Groupon’s days are numbered

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Ian Lurie Feb 16 2011

grouponYesterday I wrote about how discounts are addictive, and can kill your business. The addictive nature of discounts is why I think Groupon should’ve sold to Google. Most of the businesses that use Groupon have no idea how to handle discounts as a marketing tool. So they fling deals out left and right.

That leads to bad press for Groupon. It hurts Groupon’s customers (the businesses). And it frustrates consumers. In the long run, Groupon is selling a drug that hurts its customer base. And unlike the tobacco industry, Groupon doesn’t have billions of potential customers.

It’s not Groupon’s fault

I need to make something really clear: This is not Groupon’s fault. They’re not deceiving anyone. They’ve created an exceptional company with a pretty cool business model.

But for Groupon to survive, a sizable chunk of American businesses figure out how to use Groupon’s service without getting addicted. If they don’t, those businesses will themselves, or at least marginalize themselves to the point where they can’t use Groupon any more.

Ironically, Groupon may kill off its customer base.

How to fix it

I’m sure Groupon is way ahead of me on this one. But they need to provide oodles of training content for business owners. Give a business owner a coupon, he gets happy customers for a day. Teach a business owner to use coupons, and he gets happy customers for a lifetime. Er. Or something.

If Groupon can:

  1. Advance the ‘Groupon Store’ concept; and
  2. Teach business owners how to retain customers won through Groupon.

…then they’ve got a model that lasts forever.

It doesn’t matter how they do it. But one way or another, Groupon is going to have to educate every business that uses their service. They must teach those businesses to derive long-term value from the short-term high discounts deliver.

tags : conversation marketing

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22 Comments

  1. yeah.. I think Groupon is ahead of you on that. They have extremely well trained sales people in every region that work through the process with the business owners. Yes, they’ll get some bad press here and there, but their overall brand is still exploding.
    Any marketer knows that their Groupon deal is a pure brand play. They get the eyeballs of all those Groupon subscribers, whether they buy a coupon or not. They shouldn’t be expecting to make money off of the coupon purchasers. In fact, if they can come close to breaking even on the actually coupons it was more than a success.
    The real data I would want to see as a marketer is the open rates on the the daily deal email they sent out. That’s the real cash money ;)

  2. Paul

    I totally agree with you on this. But it will be interesting to see how Groupon is be able to adapt itself to the changing environment because addiction ain’t easy to cure.

  3. Jenn

    Here’s a story for you: My husband bought flowers through a Groupon ad he saw for a dozen Vera Wang roses from FTD. He purchased them and had them delivered on Valentines day. Unfortunately the package was prettier than the flowers with the beautifully designed Vera Wang box and vase. There were a total of 3 long stem roses in the bunch and the rest were half dead little buds on twigs by the time I had gotten them.
    Husband thinks that FTD screwed up by using Groupon right before the holiday and there was a shortage of decent flowers to send around to all the business they were getting from it.
    My takeaway is I won’t be using Groupon (I don’t do fad discount deals like that anyways) and FTD is on my hit list.

  4. Nick

    I looked into Groupon for a friends business. Did you know that Groupon takes 50% of the sale? So not only do business owners have to heavily discount their product/service, but they also give up 50% of any potential revenue. Groupons fee’s seem outrageous, I’m not sure why any business owner would use their service.

  5. doug

    MBA 101 – never discount your price. Groupon is done for unless they change. I’ve seen so much angst over huge sales, but discounted prices and a 50% fee. 2 years they’re history.

  6. IT’s called “Coupon Dependency” …. Not making that up. The reason coupons were invented were to 1- Be a promotion. and 2- TRACK marketing NOT to BE marketing.

  7. A signficiant challenge of sustaining interest from businesses in offering Groupons will be maturity in mastering how to generate loyal customers. Who wants to attract a group of new customers who expect 50% off every sale?
    But, if Groupon were to offer ancillary services (likely an upsell) to provide nurture marketing for those packages sold, there would be greater incentive for the business to consider Groupon as means of expanding market share.

  8. This is an aspect I hadn’t thought of with Groupon and similar sites that I’ve seen. But it sounds like a valid projection. On the other side, I bought two tickets to our local ballet’s performance of the Nutcracker through Groupon at over 50% off. They were great seats, the show was great, I talked my non-ballet-loving husband into going, it was Great. I have to give the ballet company credit, too, since then we have been contacted by them about 3-4 times with info about upcoming events. So at least one company is using their coupon in a profitable way, since I’m sure I’ll go to other events (and might even be able to drag hubby along).

  9. Groupon is a con game. In a few years, they will end up on the scrap heap of failed internet companies. I’m glad they turned down google. Karma is such a bitch. I used to be in retail- I owned a chain of stores. Coupons NEVER work! All you do is attract the customers that will put you out of business. But hey, that’s the American way, how soon can we get to the bottom where Free is the price. What a joke.

  10. Groupon doesn’t sell itself to businesses as a way to make money, per se. They sell themselves as a way to bring new customers in the door, or to offload excess inventory/capacity quickly in situations where the business might be taking a >50% loss if no promotion was run. In response to @Dara’s point:
    >>Who wants to attract a group of new customers who expect 50% off every sale?
    Well, nobody does. But most businesses owners whom I speak with do not have return customers expecting 50% off every time. How is that even logical? Groupon get ‘em in the door. It’s up to the business to figure out how to monetize their new traffic. It’s this lack of forethought on the part of the business owner that causes the angst and bad press.
    Their days are most decidedly NOT numbered. The biggest threat to Groupon is that the basic business model is replicable. But, as we all know, execution is the key on a business like that one. They are the clear execution leader in this space.
    Groupon will do just fine.

  11. This is a great post. One trend I noticed over here in Toronto is that Groupon was super, super popular for a few months with everybody learning about it and buying deals. But over the last while it hasn’t had the same amount of attention.
    I know for me, that there are only a certain amount of deals I can buy and actually be able to schedule into my calendar. Not to mention, the businesses ended up back logged with customers.
    I really thought they should have taken that Google deal.

  12. So why isn’t Groupon encouraging/selling a CRM to capture the customers its helping bring in? Wouldn’t it make sense for its own survival to upsell a tracking form to its clients so they can see the long term benefit of the promotion?
    It’s not long term thinking for a company that has turned down billion dollar offers

  13. Tracy

    Thank you for being another voice of reason. It’s also pretty pathetic to see the profusion of copycat companies that have sprung up – and sad to see the businesses they have (G’pon included) have bamboozled. Gosh, give a multibillion-dollar company thousands of dollars you should be bringing in instead? Sure! Here ya go! Not to mention, for all the small local businesses that thrive on their customers’ fierce loyalty to small local businesses – they’re sending this marketing money straight out of town. And all so you can be seen on a mailing list ONCE?
    Today I had finally had it and replied to yet another PR person who sent us a “news release” about a “daily deal” site, by saying, look, do you realize, sending that sort of news release to a company that sells a different type of advertising to make its living, is like sending Local TV Station X an announcement of a new ad campaign that is running on Local TV Station Y? The only thing dumber would be if I actually RAN an item about that.
    This whole fad reminds me of the Optigrab in the Steve Martin classic movie “The Jerk.” Sounded and looked great. Horrific side effect, eventually.

  14. Kevin

    Absolutely. I think scalability is something people need to consider when using Groupon as well. A made to order service that lives in the cloud, ok I can get using Groupon.
    But some of these companies using SPA treatments and such, it’s expensive to take such a hit and on every customer too. It’s interesting Groupon didn’t sell…

  15. I do think Groupon will need to do some modificatons to their business model if they want to have any sort of long term success. I think the biggest problem lies with the businesses that have no idea on how to capitalize on the customers that Groupon generates but if Groupon can develop some systems to help those businesses learn to retain customers they could be more viable as a long term solution.
    It could be anything from helping the local businesses set up an email list with the customers that bought a Groupon, allow the businesses to upsell the customer right when they buy the Groupon, enroll the Groupon customers in some sort of loyalty program, or pretty much anythign that will help the businesses follow up with the customers.

  16. “Give a business owner a coupon, he gets happy customers for a day. Teach a business owner to use coupons…” 3pts for an awesome analogy sir :)
    and @Thos003 really? wow! theres term for it now too?
    I guess I am just coming late to this whole groupon thing. I mean I don’t use coupons at all anyway so the whole phenomenon is a mystery to me. I find it kind of fascinating as some of the people in the office are infatuated with it.
    It is unfortunate that the business themselves are not managing this well, like you said its not Groupons fault. Lets hope they get things in order before their fifteen minutes are up :)

  17. Kazia

    “Give a business owner a coupon, he gets happy customers for a day. Teach a business owner to use coupons, and he gets happy customers for a lifetime.”
    Love it!
    I had a very similar conversation with someone about the online coupon companies, specifically about a local company trying to use the Groupon model for local small businesses.
    Another issue to overcome is that these deep discounts can devalue the businesses product/service in the eyes of the customer. It can be a tough sell to convince someone to pay full price when they got it the first time so cheap.

  18. tom

    I think people tend to forget what groupon is all about,its marketing to potential customers that can become long term clients. Groupon is a tool that can be used along with other forms of marketing.

  19. Pricing is a tricky area – and so is discounting. A mentor of mine once told me that when you discount you don’t own the market, you just rent it for a while. It’s been shown that customers using Groupon coupons have a very low return rate. A business should be very careful about calculating the lifetime value of a customer delivered by a Groupon type strategy before committing.

  20. I have mixed feelings about this. Ian, I think you’ve pointed out a few of the strategies that Groupon will have to employ, but in terms of the base coupon strategy, here’s what I see –
    1) There are hundreds, even thousands more eyeballs that view the Groupon versus those that actually make a purchase. From that perspective, there’s significant brand exposure to an offer. I have only bought about 2 or 3 Groupons, but I’ve learned about a bunch of businesses that I’ve used later on.
    2) There are many that seem to employ the strategy (which I think is best for the merchant), of “get $25 worth of goods for $12.50, knowing full well that the potential of an upsell, means that the person may purchase 3x or more of that when they visit.
    In a more extreme case, I went used a boating club coupon that gave me 50% off for 1/2 day boat rental ($125), and ended up signing a 1 year contract for $4,000.
    3) There are those (ie retailers), that come to mind that have huge markups and 50% off may not be that big a deal.
    Bottom line – I don’t think Groupon’s days are numbered if for no other reason that it’s very hard to kill a brand that has that much momentum. Rather, I think they’ll just evolve.
    That said, I still think they made a mistake for not accepting the google offer.

  21. Hannah

    I am a typical Groupon customer. In my early 20’s.
    Working. Went to college. Blah. Blah, Blah.
    You get the rest….
    Okay. I am also cheap as heck with a buck. I almost never return to any business after my groupon(s) run out for the place I bought them. Why, you ask?
    Why should I? If I need ANYTHING again i.e. tooth whitening, laser removal, restaurants, spas, etc…
    all I have to do is wait a few days and whatever I need will be up from a new place for a big discount and I won’t ever have to pay full price. Almost everybody I see at the places I buy groupons for is
    doing the same thing. Most of us NEVER return again.
    We only show up if we get stuff for almost free.
    I would never use a groupon site if I owned a business. I would go broke!

  22. Jerry

    Groupon can be a nightmare for a small business, if they fail to plan. It is not a permanent marketing strategy, but with the proper small business marketing strategy can be beneficial in the long-term. Most small business owners fail to capture the contact info of the customer when redeeming the coupon. The sad part is so far no one small business owner has tried to get my contact info.
    In addition, many small business owners pick the wrong product or service to promote. They should look for high margin products and services. Also, they should try to negotiate a better rate with groupon or daily deal site.

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