01 January 2011

Groupon and Behavioral Economics

Below is a brief extract from a great post on what drives Groupon's success in Media Post.

Groupon's success lies in its deft use of behavioral economic insights to drive engagement -- and yes, excitement with the shopping process. We're creatures that don't like be overwhelmed with choices, so it focuses on one deal a day. We are literally drawn by instinct to its one-day sales, because of our tendency to see value in anything that is in limited supply. We fear prices that are too low, but are reassured that the deals are achieved through the mechanics of bulk purchase. Finally, we are social creatures, so we take comfort in the social proof that many others are pursuing the same deal, and pleasure in the ability to connect with friends and family over offers that we share an interest in.

Businesses know it's difficult to draw repeat consumers out of a discount mindset. I think Groupon's success is great news for consumers and a looming threat for business margins across categories and retail chains. Time will tell.

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