rates and 22% higher click rates.

It’s That Easy!

So the next time you decide that your latest email campaign didn’t bring in the ROI you projected, take a second look at your offer. Groupon and its growing competitors are making millions off of their emails every day. “Give the customer what he wants” is one of the first rules of retail. Reach him through email, something he checks many times a day, and he will buy. Groupon has shown that email can power billions in sales if you’re giving the customer what they want. Who ever knew marketing could be that easy?

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