Still think I am crazy? Groupon will Fail.

A while back I wrote a post, predicting that Groupon as we knew it then would not be a viable business. I was motivated by them turning down 6 Billion dollars from google, in what may turn out to be a disastrous business decision. At the time many many many people commented, tweeted, and refuted my claims. Most liked to consume the deals, which is obvious, they are amazing deals for consumers and disastrous for small businesses like restaurants.

If you haven’t read my original post on Groupon there is a clip and link to it at the bottom of this one. Since that time, Groupon has been virtually caught by its biggest competitor and about a thousand new competitors have sprung out of nowhere. The 1920’s Massachusetts view of alcohol has prompted the state to start an investigation into the discounting of Alcohol by Groupon as well as whether them taking money for what amount to alcohol sales is in effect selling without a licence. A legal challenge that many expect to be picked up by 25 states with similar laws.

See this Current Forbes Article about Groupons Struggles

The biggest problem is the competition, Groupon has now had two months in a row of declining sales. Why? More outlets knocking on businesses doors, more of those companies deciding that selling their product for 75% off is a bad idea, and the fact that it gets complicated when the law ets involved in what a groupon can be applied to… consumer fatigue with emails overload, and less attractive deals.

Here is the original post:



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34 responses to “Still think I am crazy? Groupon will Fail.”

  1. Chris Spatzierer Avatar

    Hey Spiro,

    My sentiments exactly. In fact last Tuesday I had started a draft of an article along these same lines. Now I’ll just link to your two! When Groupon said NO THANKS to GOOGs offer of $6 billion I said “wooops”. [well, I actually said something else but I can’t write that here] Groupon is a great concept; but a bad idea. I’m just waiting for people, especially loyal clients, to start complaining about their favorite spa, coffee shop or … restaurant, etc making them wait because there is a swarm of Groupon-ers taking advantage of a bargain basement deal on something and then end up paying full rate themselves because they weren’t “in” on the deal. In addition to that you mentioned the 100s of direct competitors that keep cropping up. The saturation point will arrive real quick and I don’t see a spin-off service growing from this.

    Great post(s).

    1. Spiro Pappadopoulos Avatar

      Thanks Chris, as a small business owner and marketer I could never get the
      numbers to work, and as they grew I was amazed that so many people did not
      do the math. I am glad you are on the same apge and look forward to hearing
      from you again.

  2. Ralph Bastarache Avatar

    I can foresee a decline in the card for Goupon as competitors win business from them and the service they provide becomes commoditized and they are forced to rethink their margins and strategies. Not all of their offers are successful, but those that are hugely successful can damage a small business. Will Groupon “fail”? Not Completely. They can get better but they will never see a valuation of $6B again.

    1. Spiro Pappadopoulos Avatar

      For the purposes of the argument ‘never seeing that valuation, (which they thought was too low) again is a failure, and I believe that they won’t be worth 15% of that in a few years. Mobile device deal distribution is a field they will not be first in, and one which will dominate the email based one shortly.

      If I had to bet that is what I would say.

  3. Sandra Tanner Avatar

    I totally agree with you. Although if they change their business model and got smarter they could survive. But to do this they need to reduce their margins – a lot, then teach every business how to turn the deal into a successful marketing campaign. Other competitors who have already reduced their margins still face doing bad deals for restaurants cause they couldn’t care less if it really work or not, all they want is to sell as many deals as possible.

    1. Spiro Pappadopoulos Avatar

      Thanks for the read and comment!

  4. Erika S. Avatar

    Interesting… I’ll be curious to see how it all plays out. I’ve heard tell of more than one business who was very unhappy with their Groupon experience, not for loss of revenue, but for failure to promote. If a national company buys into Groupon, the locals get shunted off to the small links on the side.

    However, Groupon also deals in an are that some small business owners love: gift certificates (which is essentially what they sell). They have expiration dates, and lots of people don’t use them at all, or forget to use them in time, which is free money to the sellers.

    1. Spiro Pappadopoulos Avatar

      The whole people don’t use them argument is a favorite of the Groupon
      marketing team these days, what is amazing is that they tout that to
      businesses as a plus. If it is so great to meet new customers, why are we
      hoping they don’t get used? The bottom line is this, if you own a local
      retail company and you are willing to sell a $40 gift certificate to a
      customer for $20 and taking $10 for yourself… a $20 saving to the
      customer, and a $30 cost to you… why not send each house in your town a
      $20 gift certificate, which will cost you at most $22 each to do… along
      with a note introducing yourself?

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      1. Peter Avatar

        Because a direct mail campaign is doing well if it sees a 1% response rate.  With your math, it’s going to cost $200 to bring in one client. 

        1. Spiro Pappadopoulos Avatar

          Food businesses see much greater than 1% return, especially with a $20
          certificate. My experience is that they much more than pay for
          themselves at my restaurants. Besides there are much cheaper ways of
          reaching homes than what you described.

          Have you tried either?

          1. Peter Avatar

            I have not partnered with Groupon and never would, as I agree with the author of this article.  I actually managed direct mail campaigns for a variety of clients and feel that it does work if done well.  Interestingly it works especially well for your business, particularly for delivery.  If you’re spending $2 per piece however, you’re never going to see a return, and I’m guessing it was just a random figure you threw out.  It should really be only costing about 20 cents per piece, and that should include design, print, and delivery.  Even at that price, short term gains are marginal but the brand exposure makes it worthwhile in the long run. 

            So I agree with you.  Short sighted business owners throwing a hail mary will resort to Groupon, but someone looking long term (such as yourself) would choose a better option.

  5. Spiro Spiliadis Avatar

    What local businesses don’t realize is that “user experience” no matter how much value you provide to the consumer in relation to your product/service that experience has been hugely discounted, and that in itself is an experience that clouds the real value of the service/product experience you provide.

    For example, I’ve told small businesses not to participate in this form of marketing because they will tarnish their image not because of the service/product but because the expectations of the user, and the user expects “huge discounts” so now your left to sustain not only service/product but to do it with a discount that is not feasible to sustain.

    Even if you are using this form of marketing as a strategic initiative to capture leads and try to maintain the users who do purchase such discounts, the expectation will remain the same, “keep it discounted and you better keep it good to” this cannot hold,

  6. Ric Avatar

    As a consumer the Groupon deals are usually based on an urban core of high priced retailers. Mostly food and beverage. The appeal should be much broader geographically and with a variety of products and services. All of the things you have mentioned combined with long term limited consumer appeal will take the shine off of this promotional opportunity. When I heard they had declined a 6 Billion dollar offer, I too thought they were idiots.

    1. Spiro Pappadopoulos Avatar

      Its hard to imagine an indefensible product (easily copied), and a one year
      old company, turning down $6 Billion in cash and the opportunity to become
      part of one of the most pervasive internet companies. Bad management
      decision, greed, whatever it was the likelyhood we will be talking about
      Groupon as much in a few years is highly unlikely.

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  7. Andrea Fuentes Avatar

    I tend to agree on the deal overload. I used to look forward to the daily deal from Groupon, but now there are so many coupons and deals being posted everywhere, that Groupon is less meaningful. I’ve seen deals for restaurants here that should still drive some business to the restaurant, like $20 worth of food/drinks for $10… the buyer is undoubtedly going to spend more than $20 at some of these places anyway (Miami Beach restaurants $$$). Andrea from Mivesta

    1. Spiro Pappadopoulos Avatar

      Thanks for the input, I tend to agree that they are not going away, but how
      long until that deal sounds boring to the customer and they get tired of
      opening emails about a million random garage floor cleaning services…
      drastically reducing their effectiveness etc