Monday, June 13, 2011
Beware of Groupon
We are all familiar with Groupon's business model: selling discount vouchers to restaurants, spas, etc., at a major markdown—up to 90 percent off a retailer's usual prices—and then requiring the retailer to pay a big chunk of the voucher revenues back to Groupon. As one of the fastest growing businesses in history, Groupon has done extremely well and is set to go public by the end of the year. However, as more competitors or "copycats" start to emerge, the holes in the groupon model start to become more noticeable. For example, although groupon is an effective marketing tool for some businesses, it is certainly not for everyone. Jessie Burke, owner of Posies cafe in Portland, announced via twitter and Facebook that using groupon was the single worst decision she ever made for her business. She ended up losing money and attracting customers who werent likely to be regulars- which is an issue when you are running a neighborhood/ local coffee spot. In addition, she had an unfavorable experience with her groupon sales rep who wasn't helpful, providing little or no information on logistics- for example on how to prevent customers from using the groupon several times. An increasing number of dissatisfied small business owners with similar complaints have since come out of the woodwork. On the consumer side, groupon buyers have also become agitated with the fine print on many groupon deals. So I am curious if Groupon has implemented any new tactics to improve the relationship between it's sales force and the small businesses or if Groupon has become blindly focused on attracting big corporate clients. Or is groupon finding a sustainable way to successfully retain both types of clients by recognizing and fulfilling very different needs. There is still a lot of excitement around groupon, and while it will be interesting to see where the company goes in the next few years, groupon needs to be careful not to lose any more consumer trust which can damage it's public perception permanently.
Subscribe to:
Post Comments (Atom)
3 comments:
It is interesting to hear about all of these negative posts about Groupon. I recently read this one on techcrunch - http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-collapse/
I personally don't use Groupon but I know people who have bought Groupon's deals to later find out that they cannot use it because the deals have expired. Businesses should view Groupon as nothing more than a marketing portal for consumers try their product.
Interesting post, and something a friend and I were discussing recently. Another negative aspect to the Groupon experience is that businesses are losing good existing clients. This is largely due to the major increase in traffic and inability to service their regulars with the same courtesy and efficiency. Furthermore, from what I have read in reports, these temporary new clients that come to use the service are not being converted as a typical marketing campaign might hope to achieve. So the effect is a quick spike in sales for the business and then a very sharp drop to a possibly lower level than before the Groupon promotion. I am sure it actually begs the question to these businesses if the Groupon promotion is worth it. The NYtimes posted an interesting article about doing the math on the gropon deal that shows it can actually can cost a business $114 for each customer it acquires. However depending on the customer experience in your store with the Groupon, it can prove profitable for the business in the long run (which I suppose is the win/win idea behind the Groupon) . End of the day, it looks like there is a lot of work to be done by Groupon in providing better infrastructure for their clients to track Groupons and possibly retain their contact information for future store promotions and ideas. I have already seen websites and promotions out there on how a business should best utilize their Groupon and how to monetize their experience. Maybe as part of the deal, Groupon should provide you with consulting, that will set you up and get you prepared for the “experience”. Then again, from some of the reports, doesn’t look like customer satisfaction is highest on Groupon’s priority lists.
You raised a very interesting point about Groupon not being able to cater to the different types of customers. I remember how the Groupon model started off in a very unique way, when it emerged there was no similar business model that was popular on this level, and as you mentioned, soon the 'copycats' began to emerge. It reminded me of how When I started recieving the promotional emails from various other firms emulating the Groupon model, I wondered as everybody wanted to jump on that bandwagon, what would it take for a competitor to be successful with such a business model.
In short, I felt a vendor like Groupon is only good as the Companies it manages to get deals with. As with all startups, this would largely be an effort in relationship building and negotiation to get the coveted brandnames to partner. The relative popularity of either the vendor (like groupon) or the company that offers their deals (eg fandango) dictates whether the vendor's business takes off or the Company's.
For eg, getting a good deal with an already known brandname: Such a collaboration will prove more beneficial to the vendor. If a startup vendor manages to snag such a deal, it will immediately be pushed into limelight, and more people will subscribe looking for such deals. On the other hand, some startups can ride the wave of Groupons popularity and get some additional eyeballs and new customers with a relationship with a brandname vendor.
While it is interesting to see how Groupon and the likes are able to retain different client sets, I am also intrigued by seeing the spate of new vendors and trying to understand what makes a success a success and a failure a failure, in this space.
Post a Comment