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:
- Why Daily Deals Are Becoming A Raw Deal
- Why I Want Google Offers And The Daily Deals Business To Die
- Why Groupon Is Poised For Collapse
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%.