Selling $1 bills for 99 cents

During the first Internet bubble, many dot.com companies were spending their funds on advertising in the hope to quickly inflate the number of their users and, hence, their company value. It was called “selling $1 bills for 99 cents”.
Now (in the second Internet bubble?), selling $1 bills for 50 cents has become a popular business model, it’s called Group Buying or Local Deals and it consists in
55% discount on Groupon

55% discount on Groupon

offering online coupons for heavily discounted (at least -50%) deals at local restaurants, spas and other services.
Group buying provides a touch of social shopping: the discount is granted only if there are enough buyers.
The concept meets strong demand from both local merchants who want more foot traffic and from shoppers who can’t resist a good bargain. I wonder how far it can go. Some claim that discount coupons don’t create customer loyalty (on the contrary, consumers switch to the next coupon supplier). Others that there is an organic ceiling to what is essentially a loss leader business.

One comment

  1. […] Is Groupon’s valuation justifiable? […]

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