Groupon is the number one social media discount program online today. Expected to reach $400 million in revenue this year, it sends retail offers to about 13 million registered users by email. Retailers that are accepted into the program are willing to pay the firm 50% of an item's retail price to be featured. So why are so many merchant griping about the related boost in sales?
Of recent date, there are a number of reports that indicate that even a brand like the Gap has lost money by signing up for Groupons. When Groupon launched its first national deal with Gap to offer $50 worth of apparel and accessories at 50 percent off or $25, the retail outfit brought in $11 million dollars from 441,000 Groupon coupons in one day - which amounted to approximately 10 Groupons per second.
However, Augustine Fou, chief digital officer at Omnicom' Healthcare Consultancy Group commented that this is a prime example of "when NOT to use Groupon" as an advertiser, and "that is simply a waste of money for them."
Fou's logic is based on a "glass is half empty" mentality. He conjectures that even if the company made $11 million in sales - more importantly, it lost $11 million. Well, of course it did. That's the Groupon deal. The Gap's marketing executives knew that going in as they signed up to achieve a specific sales objective. If their mark-up couldn't afford a 50 percent discount, they would never have made the offer. Yes their profits were cut in half, but if their margins couldn't sustain this reduction, they wouldn't have partnered with Groupon to begin with. Where they made up the difference - was in volume, and most likely getting rid of excess 'summer' inventory they couldn't have sold otherwise.
However, in the case of Jennifer London who runs the Xoom smoothie shop in New York City, apparently she did not consider the consequences of her company's redemption offer with Groupon. While she sold 10 coupons to every customer, or a total of 1300 coupons, she was upset that 900 actually redeemed the offer and noted that she "would have lost money if everyone had shown up."
London's case underscores one of the components of Groupon offers that retailers might learn from. Blanket offers like Groupons that don't take into account a geo-targeted approach might only be attracting "one-time" customers - allowing businesses to attract more bargain hunters than they bargained for.
Monique Alvarez, co-founder of OnTop Internet Marketing Services talks about how great it is in getting customers to the door quickly, but more importantly what it takes to get these new customers to come back.
Groupon even admits that only 22 percent of its customers make a repeat visit to a business after using its coupons. When combined with a location-based social network like Foursquare, it would stand to reason that a retailer has a better opportunity to attract people who frequent certain geographic areas, and are not drawn to a location they normally wouldn't frequent otherwise - and consequently not return.
To counter this growing negativity, Groupon is revising their approach somewhat. According to a Wall Street Journal report, the company is "rolling out a computer program that filters deals a subscriber sees based on their gender, buying history and interests, among other things."
While Groupon is going to come up against some new upstart competitors that will seize on these different approaches, I don't think the company will lose that much ground in reassessing and tweaking future offers. The premise is solid - as long retailers know what they're buying. If they go in blindly, without weighing the pros and cons, then they "weren't that careful" to begin with, and guess what… "they will get what they wished for - in the form of buyer's remorse!