Commentary
Groupon: New Territory For Local Merchants
- by dave.b , Max Kalehoff , December 3, 2010
Groupon has been popular with consumers and businesses alike. According to an anonymous source quoted in The New York Times, the company's annual revenues are near $1 billion and its subscriber base tripled this summer to 35 million users. It's impressive, and I have tremendous respect for this startup and its founders.
I've been intrigued with this story both as a student of the marketing industry and one of Groupon's 35 million users. I've subscribed to the service for over six months, and opening the daily email has become routine morning reading. I find the tongue-in-cheek promotional emails humorous and entertaining -- certainly a relief from the wasteland of dry and spammy marketing language I encounter. My primal -- no, vulture-like -- instinct to take advantage of a killer deal has sucked me in.
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But when I step back and observe my own Groupon buying behavior, a different picture emerges. In over six months, I've made a total of three purchases and spent less than $200. I purchased two half-off Swedish massages from a mid-range spa, and I took advantage of the Gap's summer promotion of $25 for $50 worth of clothing. If it weren't for these Groupon promotions, I would never have made these purchases, and I have no plans to do any future business with these merchants. I fell for the deal, but not much else.
My experience aside, there have been abundant stories of success, failure and indifference among local merchants. But one thing is certain: Groupon has introduced a new kind of marketing to local businesses of all sizes: extreme, instant access to flash-sale promotional event opportunities that deliver a fire hose of awareness and customers to your door. With this comes the thrill of a customer avalanche, and the potential to kickstart business by converting deal hunters into repeat customers and incremental sales -- hopefully enough to justify the cost of the promotion. For most businesses, these are high-stakes adrenaline shots with uncertain outcomes. Anecdotal reports suggest results are transformational for some, and not for others.
With all the hype, it's important to remember these services represent new territory. This is a new form of marketing and there is not a lot of history or data to predict near-term impact or long-term outcome. For most businesses, these flash-sale promotions are highly experimental and packed with hopes of high, positive impact. Over time, patterns and best practices will emerge around business categories, product categories, demographics and consumer purchasing behavior. This will introduce better planning and targeting -- and ultimately, better and more precise outcomes. This form of marketing will eventually become more of a commodity and less thrill and chance. It will just take time.
For consumers like me, deals eventually need to become more relevant. Considering my three small purchases in over six months, my rational side believes flash-sale coupon services are not worth my time. The creative email copy is fun, and an occasional deal is enticing. But I would like to be matched up with more relevant businesses with whom I would do repeat business. I'm short on time, and I almost feel guilty for imposing a loss on a business that I'll never see again. Relevance will be key to the growth of this exciting new marketing category.
What's your experience with deal-a-day coupon and flash-sale services?
I have taken advantage of many Groupon opportunities and LOVE it. Yes, some have been with companies that I was already buying from so I got a better deal for one purchase and the company lost a few dollars on that transaction. Most though, are businesses who's products/services I have never used previously and will go back to because most were great experiences. I expect that the retailers are smart enough to not turn this into an ongoing ploy that will end up losing them money as consumers wait for the next "sale". I think done smartly, it's a fabulous way to encourage new trials. It's also very viral as I've passed many on to my friends.
I am a subscriber and love receiving their daily specials too. I used it once to purchase great gourmet pizza at half off but never went back even though I had a great experience. In fact, the retailer took my Groupon special on Friday even though it was meant to start Saturday. Great concept but if customers don't go back what's the point?
I have also used a couple of coupons, but will never go back unless the same discount is offered. I like what I got only because of the deal.
Kalehoff says the following "I would like to be matched up with more relevant businesses with whom I would do repeat business." Wouldn't they be the ones you do business now? If yes, do you think those businesses, after they gave you a service worth coming back for, would want to lower their margin? What for? Is there really any incremental gain?
I agree that the deals need to be more relevant to the user. I've only used two of their deals - one for a place I never tried before and one for a place that I frequent. However, I personally prefer thedealmap.com's approach as deals are updated on an ongoing basis and I can easily search ALL deals within a geographic area vs. filtering through Groupons to find an area or category that I like.
$6 billion is a lot of dough.
There are more cons than pros for a company to use Groupon: Pro - Get's bodies in the door. Cons - Doesn't build customer base, customer loyalty or repeat business. The amount of money that Groupon charges is ridiculous. There will be a new model to this shortly that will make Groupon obsolete and the joke may be on Google for shelling out billions for a one trick pony.
On the customer service end, this is small local retailer and Groupon. It takes more man/woman power than most people think. Once Google take it on, what do you think is going to happen in that arena a little ways down the pike?
"Vulture-like". Yes, I feel the same. I'm wondering if municipalities will impose restrictions on this "race to the bottom" quasi-marketing.
Tell me the transformational stories. I've only heard complaints from the merchants. scurtis@studeo.com
I really like what these guys are doing, and I was a fan of WOOT! from the very beginning as well (I actually still perfer woot, and am interested in seeing where it goes now that it is owned by Amazon).
Nice article and good timing as usual.
"Business 101 - You buy something, you sell it for more."
-Father Guido Sarducci's 'One Minute University'
I'm stunned by how few people understand the above quote. I mean for God's sake, can't everyone see this emperor has no clothes?!?!
No wonder most businesses fail. You have to be an idiot to think deep discounting by local businesses does anything other than leads to thousands of Chapter 7 filings.
Sheesh! Has our population really become this stupid?
I'm not so down on Groupon (and its billions). Usual advertising doesn't guarantee repeat business or referrals and it's not relevant to everyone either. My usual online ad buy is $XXX. Instead, I spend that same $XXX on a Groupon buy, giving me the precise number of new prospects; with other advertising, it's hit or miss. Online ads are mostly ignored, whereas a high percentage of Groupon's 3 million users will actually read my pitch, resulting in my expected x-number of purchases; raising awareness, and probabilities of repeat business and referrals much more so than regular advertising. Groupon renders the relevance factor almost obsolete because the advertiser knows how many prospects (s)he will have. From an advertiser's perspective, what's not to like?
Your right, we are going to be getting some very juicy data soon on this space. Some could be good news for the merchant. Some could be disastous. What I do know is that for many businesses today, the cost to find a costumer is greater than the revenue of the initial transaction. So on one hand, the Groupon promotion is a no brainer; thousands of paying customers experiencing your product for the first time. But, if the exposure of the deal impacts the already good customers you have today, then you've just made a very bad business decision for the overall health of your business. I suspect some very interesting stories are ahead, for all of us to review.
I like Groupon. The e-mail copy is clever! My purchases have been split between Groupon and Living Social. I've mostly purchased deals for places I've gone to before or those that were recommended. A couple, however, were for places I didn't know existed and am now a fan of, and have recommended to others. The social engine is far from perfect and many of the deals are not relevant to my life, but it's been fun to try new things.