Ever so often comes a revolutionary mind that introduces the world
some product/service that is so good it makes the rest of us feel silly we
didn’t think about it first. It’s usually the perfect combination of simplicity
for the consumer and profitability for the company. In theory, Groupon should
be in that selected list of services that changed the world; however, its less
than impressive financial performance tells otherwise.
The Groupon Benefit
If one analyzes the proposition that Groupon brings to its customers
it would be hard to imagine that they are not doing well. If you area customer you would be getting
substantial 50% off or more discounts on a wide range of products and services.
Furthermore, you may even get deals on businesses that you were not aware
of. This means that as a consumer not
only you can get price discounts but also you can get a wider range of options
from which to choose.
If you are a local business, signing up to offer discount vouchers
is a good way to let the market know about your company. The benefits, from a
long-term point of view, can be significant as a customer lifetime value can be
hundreds of time more than what the company loses with a small discount. It
seems like a great advertising tool that would generate tangible and measurable
results.
The Problem
The benefits are very attractive to both, businesses and customers,
but the pictured described above is far from perfect and the company’s
financial performance is proof of that.
Companies are starting to see one of the main risks of Groupons.
What’s being sold as one of its main benefits is just one side of a coin, and
its other side is a terrifying one for any business. Groupon sell the idea that
it brings exposure to customers that would have never heard or tried the
product/service otherwise. While this sounds appealing, there is also the huge
risk of attracting customers who are not bound to purchase again unless they
can get a similar discount. Those are the sorts of the customers that you never
want to have because they add no value whatsoever.
Tech Crunch editor Rakesh Agrawal has
been predicting the demise of Groupon since last year. It may have seemed crazy
to make this call at the time where Groupon had a solid buying offer from
Google. You can read his criticism of
the Groupon business model at:
The Final Word
In the end, it is important to understand that Groupon is no
magic pill that will make you successful. It is a marketing tool what may bring
some benefits at the expense of some risks. I believe companies deciding to use
this method should have a clear understanding of how their business operate and
design follow up plans that allows them to create long term relation with the
“Groupon crowd”
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