Has Groupon Lost Its Groove?

Has Groupon lost its luster as a game-changer in the world of Internet advertising, discounting and customer activity? A new study seems to point to dissatisfaction and takes some of the shine off of Groupon’s solid-gold momentum.

The study, conducted by the Rice University’s School of Business, concluded that for a third of businesses, participating in a Groupon campaign was a money-losing effort.

Now that’s not going to be part of the Groupon salesman’s pitch when they come calling at local businesses and may be a permanent dent in the growth of the local, crowdsourcing couponing club that seems to be growing by the day. Not only have direct competitors cropped up like LivingSocial and the hot-off-the-press announcement of Wow! by AOL, but traditional television, newspaper and other advertising platforms are getting into the act in small towns.

What did the study find that has knee-capped Groupon?

First the numbers, according to the Wall Street Journal:

“The Rice study found that 66% of the 150 merchants responding found the program profitable, while 32% said they were unprofitable. Forty percent of the respondents said they would not run such a promotion again. Groupon Founder and Chief Executive Andrew Mason recently wrote that 97% of its merchants want to be featured on the site again, showing quite a discrepancy in their numbers and those found by the study.”

Part of the failure of the coupon campaign rests with the employees at the stores participating, according to the study. Unhappy workers stretched too thin by too many coupons from thrifty customers usually meant failure of the campaign overall.

Said the study’s author, Utpal Dholakia:

“”Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal,” Dholakia said. “So employees need to be prepared for this type of customer and the sheer volume of customers that might come through.”

So where does this leave Groupon, one of the Internet’s fastest growing businesses over the past two years?

The saturation of the market for these type of coupons is eventually going to take its toll on the restaurants, salons and other retail outlets which are getting asked by companies to participate. For larger markets, there may be enough business to go around but in the mid-size metros that Groupon and others have fast expanded into the news of this study plus the pressure to participate are going to throw up a lot of barriers. Small businesses owners who aren’t tech-savvy still have some reluctance to sign on to an unknown sale, so that may mean better results for local advertising platforms to sell the benefits along with their existing relationship.

For its part, Groupon is going to have to keep the solid case studies coming and try to manage any damage that this study does to its online reputation. Outlets like the Wall Street Journal were able to quickly find anecdotal complaints about the Groupon experience (and since Groupon has become the generic term for this category, they are going to get lumped in with bumbling clones).

All in all, this makes me wonder if Groupon tried to get too big, too fast and left a trail of dissatisfied partners in its path.

About Mike Koehler

Mike Koehler is the New Media Director for Schnake Turnbo Frank | PR, the largest and oldest public relations firm in Oklahoma. Mike consults with clients about the best use of tools on the Internet, Web strategy and social media policy. Mike blogs regularly at www.smirknewmedia.com and is working on his first book to be published in 2010. Mike lives in Oklahoma City with his wife and three kids.

You can find Mike on Twitter: @mkokc.

6 Responses to Has Groupon Lost Its Groove?

  1. This seems to be an overblown situation and more like Groupon figuring out who its best customers are. Clearly, people are being influenced online to go to brick-and-mortar businesses. This, in my opinion, is a HUGE win for online advertising, and a tremendous milestone. The problem of having too many responses to an ad campaign is a a far easier problem to solve than not getting enough interest. Simply capping the promotion up front will solve the main problem.

    I think the far greater risk to Groupon and similar sites is category saturation (which is an online advertising problem too). I'm getting tired of yoga and day spa coupons, and businesses just outside my convenience area. If they can improve their variety, or better target me to the right businesses and locations, all things that should be very easy to do, then I'll continue to stay interested.

  2. megamelfina says:

    Groupon and similar sites are still both a great way for consumers to save money by finding great discounts on everyday products and by helping businesses gain exposure and a large customer base by promoting their products.

    A great and easy way to find deals is by using http://www.dailydealpool.com. It compiles a list of the best deals and sales in your area and emails them to you daily, without you having to search for the best buys.

  3. Alastair Monk says:

    Totally agree with Rebecca regarding Groupon finding which deals not to go after, rather than how to get people in store.
    For local merchants (tech savvy r not) there are a ton of reasons to be more than happy that a new customer is walking in to your location; it's their job to maximize revenues after the person walks in – someone like Groupon can't do everything for them. It's success is not because they just have great deals – it's the ability to make sure a lot of people sign up for the deal before it goes live that makes for a compelling business model for local merchants.

    I for one am confident that even 'bumbling clones' will be able to bring value to the table for consumers – at the end f the day – if the deal is relevant and hyper local – why would I care if I buy through Groupon? I guess some form of loyalty aspect will have to emerge with Groupon to help avoid switching Group Buying solution providers….. (makes note and picks up phone to start working on loyalty enabled Groupon clone…)

  4. @djambazov says:

    Alastair and Rebecca,

    I agree with you both that this is part of the process of Groupon finding its "footing". The problem of having "too many customers" which their founder Andrew Mason tends to take credit for inventing, is indeed a good one.

    However I think the real issue is that the model, including the way Groupon structures it internally among its sales force, tends to encourage or coax businesses into a gambling mode looking for that "one big win". While this may be good salesmanship on Groupon's part it or simply a weakness on the business' part, it will continue to lead to fiasco's like the ones described.

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