I’ve long resisted the urge to externalise my confusion around the hype surrounding Groupon. It feels like there’s this growing bandwagon that is building momentum, and like any high-profile and growing channel, it sometimes takes bravery to put your hand up and say “sorry, I don’t get this”.
After reading three excellent articles in The Economist, New Media Age and Marketing Week this week, I’m left scratching my head and wondering if I’ve missed the point somewhere. I’m now feeling brave, so up goes my hand…
My understanding of Groupon was that its power came from a combination of reach and relevance. Targeting very localised offers would help promote local businesses and encourage product/service trial through a sales promotion.
So I signed-up. I commute into London, but my home town isn’t on Groupon. So I chose London as the nearest City, which is a compromise in itself. Here’s an example of one of these ‘local’ offers I received on day 2.
Some speed-boating fun off the Kent coast, which doesn’t feel either well targeted or relevant for my interests. I confess to having a low irritation threshold for things like this, but I’m sure I’m not alone.
But before the ‘localised’ model has been fully scaled, it seems that the strategy may be changing, and that Groupon is positioning itself as ‘an alternative form of marketing to TV or Press’, with a daily reach via email in excess of 5 million (NMA). So with the potential change of direction to focus on major and high street brands, I decided to do some maths on the recent ASOS deal, by way of an example:
- ASOS Sells 50,000 £20 vouchers for £11 each (Cost of discount £9 x 50,000 = £450,000)
- According to The Economist article, Groupon ‘typically charges businesses half of the discounted price of a voucher’ (50% of £11 x 50,000 = £275,000)
- Total cost to ASOS = £725,000. My maths tell me this works out to be a cost of £14.50 per £20 income generated (72.5%) from each of the 50,000 vouchers sold
Now, maybe the average online order value for a brand like ASOS will be able to absorb this kind of cost per acquisition within the increased basket value of the final order (I’d love to see a case study on income and profitability outcomes from this promotion).
BUT how many small, local businesses (who I thought were at the core of the original Groupon idea) can afford to spend £72.50 to attract £100 of revenue? Those that think they can may not be there to take advantage of any future business from loyal customers acquired through this channel.
Can someone enlighten me? Have you got any real-life Groupon deals where you’ve become a loyal, repeat customer off the back of a heavily discounted offer? My gut feel is that most Groupon customers are transient bargain-hunters. Or, in the words of one of my Twitter contacts, “…it’s not sustainable reach, granted – but who am I to argue with my £150 spa treatment for £24.”