Lets say if you go to an auto shop, they charge you $130 for a wheel alignment. On Groupon, this same business charges $130 but since Groupon has a 30% off coupon, the price is now $70. So do Groupon pay that business for the 30% of that promotion or how does itwork?
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There are 2 basic types of costs for business: fixed cost and transactional cost.
Fixed cost is for things like rent. A restaurant pays for the rent whether anyone is eating there or not. So having additional customers increases revenue without increasing the fixed costs.
Transactional costs are the costs of the product and labor for what you are selling. A restaurant pays for the food it sells. So if you sell a steak you have a higher transactional cost then selling a potato, so you have to sell the steak for more money.
Some things like labor can be fixed or transactional. A restaurant has to have a cook. If an extra customer comes in, you do not have to pay the cook more. So that cost is fixed. But if more people come in and you have to hire an additional cook it can be considered transactional.
A museum only has fixed costs not transactional. So getting more people to go to the museum just increases revenue, it does not increase expenses. Getting someone to pay $10 with groupon is better for the museum than that person not going at all.
A restaurant has fixed and transactional costs. If the restaurant pays $15 for a steak and they sell it for $10 with groupon, they are going to lose money. But if they sell it for $20 with groupon they make a little money.
In most businesses the transactional cost is far less than half the normal price. This is true even of stores selling goods. If they normally sell a shirt for $50, they pay less than half of that for the shirt.
It’s a huge gamble. The business loses a good deal of money in the short term via the discount and fees, but they hope to make it back by impressing you enough that you become a return customer. If you hadn’t bought from them before you got your Groupon, you either knew about the restaurant and didn’t like the price point they were selling at, or you didn’t know about them and Groupon’s advertising caught you. If the former, when the discounts stop, you probably stop buying.
Its just a sale. You’re overthinking it
Thats all it is, just like an ad in the newspaper for a sale, or whatever, its just a sale. This sale is just provided on groupon instead of whereever else
Business lose money. Original price is $130, customer pays $70, Groupon keeps half and gives business $35.
The idea is it brings new customers in the door that spend more money later. However, that doesn’t tend happen, so Groupon has kinda gone out of style.
The way that coupons work is that they are put on products that a company have overstocked, that is about to expire, that has not been selling well, or that is connected to other products with good profit margins. Things for services are similar in that they will typically sell additional services or products when you come in for the discounted service.
Group coupon companies like Groupon are third parties that do this sort of thing for a company. Not only do they discount the product/service, they take a cut of the fee that is in place and give the business even less money than they would get with an in house sale. This can work for some businesses if it brings in new customers and they buy a lot of other things or services, but it is not typically a good things and it is why third party services like Groupon are getting fewer and fewer participating businesses.
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