Thursday, December 2, 2010

Price Discrimination + Yield Management + Viral Marketing

Groupons has a pretty innovative business plan. They allow firms to offer discounts to consumers who are more price sensitive, willing to take a little risk and willing to put up with a little hassle. Retailers can dump excess capacity into the system at a reduced price. The deal is only activated if enough consumers choose it. Thus, groupon users are encouraged to solicit their network of acquaintances to opt in too. This, in turn, selects consumers who might not be familiar with the product (more elastic) and they get an endorsement from a "trusted" acquaintance.

I have seen other Internet based coupon or discount sites before. Most are small shoestring operations. By combining social networking elements, this effort may become more established. At least Google thinks so.

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