Can the group buying craze work in health care? A discussion with Groupon

Groupon is the leader in the oh-so-hot group buying business. It emails a deal a day to its subscribers in cities across the country. Many of the deals are big discounts on restaurants, bars and recreation aimed at young urban women. Not really my demographic. But then I saw a headline in the Baltimore Sun (HealthKey: Doctors experimenting with social media), which discussed the use of Groupon in health care. So I decided to call the company and learn more.Here are excerpts from my discussion with Groupon spokesperson Julie Mossler. In tomorrow's post I'll give my take on what it all means.David Williams:            I read that 15 percent of Groupon offers are for health care. What sort of providers do you feature?Julie Mossler:            The model works best with providers who can resolve a health issue within one visit. It’s optometrists, chiropractors, and dental cleanings, not doctors. We also do some cosmetic medicine like Botox.Williams:            What does a typical deal look like?Mossler:            We approach businesses that we would like to see featured and businesses can also contact us. We structure a deal and provide support when a deal goes live.A deal goes live and it’s up for 24 hours.   We offer customers discounts of 50 percent to 90 percent.We ask businesses to specify the minimum number of customers they need to make it worthwhile. Sometimes it’s ten new patients; sometimes it’s fifty. That’s the minimum number of customers we need to get or else no one gets the deal.  That’s called the tipping point.If we don’t reach that minimum number of customers then neither the business nor the customer is charged and we just start over the next day with a new deal.  If we do reach the minimum number then we take about half of the revenue of each Groupon sold and we give the rest to the business.The customer just prints out the voucher and brings it in to the business whenever they make an appointment.Williams:            Is the tipping point a real factor or is almost always reached?Mossler:            The majority definitely reach the tipping point.  Less than 5 percent don’t and it’s usually in our newer cities or niche businesses. Even if you don’t reach the tipping point you’ve still been featured as the sole business on Groupon that day. In some markets we have hundreds of thousands of subscribers.Williams:            How do subscribers interact with the site?Mossler:            The customers have all opted in to get a daily e-mail. The people that you’re reaching with this advertising are people who want to spend money. They are a very motivated buying collective. If you get an e-mail in your inbox and you like the deal then you go to the site and you click “buy.”  Your credit card isn’t charged until we reach that minimum number of customers.Williams:            Are bargain hunting patients who are just coming for one visit attractive for health care providers?Mossler:            Yes. Our customers are college educated, making close to $100,000 a year on average. They are primarily female. A lot are single but we’re also starting to attract more moms and families.I want to return to what I said about ‘resolved in one visit.’ With this approach you’re going to reach a much wider range of people who are interested in your deal because everybody needs teeth cleaning but not everyone needs a physician who works in a particular specialty.  But at the same time we structure the deal so that we’re promoting customers to come back in.  The deal may include a cleaning and then credit toward your next visit so that you’re encouraging them to come in twice.Williams:            So it’s not just a simple 50 percent or 75 percent off of the first cleaning?  There might actually be a second part of it.Mossler:            The value in Groupon is inherently the fact that we’re delivering the opportunity for repeat traffic. It’s up to us to structure the deal that way and then it’s up to you as the merchant to ensure a great experience and give them a reason to come back.  So yes, this is a very attractive customer base, but that’s half the story.  The other half is when they come in, what are you doing to make them fall in love with your business and want to only use you as their dental provider or their optometrist?Williams:            Do you see Groupon spreading beyond the dental providers and optometrists to other medical areas?  Do you see primary care physicians participating at some point?Mossler:            Collective buying can be applied to anything, so we never say never.  Who knows what could come down the pipe? It’s something that we’ve discussed because it’s interesting.Williams:            Some of what you’re doing is selling entertainment and excitement. What percentage of the buyers ultimately redeem their Groupons and does it differ for health care compared to other categories?Mossler:            Redemption is hard for us to track because we can’t force merchants to do it. But we do know from surveying 3,000 merchants that 96 percent want to be featured again or would recommend it to a fellow merchant. That is really powerful because if you weren’t getting people coming in through your doors and redeeming Groupons you wouldn’t want to do it again.We’ve heard from many merchants who say that for appointment based businesses or physician businesses, 80 percent of Groupon purchasers were new customers.Williams:            Does the business model depend on having a relatively low percentage of people redeem?  In other words, if someone sells Groupons at 50 percent off and receives 50 percent of that from Groupon they are only receiving 25 percent of the usual revenue, which is probably below cost for most businesses.  Do merchants want redemption rates to be low?Mossler:            Breakage isn’t a selling point for us because the value in Groupon is the long term traffic.  The return on investment comes from getting a new patient who is going to be your patient for the next five years.  People not coming in the door and not redeeming the Groupon doesn’t really achieve that because they never meet your business.The question really has to be posed to the merchant: Is it more valuable to you to get that $40 in your pocket from the purchase of the Groupon or would you rather get the value of a patient who is going to come back to you every six months over the next five years?Williams:            In health care compared to other categories, are there any special issues that you have to deal with?  Anything that makes it more complicated than a traditional commercial relationship?Mossler:            No. It’s just as easy to set up a deal for us in health care as it is in other categories.  Any time you’re dealing with someone’s health you have to make sure that the correct licenses are in place.  With any business in Groupon, whether it’s a restaurant or a pet store or an optometrist, we look for positive online reviews. They have to have a website with pricing and we’ll research things like their BBB rating or state licenses.  We’re doing everything we can.We vet a hair salon just as thoroughly as we would a dentist because at the end of the day we don’t want to send our customers anywhere that isn’t just an awesome business.Different things apply to different industries.  With massages for example, who would have known when we first started this business that we would have to check and make sure that they didn’t have any complaints for inappropriately dealing with a guest or for prostitution?Williams:            Are there any major changes coming up in your model or is it just a matter of growth into new cities and adding new subscribers?Mossler:            We are rolling out personalized deals.  Customers have the option to opt into personalized deals by providing their zip code, their sex and their previous buying history. Based on that we can connect them with the deal that’s best for them.So for example if you you’re a mom we would be more likely to send you a family dental cleaning package.  It’s great news for merchants because it helps them reach the audience they want to reach. For someone with an appointment-based business with limited capacity for new patients we can limit the number of people we send your deal to or we can cap the amount of Groupons that are sold.We can also work with a practice group that has three or four locations.  They can offer a Groupon and list all the locations on one page.