Will Success With The Gap Secure Groupon’s First Mover Advantage?

Brands and marketers are always looking for the magic bullet that turns a normal campaign into an overnight success. So it’s no surprise that $11 million in revenue from a single merchandise promotion generates a lot of interest in a company. It’s the kind of success story that gets marketers talking.

That success story belongs to Groupon whose national promotion for Gap last week resulted in income of $11 million from sales of a $25 coupon worth $50 of store merchandise to over 440,000 shoppers, according to AdAge. While Gap has yet to see how many coupons are actually redeemed, Rob Solomon, Groupon’s president said,

“I’m pretty sure if they ran a national TV campaign, they wouldn’t have gotten nearly 500,000 paying buyers in the store.”

Less than two years old Groupon began as a locally-oriented service offering a “deal a day” to subscribers in particular cities who give Groupon their email addresses. The twist is that an offer is only redeemable if enough people express interest in it. With redemption rates exceeding 80 percent on average, Groupon’s growth is easy to understand since it often splits the value of the offer as part of its revenue. It is the local focus that got Groupon to where it is today. The company is obviously unafraid to think beyond localization. “There’s a lot of room to remain hyper-local,” Solomon tells Reuters, “but to introduce super-specials, like for the Gap. Gap is a testament to demand for the big guys.”

Such success is necessary for Groupon to show its model cannot only attract large brands, but that it can retain its position of dominance within its own model now that a slew of copycats have followed on the heels of its success.

Groupon has already spawned several look-alikes – LivingSocial and ScoutMob are competitors. Yelp just launched a similar service, as did Travelzoo. But as with Facebook in social networking and Foursquare in location-based services, Groupon has first-mover status – something it will clearly take advantage of as it grows.

In the last five months, according to AdAge, Groupon has grown from 3 million to more than 15 million subscribers, has gone from 300 to more than 1,500 employees, and has expanded from the U.S. to 28 other countries. The week following the Gap promotion, an additional 750,000 subscribers signed on. Solomon says Groupon expects to have over 20 million subscribers by the end of this year and generate some $400 million in gross sales. The company is well funded by venture capital and shares in the revenue it generates for retailers.

Groupon currently makes localized offers in 29 countries in Europe, Japan, Latin America, North America, and Russia. According to Reuters, Groupon expects to expand from 85 markets to 200 in North America by the end of 2011.

There is no question that Groupon’s model can generate a successful crowd effect driving a glut of conversions based on a coupon. However even though the model is obviously a hit among advertisers, there is legitimate concern among brands that are worried about “training” consumers to only wait for, or buy with, an offer. Not all case studies of the model have had positive results.

  1. Advertisers have experienced product shortages that have created customer service nightmares.
  2. When examining the buyers often it was discovered that Groupon did not generate new-to-file customers.
  3. Poor customer service from Groupon itself.

As Augustine Fou, the chief digital officer at Omnicom’s Healthcare Consultancy Group, is quoted by Mashable in saying that stores like The Gap are exactly the type of advertiser who shouldn’t be using Groupon. He estimates that their loss on such a campaign $7.5 million revenue which is a hefty expense for publicity.

Groupon is, of course, all about driving traffic – and what it did in terms of traffic generation for Gap is now generating a lot of interest among retailers. Advertisers seem enamored with Groupon and many will be lining up to try the service this holiday season. The experience with Gap has proven that Groupon can sustain its business model with a national as well as a local audience. Solomon tells AdAge that he expects Groupon to hold another national promotion “pretty soon,” and that there will be more to come in the last quarter of this year.

About Barry Silverstein

Barry Silverstein is a freelance writer/marketing consultant. In addition to writing for ReveNews, he is a contributing writer to Brandchannel.com, the world’s leading online branding forum. He is the author of three marketing books, The Breakaway Brand (co-author, McGraw-Hill, 2005), Business-to-Business Internet Marketing (Maximum Press, 2003) and Internet Marketing for Technology Companies (Maximum Press, 2003). Barry ran his own Internet and direct marketing agency for twenty years. You can find Barry on Twitter @bdsilv.

4 Responses to Will Success With The Gap Secure Groupon’s First Mover Advantage?

  1. Eran Davidov says:

    Groupon has a clear advantage, but Yelp and LivingSocial have a large enough mailing list to pose a threat. Additionally, newspapers have huge circulation and are now starting to enter the daily deal market. While users might not sign up for both Groupon and many other deal sites, they'll still sign up for their paper which means alternative channels exist to compete and bypass their first mover advantage.

  2. […] Will Success With The Gap Secure Groupon’s First Mover Advantage? @ revenews.com […]

  3. I prefer yelp. It is accepted by the search engines well from the begining. I consider this is important for the traffic and thus for the business. May be I’ll check Groupon some day when I have more free time. May be I sound like a looser but I’m not eager in following all possible deal sites.

  4.  It’s very informative and the writer is very knowledgeable in this area and able to communicate the information effectively.;