Groupon: the future of coupon clipping

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Jim Donnelly
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But local rival Koopon hopes to steal some of mega-firm's thunder

Attention local shoppers: Groupon, and with it e-coupon mania, has touched down in Ottawa.

Olivier Simart, founder of local Groupon rival Koopon. (photo by Lois Siegel)

The arrival of daily deal e-mail deals within many Ottawans’ inboxes in late August was relatively unceremonious. A pole dancing class here, a resto offer there – nothing earth shattering.

But it's done the trick, according to representatives of the Chicago-based e-commerce firm.

"Ottawa attracted our attention because there are multiple business districts in the city, and a number of quality merchants that we thought could sustain us," explains Groupon spokesperson Julie Mossler.

It seems to have worked for several local businesses. Host India, an Indian restaurant on Montreal Road, recently held a $30-for-$15 Groupon deal on a Tuesday that was purchased 166 times in a few hours.

Foundation Restaurant, as well, recently offered a half-price deal on its upscale fare and sold 244 of them.

Groupon's business model is fairly simple – it signs up local merchants to participate in its "deal of the day," which usually involves deep discounts on a particular product or activity. The offer is valid for users only on that day, which tends to whip up a sort of hysteria among shoppers – for example, 1,600 people purchased skydiving lessons in one day in Chicago earlier this year, according to TechCrunch. Each received a 44-per-cent discount.

The firm usually charges between 30 and 50 per cent commission on transactions. But here's the catch – a specified minimum number of deals must be consummated during the day of the offer, or everything's off the table and no one gets anything.

This encourages people to share offerings with their friends via social networking, says Ms. Mossler. "Our business model has always been (based on) word of mouth, especially because these are social deals made to share with friends."

Groupon expects do pull in around US$100 million in revenue in 2010, the company says.

Formerly known as ThePoint, Groupon rolled out operations in Ottawa at the end of August, along with five other Canadian cities. The firm has operated in Toronto for months.

The speed at which Chicago-based firm has grown in its first 21 has been staggering. The company, which this spring was valued at around $1.3 billion, has been featured in dozens of media stories and is now in 230 markets worldwide.Groupon is also very well financed, with Russian investment firm Digital Sky Technologies having recently taken a $135-million stake in the company.

Indeed, the electronic coupon market is fast becoming a crowded space. Other offerings  include LivingSocial, which offers a deal each day, and mobile coupon application Yowza!!

But one local entrepreneur is also hoping to take a bite out of Groupon's Ottawa action.

Olivier Simart launched Koopon in early September, and essentially mimics Groupon's business model. But Mr. Simart – who is incubating his company in Shopify's downtown offices – says he thinks his local differentiator will convince shoppers to look at his offering.

Mr. Simart says he's so far signed up around 10 local merchants for deals on everything from fitness classes to car washes to event tickets. Koopon

is a trademark of Mr. Simart's registered company, StratMarkEco.

He acknowledges, however, that signing up local merchants who may have never considered web advertising before can sometimes be a challenge. "We're a new business type which means there is a learning curve for local owners – it takes time to convince them," he says.

"Groupon went through that process (already), though, so when we talk to them some are already aware."

Mr. Simart says his main differentiator will be in Koopon's local flavour and ability to visit local stores in person. He adds that most Groupon calls are made from the firm's head office in Chicago.

And while Ms. Mossler says its true many calls are made from the U.S., she adds that the company does have a Canadian sales force on the ground. She couldn't say how many salespeople have visited Ottawa as of yet, however.

Stephen Fanjoy, chair of Ottawa's Ebusiness Cluster, says context and location-based merchandising web services are "the next huge market growth frontier.

"A small business can put up a website, it can have a Facebook account, and it can try to generate a user base and a constituency that way," he says. "But if you want to have a blowout promotion, if you want to get new people into your store right away, it's hard to get at that stage where those slow-growth public relations and advertising mechanisms work."

He says the business model works well for merchants because they don't  have to change prices on the shelf.  "And as long as they can meet the demand, this is driving physical traffic to their store like no other offering can do."

Ms. Mossler says Groupon has signed up close to 40,000 Ottawa subscribers and that its best-selling Ottawa offering, a deal with Photobook Canada, was sold to 786 local people. 

 

Organizations: Digital Sky Technologies, Photobook Canada

Geographic location: Ottawa, Chicago, India Montreal Road Toronto Shopify U.S.

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  • Diana
    October 06, 2010 - 22:17

    Very informative, I will certainly give this media very serious consideration. Perhaps this might be a good additional vehicles for consumer education in new products introduction. OBJ gave Kumpers Solar Solutions its initial media exposure and although we have been now printed in many publications, we will always be gratefull to OBJ for giving us the opportunity to present. Thank you.

  • Yifei Xie
    September 09, 2010 - 17:30

    Interesting. Win-win business principle.