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Groupon, The Nuclear Bomb That Kills Retail?
- Bob Phibbs
It's all the rage. 
Shop.org is featuring their president at their summit at the end of the month.
The first national brand campaign with GAP reportedly sold 445,000 vouchers and received $11 million in revenue.
Everyone's saying, "Come to the party the Groupons fine."
Retailers should beware. This phenomenon will deflate prices and commoditize the industry like none before.
With their "deal of the day" emailed to millions, Groupon and their imitators are usurping your brand, your message and all for their gain.
Anyone who doesn't see this is blind.
Doubt me?
Think of the last time you received flowers. Do you remember who gave them to you or the florist?
Exactly, the person who gave them to you.
The person that gives them the flowers is Groupon, you are the forgotten florist.
I wrote an 11-part series on the subject with case studies. You can view the summation at http://www.retaildoc.com/blog/final-coupon-groupon-small-business/
As the holidays approach, it will be interesting to see which brand next takes the legacy of the people who built it and reduces it to a commodity or gives the impression their prices were always high and with the discount became "fair."
Retailers participating in such online coupon programs are fueling a coupon-driven, price-obsessed, dirt-scratcher mentality that will be unsustainable for all.
When the profits are freely given away in some misguided "trial" mindset, the brand won't falter immediately but make no mistake, it will falter.
Its as much an admission of defeat, "we have nothing else to offer" to the customer.
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Latest posts by Bob Phibbs
I must disagree with your analogy about the flowers. While the Groupon will cost the buyer less, the flowers still come from a specific florist shop and were sent by a specific person. I don't know where you came up with idea.
And just like gift certificates, not everyone cashes them in, so the retailer gets to keep the money anyway. I understand the point you're trying to make, but I respectfully believe you are barking up the wrong tree.
I'm also positive that people will remember where they bought the "jeans", and equally confident that the "jeans" say Gap on the back.
Firms benefit from selling "value meals" and generating traffic through price-impact initiatives ... especially at a time when retail is sluggish and consumers are cautiously saving more of their diposable income. It appears that the Gap understands the times, their customers and the public perfectly.
The premise of an intentional 50% off sales event being strategic surrender is sensationalism. These events are so common that most shoppers "save by accident" many times a year.
Few could doubt the effectiveness of Groupon as a vehicle for delivering free cash flow. Although it is discounted, any first year finance major can discuss with you the tradeoff of taking discounted cash flow up front in lieu of incremental payments over time. To use the GAP example, once we subtract Groupon's cut from the $11M, we see that GAP traded ~$6M in free cash flow up front in lieu of $22M in incremental payments, a discount of $16 Million Dollars. Was that worth it to them? Maybe. For me, that kind of discount could sink my business. There are other questions in my mind, especially whether Groupon users spend over the face value of their Groupons in the same way that retail customers overspend related to their gift cards.
On the other hand, looking at Groupon as a marketing vehicle, I have to wonder, as several other comments do, if those customers will come back again. If I "buy their business" via a groupon, will I make it up the next time, or will those people never come back? Anecdotal evidence seems to indicate that many Groupon redeemers are not likely to become repeat customers, and so this makes me question the value of Groupon as a marketing method.
Groupon and the others (Teambuy.ca etc.) are an intermediated version of Tuángòu (group buying) phenomena in China (source: wikipedia).
In that sense they are not new.
What is new is the velocity and volume of the offers, and the convenience for consumers. Why would I ever pay full price for a service that comes on Groupon or Teambuy once a month direct to my inbox? These services don't compete, they compliment one another. As a consumer I'm happy to have five different accounts if it means I can save 50% off of products and services I want.
The concept is not the problem, but merchants need to be wary of how much competition happens on these services or there will be a race "below the bottom" for prices.