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The Real Problem With Groupon

It’s taken me awhile to get back to this post, but hopefully it doesn’t seem too outdated.

I somewhat recently read an article about a London bakery who offered a Groupon deal for 75% a dozen cupcakes. They had 8,500 people sign up for the deal, a staggering number for such a little bakery. One would thing an influx of customers like this would be a good thing for a company. It sure is, when the company is large enough to handle a larger-than-expected swell in customers. Need A Cake, the aforementioned bakery, was not at all prepared.

Dubbed her “worst ever business decision,” Rachel Brown and her staff needed to make 102,000 in a short amount of time to handle the orders. They couldn’t handle it on their own and were forced to hire 25 extra workers, resulting in a loss of $3 per batch of cupcakes equaling a $20,000 loss for the company. Needless to say, this type of incident is not the first of its kind, but should be the last. Why? Because small businesses need to understand Groupon, and Groupon needs to understand small businesses.

While working in social media for the last 14+ months I have learned a lot about marketing on social networks and how different companies approach the process. The smart ones focus on building relationship and creating engaging content to keep their fans and followers around for an extended period of time. The not-so-smart ones want to win the “I have more fans than you” battle. Here’s the thing: if you want fans, it is very easy to get you those fans. Put up some money and we can advertise the hell our of your business and reach your fan goal. But guess what? Those fans, aren’t fans. They will not promote your product to their friends and family. And they most certainly won’t be loyal to your business.

Groupon is an offline version of the Facebook brand media buy. And that’s a big issue. For big businesses it is fine because they already have large customer bases that are loyal to them. For small business it can be devastating. A small business is attracted by a group deal because they believe it will bring them many long term customers they may not have reached otherwise. Believing in this is a mistake. Sure, you will get a few, but the percentage of lasting customers versus one time deal seekers will be very small. And this is Groupon’s biggest folly…they don’t actually help businesses. Big businesses can handle the losses they incur from running a group-buying deal, but small business can potentially be shut down because of the money lost from a deal.

Rarely does a business do a Groupon deal twice. I have yet to see one (if you have, please tell me in the comments) occur. There is a reason for that. A great business that opened up entirely new market to the world didn’t understand the scale of what they were trying to do. It’s unfortunate, because it’s possible that they could help small businesses. Even putting a cap on the number of people that can purchase a deal would help, as it would provide an “exclusive” label to each deal for small businesses that make them more intriguing, and could get people to visit the business even if they missed out on the deal.

For Groupon’s sake, I hope they figure out a way to change their business model. Otherwise small businesses everywhere could be in trouble.


Group-Buying Sites Losing The Group Mentality

Where did this mentality go?

In the wake of the news that Groupon, the massive group-buying deal site, has filed for a $750 million IPO I figured I’d write about an observation that’s perplexed me for months, as Groupon and it’s countless competitors (LivingSocial, DealSwarm, etc.) have seemingly lost the ‘group’ mentality that they are supposed to utilize.

Quick background for beginners: These sites release daily deals for 50-90% off products at stores, restaurants and venues in different cities across the country. In order for these deals to become accessible a certain number of people must buy this deal. If you purchase a deal that doesn’t reach the required number of people needed to unlock it, you aren’t charged for the deal.

Great concept right? Use the social space to promote sharing to get people to get their friends to purchase deals so that everyone can access them. It’s free advertising for the places running the deals, free advertising for the sites hosting the deal, and a great way to get consumers to involve their peers in what they are doing (the point of social media).

Here’s the problem: I chose three random deals on Groupon’s site just now and the required number of people needed to unlock the deal was no higher than 25…25! This is way too low for them to even advertise this “unlocking” feature. The point of trying to unlock something is to give it an air of exclusivity or importance that holds the risk of it NOT being available. I live in Atlanta, GA, a city of over 5 million people. The chances of there not being 25 people who are willing to, say, pay $10 for $20 worth of apparel at Old Navy are as close to zero as there can be. As of right now there is a little more than 7.5 hours left to purchase this deal and over 5,300 people have purchased it already. I ask again, what is the point of this deal being “unlocked” when thousands are obviously going to purchase it and the tipping point is 25 people?

This is my problem with these websites…there are millions of people seeing these deals every day, and they need to realize this. What happens when you tell a child who is mildly interested in a toy that he or she can’t ever have it? They want it more than anything else in the world. Well, the same psychology applies here. Throw an attractive deal (like the Old Navy deal) at people,  and set the tipping point at a high number and they will be sure to share it with people to make sure it gets unlocked.

Remember Groupon’s nationwide GAP deal? Well you KNOW tens of thousands of people are going to want a deal like this. It’s a major brand, with good product, and people shop there A LOT. Make them earn this deal…a sense of accomplishment will come with the deal being unlocked, making it more memorable. Keep in mind that his deal hit 441,000 deals purchased. That’s one hell of a group, and did any of them care? Of course not. The deal needed only 600 people to unlock it.

This has become less of a GROUP-buying industry and now is just an extreme digital coupon industry. Anybody can hand out coupons with these same deals…but what makes these unique? The group part. The guarantee that a certain number of people will buy the product. Retailers should step it up and require more people to buy it for the deal to be unlocked. It will benefit everybody and make the deals a more serious matter, one that requires the group to put in effort to get the deal.

I think these deals are fantastic, but need to live up for their “group-buying” label. Do you agree?

LivingSocial Steps It Up For Japan

Livingsocial + Japan > Groupon

In the never-ending battle for “Best Daily Deal website,” a category that Groupon basically dominates, LivingSocial just pulled a move that pushed them right up there next to Groupon for me. LivingSocial’s daily deal for today is a deal that doesn’t benefit anyone more than Japan. In the wake of the devastating earthquake that happened last week, relief efforts have been in full swing. What better way to raise a TON of money than make your daily deal $5 for a $10 donation to the relief efforts through the American Red Cross? LivingSocial will make a 100% match to all donations made through the deal.

As of 11:45am it has already raised $1.7 million and that is rising very very quickly (think 20k every few minutes); that equals 170,000 deals purchased so far, and climbing.

I love this idea from LivingSocial because it supports an international cause for a tremendously serious crisis, it taps into one of the fastest growing markets (daily deals), and it shows that LivingSocial can promote HELP for a cause rather than promote themselves…unlike Groupon in this infamous Super Bowl Commercial:

This was a fantastic play by LivingSocial and I can only imagine that it will help them compete with Groupon. What do you think of the campaign? Have you purchased the deal yet? If not, please do!

Groupon’s national Gap deal is only the beginning

Today’s (August 20th) Groupon deal was the first time the group-buying coupon site has ever hooked up with a national chain for a deal. The site primarily teams with local retailers and businesses to give great discounts on a wide variety of products. The offer today is for $50 worth of goods from Gap for only $25, a %50 off sale on any products on the shelves. This is a great deal (for both consumers and Gap) for many reasons:

– Gap is a very popular store with great clothing for a cheaper price than a lot of stores in the same “genre” of clothing,
– It’s back to school season which means people need good clothes to look fresh for school, and Gap is cutting everything in-store to half-price, and
– Though Gap will be losing money on every purchase made, it’s a much better value than spending millions on a national television campaign that doesn’t result in thousands of sales.

Why is a deal like this so important to Groupon, national retailers, and consumers? Check out this article on Mashable about the overwhelming results of today’s deal. After reading that, start reading between the lines. A deal that gets hundreds of thousands of consumers committing to buying $25 worth of product in your store, not online, is worth the revenue loss. It’s an interactive national commercial that generates sales…a television commercial advertising a 50% discount is both expensive and will be ignored by millions of people who are too busy DVR-ing their shows to skip said commercial.

This is only the beginning because national retailers are going to start seeing the type of response Gap had with this Groupon deal…and are going to do this themselves. One company being successful isn’t enough to win just anyone over, but one or two more successful coupon deals like this and it will become all the rage. Groupon has no qualms against it because they aren’t the ones fronting the lost revenue…and national retailers are getting in-person exposure to hundreds of thousands of consumers going to their stores. Other than the lost revenue (which can be gained back from these consumers returning to the stores/new shoppers who are just taking advantage of the deal returning in the future) there is little downside to a successful campaign like this.

I would have taken advantage myself, but I was busy…though I can admit this is the first time I’ve ever been mad about missing a Groupon deal before. Keep it up Groupon!