SMS Loyalty Program the Next Acquisition for Groupon?

The following is the weekly guest series by Derek Johnson, Founder & CEO of SMS marketing software Tatango. After Groupon announced their plans to go public earlier this month at a $30 billion valuation, they’ve been taking punches left and right in the media. Even TechCrunch, which has always had a soft-spot in their heart for Groupon, let …   Read More

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SMS Loyalty Program the Next Acquisition for GrouponThe following is the weekly guest series by Derek Johnson, Founder & CEO of SMS marketing software Tatango.

After Groupon announced their plans to go public earlier this month at a $30 billion valuation, they’ve been taking punches left and right in the media. Even TechCrunch, which has always had a soft-spot in their heart for Groupon, let guest Rocky Agrawal spend an entire week ripping the daily deals giant a new one with posts such as the following:

I’m guessing this wasn’t the type of coverage Groupon had in mind after their big announcement.

The majority of the criticism being hurled at the daily deals giant isn’t that the consumer is getting a bad deal (I don’t know anyone that doesn’t love getting 50% off), it’s that businesses offering the Groupon deal are the ones still in search of positive results. If you’re not familiar with the ideology behind why a businesses is sold on using Groupon, it’s very simple. A business will offer a steep discount through Groupon, usually 50% off, exposing that business to thousands of new customers, who in a perfect world become repeat customers of that business.

After pouring over all of the criticism over the last month, a quote in the Wall Street Journal from business owner Jennifer London, sums up why businesses feel they are getting the shaft when using Groupon.

“Most of the people who came are not from this neighborhood – I most likely won’t see them again.” – Jennifer London (Xoom Smoothie Shop)

Ms. London is right in her assumptions, Groupon says its research shows 78% of its customers never come back to a business after redeeming a Groupon. To verify the accuracy of this statement, Utpal Dholakia, professor of management at Rice University did his own research by surveying 324 businesses that offered deals from August 2009 to March 2011 from five daily deals services including Groupon, LivingSocial, OpenTable, BuyWithMe and TravelZoo. His results were similar to Groupon’s own results, but he also found that nearly 80% of daily deals users were first time customers. If we do some back of the napkin math with the survey results, and take a business that redeems a whopping 1,000 coupons — that business is only generating 160 new repeat customers (1,000 Groupons x 80% new customers  x 20% repeat customers).

Groupon’s tagline on their website is the following:

“Learn how a one-day feature on Groupon can bring your business thousands of new customers.”

Business owners and the news media are starting to wise up  though and they want to see this instead:

“Learn how a one-day feature on Groupon can bring your business thousands of new repeat ] customers.”

With nearly 80% of all daily deal users being first time customers, the only solution I see besides drastically changing Groupon’s business model is to increase the amount of repeat customers for businesses using the service. Why is the number for repeat customers so low? Groupon doesn’t share information like email addresses or phone numbers of the customers coming into a store to redeem a deal. Groupon also doesn’t provide businesses with the tools to capture customer information on their own, which would allow the businesses the ability to create loyalty programs and advertise to those customers in the future to encourage repeat business.

A recent HipCricket survey found that 57% of people would be interested in opting in to a brand’s SMS loyalty program. Again, a little back of the napkin math and that comes out to just over 450 customers (with the same example above) willing to join that business’s SMS loyalty program. Compare that to the mere 160 new repeat customers currently generated from a Groupon campaign, and it seems like a no-brainer why Groupon’s next acquisition will be an SMS loyalty program provider.

The best part, adding an SMS loyalty program is a win-win for everyone! The consumer now gets deals straight to their mobile phone from businesses they enjoy, the businesses using Groupon get more repeat customers, and Groupon is able to increase the amount of businesses interested in running a second Groupon, which currently sits at just 50%.

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13 comments

  1. Robert Tigwell

    I'm in a unique situation – I own a Baskin Robbins franchise, and an Extreme Pita franchise but happen to be a software engineer who worked for the past 4 years developing sms integration into a variety of systems. I created my own sms loyalty program for my restaurants and the adoption is increadible.

    I have considered groupon, and living social but never pulled the trigger – although Baskin Robbins has done a few corporate deals on WagJag to test the waters. I think your napkin math is right on. Groupon never attracts repeat customers, and the reason is simple. People who use groupon are deal-seekers. Both of my establishments are not price-first retail locations, they are quality first.. thus, the guests I attract will not naturally be drawn to my store by it's native presence of higher quality foods with significant variety. Some retailers who place a constant focus on value will likely have higher retention rate from a Groupon, but also a lower new-vistor percentage as well.

    Rob Tigwell

  2. How Groupon Can Adjust to Get Back on Top | Word Salad & Social Media

    […] use the service aren’t getting the value they expected. Mobile Marketing Watch just posted a good article on the topic. Here’s a quote they pulled from WSJ that pretty much sums it […]

  3. Kerwin

    Hey Derek,

    Good post. I don't think everyone should go blaming Groupon at all. The small businesses does not seem to have anything in place to retain these new customers that is the real issue. Like their tag line says they bring you new customers, they are not in the business of helping you to retain customers.

    So no I don't think they should acquire a SMS company. The SMS companies should see this as a gap in the market and fill it. I know this is my angle when I talk to small businesses that have participated in Groupon-esques deals. You must have a mechanism to retain the marketing information of all your customers.

    They are moving into travel so we'll see what gives there, but perhaps just more of the same… In the travel space, the airlines can reach out to the customers once the customer gets back to their web sites; but can't use the information in the reservation to market to them; the information in the reservations is for operational marketing only. I don't think Groupon in travel will be any different than say Priceline and Hotwire. Do you?

    Kerwin
    Cruisinaltitude.com

    1. Derek Johnson

      Agreed, I don't think this is Groupon's fault… but from a PR standpoint, they need to fix these issues or help businesses fix these issues before their black eye gets larger. Just my two cents.

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  5. Ian Scott Armstrong

    If the GPO model was the best way to attract new business, advertising would be a cottage industry and grocery stores would be run like insurance companies. Groupon's business model isn't sustainable at a 50% commission – or even at a 20% commission in the long run. Group Purchasing was the first to find its business model in the post-dot-com mobile world but it's no more viable than it ever was as a mass-market solution.

    1. Derek Johnson

      Why do you say that, what evidence do you have that they can't sustain 50-20% commission rates? If they can make running a Groupon a win-win for everyone, I don't have a problem with a 50% commission.

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  8. @mobsicle

    It's worthwhile noting both Facebook and Google have been integrating SMS options into certain services for years (e.g. http://www.google.com/mobile/sms/ and http://www.pcworld.com/article/169235/update_your….

    The DNA, and custom short codes (GOOGLE, FBOOK) are there.

    And since both would probably love nothing more than to strike a mighty blow against Groupon and its ilk – see Google and Facebook Places – we have to wonder if some sort of SMS retention tool, integrated into their local deals, isn't in the offing.

    1. Derek Johnson

      Interesting observation, thanks for the comment.

  9. @tlpriest

    Our TechCrunch funding announcement talks about the Groupon perception issue. We have all the tools and broad POS integration required to prove the positive value of Groupon to businesses. http://techcrunch.com/2011/03/29/sundrop-mobile-r

    1. Derek Johnson

      Great to hear that a company is trying to solve this problem. Keep up the good work.

Comments are closed.