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Diluting your USP to make more money. Hmm…

October 24, 2010

So this is part 2 of 2 in my quest to ask questions about the implications of a business like Groupon (just as one example) diluting part of its USP to consumers by chasing after revenue gains to meet demands of shareholders. In particular, their challenge has been limited inventory.

In writing this I couldn’t help but think of one of the final scenes in Indiana Jones and the Last Crusade, where Nazi Archaeologist Dr Schneider is reaching out across a chasm to the holy grail, shouting, “I can reach it, I can reach it!” before falling swiftly to her demise. We need to manage the same risk and understand when to let it go.

In Groupon’s case, as the business has grown, the model has solidified to the point where there are now long waiting lists of retailers just hoping to get a foot in the door and access theirsubstantial lists of consumers keen to see what discounted offers reach them next.

It worries me a little bit though looking at Groupon’s business model as to just how much the self-serve model they’re testing fits into their original selling proposition.

By offering businesses unique URLs to publish their special offers (in order to meet B2B demand for the product), the bargaining power now shifts back to the retailers. It’s now a question of sustainability.

Imagine what happens in a year or so –

  • Groupon will have made a lot more money for their shareholders by making their product available to a lot more businesses.
  • Consumers will probably be growing tired of all the ‘special offers’ they receive from Groupon and their competitors.
  • Retailers will have built their own databases of people that have interacted with their products via each of these special offer websites (Groupon and many others).

At this stage, retailers will then realise that they no longer need the special offer websites to acquire customers; their own databases will suffice and they will be able to transition their special offers and other customer acquisition activity to platforms such as Facebook, Twitter, and others.

For a business like Groupon – and for many other effective online businesses out there – the important questions to ask are not: ‘how much money can we make’ and ‘how quickly can we grow into dominance’, but more like:

  1. What are the limitations of our product?
  2. What rate of growth is sustainable with our business model and USP?

In some ways, I think we’re all a bit like that archaeologist from Indiana Jones. We’re all reaching for the Holy Grail whether it’s really within our grasp or not. I think Groupon and similar sites have a great idea and really can make a bit of money from it – I would hate to see them stretch too far in the pursuit of exponential growth.

Read Part 1 – How can publishers deal with limited inventory?

Deliriant Isti Romani (These Romans are Crazy!)

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