Consumers want Groupon, but do businesses?

Groupon has had a mixed year in 2011.  Its IPO was largely a success, with its stock rising significantly upon flotation, only for it to fall back down again in recent weeks.  Meanwhile in the marketplace companies have begun railing against the voucher site, with some 70% of SMEs disliking the site.

To cap it all, The Economist reported earlier this year that Groupon is still losing huge chunks of money, despite strong revenue figures.  All of which suggests that Groupon is struggling. 

However a survey of 1,000 consumers by affiliate network LinkShare suggests all is not lost for Groupon and their brethren though.  They found that 56% of people would buy from an unknown brand if they were offered the right deal at the right time.  Further, 41% said they've already bought something they wouldn't ordinarily do due to a discount voucher.
All of which suggests that demand from customers is still good.  I can't help feeling this misses the point though, and that this is reflected in the continual drop in the Groupon share price.
I mean of course consumers want cheap deals, especially in these difficult times.  The problem for sites like Groupon is making the economics of the situation work for the retailers offering the deals in the first place.
This is where they're struggling, and with stories such as the baker that lost thousands on their Groupon campaign increasingly common it'll be a job to turn things round.
So when is Groupon good for you?
Lets think things through a little.
  • Firstly, Groupon will demand you offer a discount of around 50% on your normal ticket price.
  • Secondly you'll have to pay Groupon half of your revenue from the offer

So if you normally offer something for £100, by the time Groupon has finished with you, you'll be offering it for £25.  It must be a rare business that can make any profit from that.

But what about using it as a loss leader?

Ok, so the line of thought that you use Groupon to attract customers and then make profit from repeat transactions is not new, but many have cast doubt on the reality of such an expectation.

However a study by Rice University suggested that 2/3 of consumers never buy anything over and above that offered in the daily deal, with just 20% becoming a repeat customer.

If Groupon wants to have longevity then it needs to seriously improve those figures so that companies make money from trading with them.  If they don't they'll soon be flushed down the toilet of Internet history.

Here are a few things Groupon could do to make things better for their business customers?

  1. Educate customers – Many of their corporate clients are using Groupon for the first time and don't know what to expect.  Groupon need to do more to educate them on the process and how to make the most of the situation.  They need to inform customers on the prospect that many consumers only want the cheap deal and won't ever come back.
  2. Educate employees – Many companies have reported problems with Groupon customers.  They're not like normal customers so employees need to be aware of this and treat them differently to normal if they hope to convert them.

Thus far Groupon don't seem to have taken the business customers perspective on things.  As long as they get lots of people buying deals they seem to be happy, regardless of the consequences for their business customers.

To slightly mangle a phrase from HCL however, Business First, Consumers Second should be their motto.  If they look after their businesses then the consumer side of things will take care of itself.

If Groupon won't or can't do this, then given the enthusiasm amongst consumers it would appear only a matter of time before a similar site is launched that manages to please both business and consumer markets.


5 thoughts on “Consumers want Groupon, but do businesses?

  1. I'm amazed Groupon has such market value. Their position is sooo dodgy because it's so easy for other sites to do what they do, especially if businesses aren't happy with them. They can shift in an instance.

    • The flip side of that though of course is that Groupon can easily shift to become slightly better for its corporate customers. They have market leadership right now in terms of profile and customer base. It's not beyond the realms of possibility that they start tidying up their financials so that it works for both sides of the equation.

  2. Sites like Groupon could be a goldmine if they get the formula right. I mean consumers want cheap deals. Retailers want a guaranteed market. So the idea is a good one, they just haven't figured out the numbers yet to make it win-win for both parties.

    • Exactly. I think the whole idea behind Groupon is fantastic. The problem right now is that they have things too heavily weighted towards the consumer rather than the supplier.

  3. I wonder if this site could well hit the nail on the head? It's called Frugalo

    and it basically looks to bring deals from multiple sites into one dashboard.

    The service has 3 primary functions:

    It acts as a single point through which consumers can see all of the deals available to them from the various shopping sites on which they participate.
    The algorithm learns about the consumer based on past purchases, geography, and peer-recommendations.
    Friends can share their purchases with each other (and the rest of the world if they'd like) and see what each other is buying on the sites, adding the social element that has, in many ways, been missing from Daily Deals.

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