Groupon may be the Costco of E-commerce


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Groupon has become such a retail/local/commerce phenomenon over the past couple of years that there are rumors of Google thinking of buying them for more than $3 billion.

I’ve been thinking for a while that Groupon’s success and psychology remind me of another very successful and pioneering retail model – Costco (fka Price Club).  What do I think they have in common?

For both of them, one tends to:

  • Buy things we never would have thought we needed or may not even have heard of
  • Feel immense satisfaction for saving so much money on these aforementioned questionable necessities
  • Brag to others about the great deal one got
  • Buy things in questionably necessary quantities
  • Stockpile goods for use at a future date – in both cases we ignore the time value of money (which may be quite reasonable in today’s interest rate environment) by buying things we know that we won’t get occasion to use for weeks, months or even years.  In Groupon’s case – all of their goods expire. At least some of the stuff you buy at Costco (like toilet paper) can last and last….(I think we still have trash bags from a trip to Costco from 5 years ago – when we lived in CA).

In both cases, competitors have tried to emulate the new retail model.  In the case of Costco – there’s Sam’s Club and BJ’s.  Unfortunately for Groupon, there are hundreds of imitators due to the lower cost of entry into the market. Even so, in both cases, the innovator maintains a healthy lead and market share and “owns” the category.

Costco uses many visual techniques to remind shoppers of the great deals they’re getting. They call their stores warehouses and design them as such.  Groupon uses the limited time nature of their deals to create another psychological impression of value.

Groupon has even further improved upon one aspect of Costco though.  While Costco gets people to come in to buy staple-type products and then sells them a whole variety of other stuff, Groupon doesn’t even need to attract people, it pushes these deals at them every day via e-mail.

Maybe Groupon should consider Costco’s membership model where Grouponers would have to pay an annual fee to get access to these great deals, or maybe that could be a premium Groupon membership.  This might even further cement the psychological notion of the great deal.  EditDan Entin correctly points out in the comments that Groupon requires a membership, albeit free, to see/access their daily deals.  This is definitely part of a “membership” paradigm on the web for e-commerce, including flash-sale sites like Gilt, which emphasize membership for ongoing deals vs. SEO or search for products/deals generally.

What do you think, is Groupon the Costco of the Web?


2 responses to “Groupon may be the Costco of E-commerce

  1. You gloss over the membership part – they both require it not just to purchase but to look at the merchandise.

  2. @Dan – Good point, you’re quite right, will add that now, thanks.

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