Yesterday I interviewed Groupon about the company’s activities in health care. In short, they have gained the most traction with providers such as dentists and optometrists who can perform a routine service that is often paid for out of pocket. For these providers, Groupon looks like a strong alternative to the typical couponing they might otherwise do. Rather than writing a check to a marketer to distribute coupons the provider actually receives a check from Groupon that represents their revenue share from the Groupon deal of the day. In a typical example, a provider might give a 50 percent discount to Groupon buyers. Half the revenue goes to Groupon itself, which means that the provider receives 25 percent (50 percent of 50 percent) of their typical charge.
Most businesses I know aren’t making a profit at 25 percent of their normal prices. However there are some elements of Groupon that can make the deal pay off for a health care provider –or any other business. In particular:
- The provider receives income from every Groupon sold, but not all are redeemed. If only half are redeemed, it’s as though the provider is receiving 50 percent of their normal price rather than 25 percent
- There is an opportunity to upsell. For example if someone comes in for a cleaning there’s a chance to do some x-rays, fill a cavity or whatever. (In concept this is the same as an oil change deal I saw on Groupon this week, which included a cheap oil change and a 23 point inspection. No doubt they will find something wrong with the car.)
- There is the possibility of repeat business. Theoretically a new dental patient could come back every six months for many years. The cost of customer acquisition is amortized over that time
- The cash is received upfront, which is a big deal for small businesses worried about cashflow
- Appointments for Groupon members can be fit in when there is spare capacity, generating revenue that would otherwise be missed
Along with the positives are some potentially significant downsides for the providers themselves and for new and existing patients
- A patient who buys solely based on the deal is not that likely to become a loyal customer. For sure some other dentist will be promoted on Groupon within the next six months, and if not there then on one of the many Groupon copycats
- New patients should be wary about the upsell, especially in health care services. Do they really need those x-rays? Does that filling really need to be replaced? I’d be worried about an unknown dentist trying to generate an ROI on me
- If the deal is successful, existing patients may have a hard time getting convenient appointments in competition with all the Grouponers
There are certain things Groupon can do to mitigate these concerns, such as publishing reviews and checking on credentials. All in all Groupon seems to be on to a good thing.
On a more amusing note, when I studied the Groupon site I found someone I know featured as a satisfied Groupon customer. What’s ironic is that this person is now running a Groupon competitor.October 21, 2010