• by Mike Taylor , November 17, 2011

The timing of Groupon's IPO at the start of November quickly buried news that is worthy of discussion -- the disappointing performance of Groupon Now. Groupon's geo-local play to provide consumers with a "deal on demand." As reported in Business Insider, Groupon Now generated just $1 million of gross billings in September, despite availability in 25 markets. That number may come as a surprise until you hear from those who are critical in driving the product's success -- advertisers. In a recent survey conducted by GMS Local of marketing managers of national brands with brick-and-mortar locations, marketers expressed little interest in online deal offers like the real-time deal concept that Groupon's newest Now product represents.

While Groupon has placed significant bets on the product, only 4% of marketers polled in the study indicated a preference for this approach over other options, including the more common email-based daily deal. Groupon expects big things from Groupon Now, as evidenced by a March BusinessWeek article, stating that CEO Andrew Mason hoped for an incremental $1 billion in revenue from new products in 2011 -- namely Groupon Now. The Now approach is designed to connect merchants (such as restaurants) that have extra supply with local consumers.

It is said to have the potential not only to transform lunchtime habits, but also to alter the topography of the multibillion-dollar market for local commerce. "However, according to our research findings that reflect the actual performance of the Now service, there is a striking disconnect between Groupon's initial projections and reality.

Launching with much fanfare, Groupon Now has seen a gradual decline in growth since this past summer, and represents only 1% of the company's revenue. These results are much more closely aligned with data reported by marketers that participated in the GMS Local study, but why does such a disparity exist?   

Why are brands not rushing to adopt Groupon Now? The reasons for this may be twofold:

1) brands tend to make less money on Groupon Now versus traditional daily deals
2) brands ideal for using the Now product often lack an inventory-tracking technology to truly make their Now play a “real-time” play. Much of Now's allure is with the restaurant vertical, where empty tables on a Monday afternoon can be shopped similarly to empty hotel rooms on Hotwire. In order to achieve the success hoped for with the launch of Now and other real-time deal offerings, technological innovations from the deal provider or a third-party inventory manager, and corresponding deal specificity are needed. Should national brands consider the Groupon Now offering given its current limitations and lack of adoption? In short, yes, because Now has a key advantage over the traditional email daily deals model. For brands, it offers more targeted and authentic consumer engagement. For consumers, it allows them to drive the interaction and engage in ways that are more relevant and meaningful. But brands must do so with the following two caveats:

Localize, localize and localize your Now deals. Storefronts must be autonomous with their approach to and engagement with Groupon Now. Providing individual stores with control on how they deploy real-time deals will ensure greater relevance to the needs of the local consumer.

Encourage diversity in various markets to see what resonates with local consumers as there isn’t a one-size-fits-all way to success. A diversified approach will help you identify what works and what doesn’t, and allow you the opportunity to tweak your approach to make it work.

Our research and Groupon Now’s performance indicates that the real-time deal space remains in the early stages of adoption with both brands and consumers. Given its ability to ultimately deliver deals that are more relevant to the consumer, the real-time model will gain greater traction in the near term, particularly when technological advances enable more retailers to enter the space.  

In the interim, for brands that want to be ahead of the learning curve, it would benefit them to actively experiment with Groupon Now and like offerings as the market continues to evolve.