Why Groupon Works

// Posted by on 03/03/2013 (2:48 PM)

Why is Groupon so successful? Jonah Lehrer, a writer for Wired, believes that there is no neuroscience behind Groupon’s business model. Another Wired columnist, Steven Levy, refers to the company as an overhyped coupon distributor. The notion of collecting coupons has existed for decades, but the rise of the Internet has given the consumer a whole new way to forage for discounts. Groupon has sought to target the parts of the brain that worry about price and spending money, rather than targeting parts that respond to sensory stimulation, such as smell. For example, the zoom-in feature allows the shopper to see the product in even greater detail. In an experiment with undergraduate students, their exposure to an item triggered their nucleus accumbens (NAcc). An interest in the item revealed a spike in activity. The price tag of the item activated the prefrontal cortex and the insula. Using these different reactions form the brain, scientists were able to predict the subject’s decision before it was made. The thrill of getting something new often could not compete with spending the money.


Groupon (and other online retailers) could focus on stimulating the NAcc or on restricting the prefrontal cortex. The first is achieved through marketing and making the customer feel the need for an item. The second is a delicate process, making sure that the consumer feels like he/she is getting the best deal on an item, or the most benefit for the price. With so many retailers today, most people just open their smartphone and perform a quick Google-search to price compare and make sure it really is a good deal. Groupon competes with those discounts, but also gives the consumer a limited time frame for decision making.

Overall, Groupon has to make up for the lack of tangible contact available with their products. Detailed pictures, elaborate descriptions, and low prices all work to draw the consumer’s attention without activating the “buyer’s remorse” feelings. The company supports local businesses, but has also altered the way we look at list prices. Now because of Groupon, most services are available at a discount as long as you wait long enough. Massages, exercise classes, and salon services are just a few examples of products that appear on a daily basis on Groupon.

I have been a pretty satisfied Groupon user, with only a few complaints about their “fine print” being a little too restrictive. I think I definitely fall victim to the mindset of “it’s such a good deal, how could you not buy it?” While I was in Australia, I wanted to get my SCUBA license so I checked Groupon ¬†Australia to see if there was anything out (because normally it’s about $5-700) and sure enough, within a few days I was able to get a coupon for $100. This example further illustrates my consumer mindset that I can find pretty much anything at a cheaper price than full. Groupon is even able to discount things that never go on sale, such as sunglasses, by offering “$25 for $75″ at a given store (aka Sunglass Hut). Think about how you have been impacted by discount retailers. I’ll be the first to admit I’ve fallen into vicious online spending habits given the convenience and (perceived) great deals.

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Andrew said...

Your post hit a lot of great points (and I, too, have used Groupon). However, the future of the company is sort of in limbo due to the ousting of their CEO two days ago and some terrible fiscal quarter results.

I have followed the Groupon story for a while, and I remember being particularly intrigued by their sarcastic CEO, Andrew Mason. I was in the Intro to American Studies class at the time when Groupon went on the Stock Market, and I remember talking to a student in that class who was obsessed with the company. I didn’t think he was serious enough to run the whole thing, a feeling that was reinforced when he refused a $6 billion buyout offer from Google.

Now, the company’s stock prices have dropped from the initial $20 amount to $2.60, at its lowest point.

Like I said before, I like the company and what it stands for. I just hope that they will perform better under new management. And if you haven’t read the former CEO’s open letter that he wrote following the firing, read it. It’s hilarious.

Here’s the link

// 03/03/2013 at 9:21 pm