With all the hype around Groupon, I find myself a bit confused as a marketer on what my actual position is on them. The idea of giving a discount or promotion to get new audiences in the door is a basic marketing concept that most businesses probably support. You give up revenue of some kind and typically reduce your advertising expense to offset the total cost with the hope of building a new relationship with a prospect. A new happy customer gets you revenue you may not have to begin with (hey, you sold a seat that may have gone empty) and a happy advocate telling their friends as well to join. I think most of us can get behind supporting that basic idea.
From my perspective though, I don’t actually see Groupon practicing this though.
Let’s start with the pricing model. 50% off to the consumer and a fee of up to 50% of the remaining dollars to Groupon. Now, I know that deal can be negotiated but it’s a hefty starting point. Promotional pricing at near break even is one thing. Promotional pricing at a major loss can be death for any business. 50% off of 50% is a margin is a major loss per sale for just about any business.
My second issue with Groupon relates to the word-of-mouth effect. You have to assume that the price someone paid is going to be directly connected to the word-of-mouth created. If someone paid 50% off of your product, there’s a good chance that caveat will be attached to the word-of-mouth they spread on your behalf. “A great deal!” is an exciting word-of-mouth starter for many (we all have these people in our lives!). You can imagine the conversation – “Great show! I picked up tix for 50% off on Groupon! Oh yeah, you should go see it and pay full price like the other morons!” Ok, that’s an exaggeration but, for those that get extreme discounts I believe that it can easily make its way into the word-of-mouth conversation in one way or another.
Which leads to my final issue – price must equal value (or perceived value) in some way shape or form. For the most part, people purchase based on value – not simply on price. What does it say about the value of your brand when it’s 50% off with little to no true parameters! What does it say when you promote 50% off to a list of hundreds of thousands of prospects who are receiving it, not based on any kind of loyalty or specific buying behavior, but by the simple fact that they “want” discounts.
I feel like the days of true closed-looped promotions that felt special are dead, dead, dead. We all believe everything is on sale – both businesses and consumers – and that is simply not sustainable over time. Something will give.
I don’t mean to bash Groupon. They are obviously doing something VERY right to be offered the billions of dollars Google has offered. But all happy relationships in life (yes, including business and consumer) require trust, respect and appreciation. When you look under the hood of what has become marketing’s version of crack, websites like Groupon ultimately undermine all three.
I want to be talked off of this ledge on Groupon – so, please share your opinions with me on where I’m wrong.