Hundreds of companies have already jumped on the Group-Buying bandwagon, serving up all kinds of daily deals. What would you expect with Groupon being the poster child for this new industry? They’re 26-month-young, the fastest growing company in Web history, and have received a 6 billion dollar offer from Google.
As others have already written, Groupon and its clones rely heavily on their email marketing efforts. The social media marketing part of this business is important, but email is the catalyst that precipitates the shopping event. Groupon’s or any other Group-Buying company’s list is the fuse that once lit (sent), sets off a chain of social marketing events that drives their daily deal volume.
Hence, any company that wants to have any success in this business needs to develop a list of significant size. In fact, a key indicator of which Group-Buying companies will be successful in any given market – locally or nationally – will come down to one thing – the size of their email list.
Look at the 800-pound gorilla’s numbers. As of November 2009, Groupon was in 25 cities and had an email list that consisted of a million addresses. That equated to 40,000 per city. By November 2010, they were in 250 markets and had a reported list that contained thirty million addresses. This averages out to 120,000 per market.
On any given day, if one percent of the people who receive an email from Groupon buy that day’s deal, that equals 1200 purchases per market. If the price of that daily deal is $15, then that equals 18,000 dollars. For Groupon, who is in 250 markets, this adds up to an annual revenue of over 1.5 billion dollars, which is what their current revenues are estimated to be.
What does this all mean? If you have to compete with the big dogs in the Group-Buying space, the size of your list per market should be at least the size Groupon’s was in its first year – 20,000 to 40,000 addresses.
One to one and a half percent of customers from any Group-Buying list buy on any given day. (This is the estimated Groupon daily average as well as what we’re seeing from our clients who run Group-Buying businesses.) If the size of your list is not in the range above, then you cannot deliver deals for a participating merchant in the quantities that Groupon and others can; hence, you’re not competitive.
Therefore, in the Group-Buying business, size matters. Success is rooted in the size of the email list – it determines your reach, your daily sales level as well as the visibility each daily deal has within social networking sites like Facebook and Twitter.