Article

Groupon responds: 95 percent of merchants would do it again

The deep-discount deal-of-the-day site says most retailers are thrilled with the results it delivers.

October 11, 2010 by James Bickers — Editor, Networld Alliance

One of the most widely read stories on Retail Customer Experience in recent months was Bob Phibbs' passionate screed against the online coupon service Groupon. We wanted to hear the other side of the story, so I spoke with Julie Ann Mossler, Groupon's PR and consumer marketing manager, to find out what the value proposition of the service is for retailers — and to let her speak to some of the concerns raised.

There's no question that Groupon can be a great deal for shoppers — since the site's launch in late 2008 it has sold more than 13 million coupons, delivering discounts of more than $570 million. But are these deals working in favor of the stores offering them, or do they backfire?

James Bickers: Walk me through the elevator-pitch version of how the service works, how deals are redeemed, and how retailers get paid.

Julie Ann Mossler:Groupon is a daily deal site that offers the best things for someone to do in their neighborhood, whether it's going to a restaurant, doing an activity, going skydiving, you name it, it's probably been on our site. We offer discounts of 50 percent to 90 percent, and the whole idea is built on the concept of collective buying. So we get a group of customers together, and we approach a business and say, "At what number of customers would it be worth it to you to offer 60 percent or 70 percent off?" And for some people that answer is five, while for some others its 100 or more. We work with the merchant and say, "If we secure 100 customers, then everyone gets the deal."

JB: How are the deals themselves determined? Are there minimums or thresholds for how much of a discount must be offered?

JAM: We typically do 45 percent to 90 percent. Either businesses come to us that want to be featured, or we'll call them and we'll make a suggestion, like "Spend $15 and get $30." Based on all of the thousands of businesses we've featured, we tend to know what works and what doesn't for different industries. It's not cut and tried — it really depends on the merchant and what they're looking to sell.

JB: And how does the retailer get paid?

JAM: There's no cost up front to be featured. If we decide to work together and they are featured as the deal that day, if you reach the minimum number of customers, then we typically take about half of the revenue and give the rest to the business. If we don't reach the minimum number of customers, no one gets the deal, and no one is charged.

JB: So you actually do the collection of funds and then write the retailer a check?

JAM: Right, we do the transaction through our website. Your credit card is credited as Groupon. And then we pay the merchant immediately, 30 days and then 60 days after. So it's in three installments.

JB: How have you chosen which markets to expand into?

JAM: Well, in the beginning it was just trying to reach the largest markets, the areas where customers were shopping. Now it's turned into becoming more hyper-local and going into someone's back yard. In the past we were just in the downtown Seattle area or downtown Chicago. Now we've expanded into the suburbs, to ensure that we're reaching customers who might not live directly in the heart of the city. We've been moving into markets like Sioux Falls and Cedar Rapids, and we do that based upon the number of quality businesses in the area. If they have a really great selection of local businesses, we'll start looking at the market.

JB: The writing on your site is reminiscent of other deal-of-the-day sites in its use of humor. How big of a team is tasked with writing the "Groupon Says" content?

JAM: We have an editorial staff of about 90 people. It grows every couple of weeks. It's not really any different than if you walked into a newsroom. They're putting out the length of a novel of copy every day. They're really talented, and humor is really important because it's kind of the way we connect with the customer, it's not really sales-y ad copy. It's more pointing to local reviews and customer testimonials and the third-party thing.

JB: And I've noticed that in the discussion forums for each deal, you have staffers in there answering questions. How big a staff is involved in that?

JAM: Whichever rep has negotiated the deal and worked directly with the merchant is the person who manages that discussion board. We also have someone from customer service who is dedicated to it too. We also have the merchant get in there as well and answer questions. We think that's really important because if we offer a deal that our customers don't think is valid, they will certainly let us know. So it kinda keeps everybody honest.

JB: We've heard horror stories of retailers surprised by the turnout, unable to meet demand, some of them actually losing money on the deal. How do you work with retailers to prevent those incidents from happening?

JAM:That's actually a slim minority. As of last week, we had polled about 3,000 of our merchants, which is close to everyone we've featured, and the response was that more than 95 percent wanted to work with us again, or would recommend Groupon to another business. So, you can see that these stories that you've heard are in the slim minority. You can always cap your deal, which is when you set a limit to the number of Groupons that are sold, in order to ensure that you're giving the best quality. That's always been an option, and I think we're becoming a little bit more vigilant in talking to the business and recommending that they do that. It's always been a tough position for us to be in, because it's hard to say to a business, "You're telling us that you can handle 1,000 customers — No, you can't." It's almost insulting to say that to a merchant. So we do our best to work with them and look at the business and say, okay, if you have five salon chairs, you can probably handle 600 customers within the year, depending on the size of the business.

JB: What is your response to the anti-Groupon pundits who say your service is training people to wait for a discount before buying?

JAM: We will feature a business more than once, but months and months have to go by. You're not going to find the same business come up once a week or once a month. And because of that, these businesses are seeing Groupon as a way to do something special for their customers, or a way to reach more. But it's not something that's done on a regular basis, and I think customers know that. And honestly, if we're setting new pricing standards for a certain industry, I think that's compelling and customers probably deserve that as well. It's interesting to see where pricing may lead.

JB: And what about the complaint about the service's efficacy — that is, it's really good at getting new customers that are bargain-hunters, but it doesn't bring in the kinds of customers that are more profitable — the brand-loyal ones?

JAM: You know, there are a couple of things. Going back to the idea of discounting, I mean, if you think about it, businesses have been discounting for hundreds of years, and we're certainly not the first people to do this. Look at Macy's; they have holiday sales that happen quarterly where they're discounting their store at 50 or 60 percent.

As far as the efficacy, Groupon customers — and this doesn't apply to all group-buying sites, but it applies to us — our customers are college educated, they make a significant amount of money, and they've opted into our daily emails because they're looking to support local businesses. That's where their focus is. We're delivering customers to your door, but ultimately it's up to the merchant to capitalize on that, and make sure that the customers have a reason to come back. They're coming into your doors because they're excited and they're hoping to find new businesses to love, but it's up to the merchant and their staff to make sure that the experience they have is really great so that they do want to come back.

JB: You mentioned earlier that you've polled your merchants. How many of them tell you that people who have bought a deal have been back since?

JAM: The people that responded "Groupon brought in quality new customers," the response to that was 88 percent. And "Groupon customers are likely to become repeat customers," the response was 81.5 percent. That's out of 3,000 merchants.

What I think is really important is, ultimately, we're talking about a form of advertising, something that is worked into your local marketing. If you compare us to direct couponing or billboards or TV or radio, there really isn't anything comparable to the numbers we're delivering, as far as merchant satisfaction. When was the last time someone placed an ad on the radio or a billboard and said, "Wow, I got 80 percent new customers from that ad." Things like that aren't even trackable. This is a concrete way to ensure that these people are actually coming through your door.

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