Groupon, we have a problem….

There are several reasons why this marketing hysteria over Groupon (and all the lookalike offers clogging email accounts daily) will be a promotional “flash in the pan”. To understand why Google was sufficiently infatuated with Groupon to want to spend $6,000,000,000 buying them is easy: localized marketing is one gap in the massive Google portfolio. Groupon, in theory, would help them to plug that hole.

As a consumer, I have purchased Groupons (although after their Super Bowl debacle, I will reconsider in the future), largely for one of two reasons:

  1. They offered 50% off at a restaurant or retailer that I already was a customer at, and was intending to purchase from in the future anyway, or,
  2. They offered 50% off at a restaurant that I had not been to, but would go to at a greatly discounted price (although I would not go back as a “full price” customer again).

I am pretty sure I am not alone in my motivations for having purchased a deal from Groupon. And, to the dismay of the restaurants or retailers I visited with my Groupon-in-hand, I either: (a) won’t come back again (unless there is another 50% deal that entices me), or, (b) would have made my purchase there anyway, and paid the regular price. So in either case, the retailer did not benefit from my participating in the offer. Now multiply that experience by the number of Groupons sold, and you find a mix of unnecessary discounting coupled with a likely void of future purchase intent. This situation is then magnified by both the number of competing “deals” that show up from other sites.  The result: a huge drawdown of consumer dollars which could have been directed into more profitable transactions that would build customer loyalty, frequency, and word of mouth.

So what is a retailer or a restaurant to do? Well, for starters, find a better way to entice new customers than the vaporous allure of cheap pricing. All you are doing is setting the stage for consumers to lower their perceived value for your store or retail category.

One alternative that would have a more powerful, long-term effect is to differentiate by elevating the customer experience, so that more consumers leave your establishment raving about the service quality, or the selection, or the flexibility, or the designs, or the depth of product, or some other meaningful driver of loyalty. Here’s a thought: Build a personal relationship with your customer…be a friend, a confidant, a supporter, an empathetic listener or just plain genuinely interested in earning their business. I would take the positive word-of-mouth that this approach creates any day over a price-shopper.

Let’s face it, driving down prices, while driving up discounts, is a self-fulfilling prophecy. It may work for WalMart but it won’t work for most others, in any category, especially those local retailers who have to compete daily against the big boxes. So why would you want to showcase, and take a financial hit on, a one-time discount that only increases your costs and marginalizes customer loyalty?

I understand that the tide of discontent with Groupon is rising, particularly in the restaurant segment. Customers may become loyal to Groupon, but the participating eateries are not feeling the love. My guess is that the illusory lift in store traffic and sales will be short-lived by those in other retail categories as well.

$6,000,000,000 for Groupon, and they turned it down because they felt it was too low? Should have taken the money and run. I doubt that they will see a knee-jerk, ego-driven offer like that come by again.

(Footnote: Hats off to Tom Fishburne for the great cartoon… Visit Tom at http://tomfishburne.com)

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5 responses to “Groupon, we have a problem….

  1. I enjoyed this post, Rick. I’d never thought about discounts as a double whammy before. Good point. Not to mention that you risk annoying your regular customers who now can’t get in for dinner because all of the one-timers are hogging the reservations. Great service goes far in my opinion.
    I’ll tell you one of my favorite experiences.

    It was my birthday and we decided to go somewhere we hadn’t been before. We were dressed casual but neat. When we arrived at the restaurant, it looked a bit more formal than we had thought and I spoke this thought aloud. The waiter reassured us that all was well and then seated us at what I would have called the best table in the restaurant, with an awesome view of the NYC skyline.

    We ordered dinner and pre-ordered chocolate souffles. When dinner was over, the waiter came by to apologize that the souffles would take a bit longer and brought a 3-tier tray of complimentary bite-sized desserts. I was shocked. That was some apology!

    When our souffles were delivered, the waiter overhead my husband wish me happy birthday and he brightened up, wished me well, and then asked if he could bring us after-dinner drinks on the house. But of course. :-)

    Needless to say, I told a gazillion people about this experience. I wish I had received a commission on all the people who dined there as a result of my gushing. That’s how to run a business. A discounted price cheapens the perceived value of your offering. It’s a minus, literally. Why not give something extra–that’s a plus.

  2. Great story! Thank you, Margaret, for underscoring what makes for a positive retail experience, and the fact that it almost never has anything to do with price (unless you are WalMart doing battle with Target)!!

  3. Pingback: Tweets that mention Groupon, we have a problem…. | ideationz…a blog from rick s. pulito -- Topsy.com

  4. Not only does Groupon promote to a non-returning clientele but they also prevent the merchant who sold the deal from lowering their prices or offering any other deals while the Groupon is still valid. Basically, Groupon hijacked my business and is now dictating what I can charge customers. I’m a tour business and would like to run specials through my website especially in the slow times of the year. Yet, because the Groupon deal is still valid, I can’t.

    • Thanks for coming by, Kim, and for your comment. I have heard both good and not-so-good about the Groupon approach… The most frequent issue has been about non-repeat customers who are price-shoppers… With the space getting pretty crowded now (here in the Twin Cities there are at least 6-8 of these offers sent out daily….from Groupon to Angies List to one called “Swoop The Deal”…It is becoming white noise, and as more national brands start down the road with “internet only” deals or “in-store only” deals, it will be increasingly hard to promote as unique or viable to the independent business. Thanks again, Kim, and good luck!!!
      Rick

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