Groupon Tool Explained

Groupon Tool Explained

Posted on 10th January 2011 by Davis Advertising (Retrieved from

The following content is written by Davis Advertising. 


I have read a lot of articles about Groupon. This blog post looks at Groupon in a more analytical way, since it seems every other article either sings their praises, or wishes they would burn for eternity.

For those that don’t know, Groupon is a social media tool that allows businesses to market to customers in an alternative way. The gist of Groupon is that customers sign up and connect their email, Twitter, or Facebook account to Groupon. When the customer signs up, they have to list their approximate location, of which there are around 150 cities available. First thing in the morning, Groupon contacts the customers and informs them of the “Deal of the Day”.

Although Groupon does try to have time sensitive ads, they cannot guarantee it. Therefore, do not try and line up a Groupon ad with a particular saving time period, (ie. Automotive groups could not guarantee that the Groupon promotion lines up with President’s Day weekend.)

Groupon writes the copy for the ad, and creates the links to your company’s sites, social media, etc. The reason for this is that they want the ad written in their voice, not yours. Although the goal is to bring customers into your store, they are not your customers. This is completely reasonable. Once they enter your store, they are your customers, and you can talk to them. Your company has to be concerned with two factors: how long is the offer valid for, and how many people have to take advantage of the Groupon for the offer to be valid.

Let's use an imaginary customer named Joe, buying a t-shirt from Sam’s T’s, as an example. Joe gets an email at 8:00 in the morning, telling him that there is 50% off of a particular shirt at Sam’s T’s. The shirt is regularly $25.00. Joe can buy a voucher to get this shirt for $12.50. Joe decides it’s a good deal, and so he clicks, “Buy deal.” He gives his money to Groupon via a PayPal account. He does not give the money to Sam’s T’s. One of two things happens at this point.

Not enough people take advantage of Sam’s T’s deal, and Joe is sent an email from Groupon, stating that the sale did not happen, and Joe never pays a dime.

Enough people do take advantage of the deal. Joe’s credit card (checking account, etc.) is digitally billed for $12.50. Joe is not charged until after "the deal is on", meaning that enough followers have decided to take advantage of it for the sale to occur. He receives a voucher electronically for the shirt. He goes into the store, hands over his voucher, and walks away with his nice new shirt. Sam’s T’s gets a check in the mail from Groupon. They do not give Sam's T's the $12.50 that Joe paid. They keep a portion of that amount. Groupon doesn’t tell you the exact amount until you are ready to do business with them, so it is not possible for me to disclose their commission rate. However, most sources on the internet put the commission rate at 50%...

Groupon calls this a “Win Win”, since your company put together the sale and never had to pay anything out of pocket for the advertising. There is no upfront cost, but you are certainly discounting your product by more than whatever the sale amount is, due to the commission rate. Everyone is in business to make money, and I am not saying anything derogatory about this process; I just want you to be aware of it. It is also important to note that since only one “deal of the day” occurs, chances are that Groupon is going to promote the deal that makes Groupon the most money. If your sale will have less penetration than a different sale, yours may sit on the back burner. If you are not extremely aggressive, your ad will never be shared to the Groupon followers.

Some real thought needs to go into the math before you create a Groupon ad. For example, if you need to sell 100 products at 50% off before you are able to turn a profit, you had better set your minimum requirements above the 100 member mark. Unless, of course, you are trying to simply blow out a particular product to reduce your inventory, and are hoping to sell additional point of sale items. I would strongly recommend working with your advertising people before setting up a Groupon deal, since you have the potential to hurt your business by not fully understanding the goals of the particular sale.

Another factor to consider when creating your Groupon deal is how are you going to market your Groupon deal? Are you going to simply allow for current Groupon members, or are you going to leverage your other social media channels to get the word out farther? Groupon states, quite clearly, that there should be additional social media used to promote the sale. If your company is not fully comfortable in the world of social media, then additional conversations should occur beforehand. Again, talk with your advertising firm beforehand, to make sure you have the reach to make this campaign reaches its full potential.


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