We’ve written before that companies need to be careful when offering deep discounts through group buying sites like Groupon – but the story of Groupon itself presents some interesting lessons for companies.

Groupon has become one of the most popular and well-funded group buying sites, offering daily deals from local businesses in 150 cities, 3,000 employees, and annual revenue estimated at $2 billion. Google recently offered at least $5 billion to buy Groupon, an offer that Groupon rejected.

As happens in any industry, competitors have seen Groupon’s success and want to get a piece of the action. Groupon copycat sites have become a growth industry – as of March 2010, there were nearly 150 Groupon clones online, with some sites basically copying Groupon’s coding and design. And the worst part is this statistic is from a year ago – who knows what the number is now.

Success = Copycats.  How to Stay on Top

Groupon is particularly vulnerable to “copycats” because the Groupon service is easy to duplicate: it was founded as basically a mass mailing list, offering only one deal per day in each city that they cover.

What will Groupon do to ensure they maintain their market share? If all these copycats offer the same thing as Groupon, will Groupon be able to differentiate themselves, or will they become just another “coupon site?”

There are lessons here for any company that faces intensifying competition and the threat of “copycats.”

Here are some ideas for how Groupon (or any business owner/ company) can continue to capitalize on its success:

  • Choose your business partners wisely. Groupon prides itself on offering deals from only the best local businesses – they do extensive research on Yelp and other customer review sites to make sure they’re working with businesses that people love. Groupon wants to protect its brand by only offering deals from top quality businesses that people will be happy to buy from – this is good for Groupon in the long run, even if they leave money on the table in the short run. By being more exclusive about which deals they choose to promote on their site, Groupon is enhancing the value of their brand and strengthening their competitive advantage.
  • Offer added value for your customers. As our previous blog post warned, some businesses have had mixed results from using group buying sites – if you’re not careful, deep discounts can hurt your business more than they help. As this article states, Groupon has worked to avoid creating “a community of penny pinchers” – in fact, Groupon claims that their users tend to spend 50% more than the value of their deal.
  • Know your customers – and be prepared to personalize and customize your offerings. Groupon has become much more than just a mailing list. With their detailed knowledge of where their customers live and what they like to buy, Groupon has introduced personalized deals offered to customers based on prior purchases, ZIP code and other identifying details. By having deep relationships built on trust (and cemented with successful purchases), Groupon can do more than a simple copycat site.
  • Ask yourself, “what business are you really in?” Groupon is working to position itself as more of a “merchant discover/city guide” site, rather than a simple coupon/discount site. Groupon wants to attract affluent, well-informed buyers who are motivated by more than just discounts – Groupon wants customers who are eager to try new things, to find out what kinds of interesting things are happening around town – or discover an exciting new restaurant, event or shopping experience. It’s much easier to copy a “coupon site” than it is to duplicate the trust and cachet of a “city guide.”

No matter what you sell, if you are successful, your competitors are going to try and find ways to copy what you have to offer. It’s important to solidify your position by focusing on your key Competitive Advantages – find out what you can do better than anyone else on the market. The best competitive advantages are the ones that are hardest to duplicate.

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To read the previous blog that we wrote on Groupon: Beware – 5 Ways Groupon Could Hurt Your Business

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