Groupon, an internet start-up that negotiates huge discounts with popular consumer businesses and emails coupons to thousands of subscribers, employs a business model that hasn't caught on in the industrial distribution marketplace (yet).
Groupon is a two-year-old Chicago-based internet startup that recently rejected a $6 billion⌠yes, BILLION⌠offer from Google. I was first sensitized to this amazing story when one of my partnersâ sons got a job there.
Price Merchandising Gets Automated
Groupon negotiates huge discountsâusually 50-90% offâwith popular consumer businesses. Then they email coupons to thousands of subscribers: One coupon per day (so it wonât get lost as one-of-ten or -twenty or -thirty). But with a lot more than 365 coupons to offer, how do they choose which one to send to you? Itâs based on your location, interests and buying history. So itâs almost always something youâre interested in.
And the deals are fantastic.
One reason for that is the assurance contract offered to the retailers. Letâs say you want at least 500 customers to participate in this offer. So thatâs the deal. The offer isnât valid unless a minimum of 500 people sign up. (Hence the âGroupâ in Groupon.) Everyone pays in advance and gets a refund if the minimum isnât met.
Not many refunds are issued.
The concept is working extremely well. Success stories are streaming in like ants to a picnic. Itâs what they like to call âThe Groupon Magic.â It works so well that imitators are popping wherever thereâs an Internet. China is cloning Groupon-like websites faster than pirated movies. There are a dozen or more companies selling âGroupon cloneâ software so you can set up your own Groupon-style website.
But it hasnât hit the world of industrial distribution ... yet.
Itâs only a matter of time.
If Groupon can sell over six million consumer coupons, why couldnât this cross over. Distributors instead of retailers⌠technical training instead of yoga classes⌠specialized hydraulic services instead of car washes?
Sure, care would have to be taken to avoid conflicts in the channel. But thatâs just a matter of working out the fine print.
New internet marketing concepts that work in the consumer world always find their way into the world of industrial distribution. Smart marketers know that. Grainger already offers âHot Buysâ and âNew Product Specialsâ. Fastenalâs site looks like an industrial version of a consumer âshopperâ.
The Groupon concept will find its way to industrial distribution too. Itâs only a matter of time.
Thereâs no reason why this wouldnât work for companies that want to introduce new products to the marketplace. Thereâs no reason why services couldnât be marketed this way.
Trade publications could sell ad space this way.
Trade associations could use it for membership drives.
Training programs, webinars and seminars are all marketed to groups of strangers, arenât they?
Ad specialties and floor mats and safety posters and chemicals and office supplies and ⌠well ⌠you get the idea.
The ideas are endless, the opportunity is not.The Groupon concept is pretty easy to duplicate as hoards of imitators are proving. But like the Gold Rush of â49, most of those who follow wonât get rich. One or two Groupons is all any market can bear. Nobody wants to have their âin boxâ flooded with group-coupons every morning. One coupon per day is part of the beauty of the concept.
This is even truer with industrial distribution. Time is money. But somebody will do this and become dominant, maybe because they do it first or maybe because they do it best. Either way, my guess is it will last for a couple of years, generate a few billion in revenue, and be replaced by the next e-marketing concept from the consumer world. (Donât worry; somebodyâs already working on it.)
When it happens, remember that you read it here first.
Bill Wade has recently published a new book: Aftermarket Innovation. He can be reached at www.wade-partners.com.
