(Not So) Gaga over Groupon

I’m having a tough time with this whole Groupon phenomenon. Every time someone mentions them as a great example of a new business, it makes me nuts. Now, I have respect for anyone who can launch and idea into a business, but I feel like the service is missing a bigger point. The idea of group buying isn’t new; consumers have been consolidating their buying power for better deals for a long time, but Groupon isn’t a function of consumer buying power. It’s an exercise in heavy-handed, value-driven marketing that put’s Groupon in the center of the universe, not the consumer. Harsh words I know, let me explain.

The way the service works is that businesses contact Groupon about a partnership and together they create a bargain that will run in over a period of time – could be a one day blitz, could be a longer-term cupon. (This deal includes Groupon earning around 50% of the coupon price for its service.) Since the business is deciding what to push and Groupon serves as the delivery channel, that’s not actually consumer buying power. It’s not driven by consumer demand, the Groupon community isn’t polling it’s users to figure out where they would like deal; Groupon makes the call. Groupon’s main customer is the business offering the bargain, the Groupon community is a means to an end. The service isn’t even a platform that allows consumers to connect with each other and organize for buying power – it’s a pop-up, loss-leader service that businesses can rent by the day to drive consumers through their doors.

So, say you’re a small business, Groupon sounds like a pretty great idea, right? All of a sudden you can help people learn about your services and it’s cheaper than buying expensive advertising, right? Well, maybe. Groupon reports that about 22% of the people attracted by their make return purchases. Growth can be good, but what about the customer experience?

Let’s say you just opened an ice cream store and the first time a new customer walks into your shop it’s jammed with people looking for a $1 ice cream cone (that usually costs $3). It’s hectic, everyone’s very transactional because they came for the deal, and it’s very hard to engage with the ice cream store because all of the electricity in the air. People are pushy, lines are long. The extra sales are great for the buiness, but you aren’t building any new relationships, you’re just ringing up (discounted) sales. It seems like if you want that atmosphere maybe you should open Crazy Eddie’s Bargain Basement, buy lots of sales advertising and run that game every day. (The WSJ ran a story yesterday with some small business owners with similar sentiments.)

I’m frustrated because I know the experience could be designed with the end customer in mind. Groupon could connect people, look for shared interests, and source a mix of deals tailored for their community. Groupon could encourage people to share reviews that would help the businesses they serve so they can improve (right now, all discussions are about ‘the deal’). Groupon could really would be help businesses grow on their own merits. I feel like Groupon could be about more than just blatant consumerism. I’m sure it will be a big business, I think it’s a big idea, I just wish it had a little higher purpose.

5 comments

  1. We could agree more. That’s why we started browsemob. Contact us for more info regarding how me change the game (hint: nothing to do with mobile, yet).

  2. Absolutely. Let me tell you about this brilliant new idea I have without contributing anything to the conversation.
    No, I’m just kidding, and in a bit of a cranky mood today.
    I’m sort of into the same feeling, as well. I’m not really intrigued by a lot of these group deals or “new” forms of retail. Even something like Gilt Groupe feels a bit inauthentic to me, driven by consumers wanting to wear “name brands,” and pushing brands that Gilt declares as being “name brands.” The construction of these things, further, elicits a sort of flurry of excitement over the brand, service or product. Sorry for being crass, but it’s a bit like “sex on the first date.” Instead of carefully building excitement and support for the product/brand/service, you instead create an artificial excitement that overwrites any meaningful, growing relationship one could have with consumers. Part of our experience is the journey to get to that experience, if that makes any sense, and if we’re journeying to be part of some social movement, we’re not necessarily journeying to find something great. As such, the gradual progression from a “first time user” to a “regular” to an “advocate,” or however you want to frame it, isn’t really allowed to grow. And that’s too bad for the brands, because the only company consumers are building that relationship with is Groupon.

  3. I’m a groupon member of VIM now. Let’s spin together.

  4. Let’s keep this in perspective. Groupon (and copycats) are nothing more than a new direct marketing channel substituting for older forms of local advertising. It’s just top of the funnel customer acquisition in a new format. They give consumers good deals in a tight economy. They are not crowding out the “experience” any more than any other form of direct marketing does. And since the coupons are typically redeemable over a relatively long period I don’t see the in-store mayhem in practice. Businesses need to be smart about how they leverage this channel, but used wisely it’s another quiver in the local merchant sling.

  5. Totally agree that the model could be more consumer-centric, at least in the online experience, but just not sure what that does to Groupon’s business.

    In China, where the “tuangou” (group buying) concept started online, it was all about users coming together on BBS forums around shared interests, discussing what product they want and then organizing for a physical, group trip to demand a discount (often unbeknownst to the retailer). Does Groupon lose their control (and $$) if they open up and allow people to connect via a platform? Hopefully there is a way to design a sustainable balance between the controlling their margin and creating more value for the consumers beyond just a daily deal.

    It seems to me that Groupon’s real / defensible innovation has been knowing how to successfully scale a salesforce of 1000s in such a short period of time. And it’s interesting that this “people-scaling” model probably could not have come out of the West-coast, where it’s all about scaling the technology.

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