Why The Groupon Model Will Work For Industrial Distributors

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.

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 partners’ sons got a job there.

You’ve probably heard of it. They’re all over the news. (You would be too if you had hired 300 new employees ... last month!) But in case this new to you, here’s a quick run-down.

Price Merchandising Gets Automated

Groupon negotiates huge discounts—usually 50-90% off—with popular consumer businesses. Then they email coupons to thousands of subscribers: One coupon per day (so it won’t 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? It’s based on your location, interests and buying history. So it’s almost always something you’re interested in.

And the deals are fantastic.

One reason for that is the assurance contract offered to the retailers. Let’s say you want at least 500 customers to participate in this offer. So that’s the deal. The offer isn’t valid unless a minimum of 500 people sign up. (Hence the “Group” in Groupon.) Everyone pays in advance and gets a refund if the minimum isn’t met.

Not many refunds are issued.

The concept is working extremely well. Success stories are streaming in like ants to a picnic. It’s what they like to call “The Groupon Magic.” It works so well that imitators are popping wherever there’s an Internet. China is cloning Groupon-like websites faster than pirated movies. There are a dozen or more companies selling “Groupon clone” software so you can set up your own Groupon-style website.

But it hasn’t hit the world of industrial distribution ... yet.

It’s only a matter of time.

If Groupon can sell over six million consumer coupons, why couldn’t 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 that’s 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 “Hot Buys” and “New Product Specials”. Fastenal’s site looks like an industrial version of a consumer ‘shopper’.

The Groupon concept will find its way to industrial distribution too. It’s only a matter of time.

There’s no reason why this wouldn’t work for companies that want to introduce new products to the marketplace. There’s no reason why services couldn’t 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, aren’t 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 ’49, most of those who follow won’t get rich. One or two Groupons is all any market can bear. Nobody wants to have their “in box” 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. (Don’t worry; somebody’s 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.

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