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Groupon CEO Canned After Half-Off Performance

Groupon Founder and daily-deal whipping boy Andrew Mason finally got his half-priced ass handed to him today after delivering Groupon’s stock into a Botox’d coma after going public over two years ago. His own self-written eulogy seemed like it was scribed by the Groupon cat, which was rumored to be later euthanized in a severe cost-cutting measure.

“People of Groupon, after four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding—I was fired today. If you’re wondering why … you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable” Mason smirked between salty tears of a half-price Brazilian wax job.

Besides, the usual told-you-so’s, there’s something serious to ponder here: Groupon’s fundamental model is to make money easily off the sweat of mom & pop businesses. In return for access to Groupon’s marketing muscle and exposure, small businesses are expected to not only cut their prices in half or more, they are forced to split the revenue generated through Groupon with Groupon.

Yet… Big YET… Groupon supposedly loses money on these transactions, loses shareholder value, loses investor confidence, loses Wall Street confidence, loses repeat business, loses, loses, loses. This sounds more like a pyramid scheme than a serious long-term venture.

Now go back and read Mason’s departure statement. Not once does he mention the small businesses that Groupon is built upon. Perhaps it is something he can think about when he is out looking for a job.

Groupon Adds A Little Monkey Business From Merchant Gorilla’s Playbook

Groupon has run into a challenge figuring out how much hand-holding to do when it shows mom-and-pop Chicago businesses those essential steps of behind-the-scenes information gathering, a Groupon executive said Tuesday. In one case, Groupon, through its Groupon Works business, has enabled a 30-year-old Chicago mom-and-pop business to see its customers’ age ranges, communities and other key demographic information, said Sanjay Gupta, global merchant marketing vice president at Groupon, during a digital marketing conference at the Hyatt Regency. “The secret sauce at Groupon is that we’re able to deliver (small merchants) things they cannot get themselves because of their size,”” he said. Gupta said small companies are open to learning more about their inner workings, but they insist on value and trust. “We’re beginning to move (merchants) onto the web so they can manage their customer interactions themselves,” Gupta said.

Trust? Really? Let’s look at the facts:

•Groupon’s own business model is now shifting toward the repeat customer. This means that the list of possible businesses jumping into the social coupon pool is diminishing. So naturally they are offering more bells and whistles to their offerings in hopes of extracting further revenue from their increasingly dissatisfied and skeptical merchant base.

•Groupon does not share its own customer information with participating merchants. Deal purchasers are simply encoded numbers and it is still up to the merchant to extract the identity of the customer when they redeem their deal.

•Why would Groupon want to be completely transparent with its merchants and potentially cut themselves out of their own future business?

Analysts at Raymond James released a survey Monday showing one-third of Groupon’s merchants either unsatisfied or very unsatisfied with the Chicago company’s promotions, known as Groupons, and 39 percent unlikely to run another Groupon deal for the next couple of years. The top complaints were a high commission rate and a low rate of repeat customers, according to the survey report.

The Raymond James survey of 115 Groupon merchant customers revealed that only 4 percent of the merchants said their Groupon promotion was “highly profitable. Thirty-seven percent said it was slightly/modestly profitable; 26 percent said they broke even and 32 percent lost money on the deal.

Not exactly the formula for repeat business. Groupon stock debuted at $20 a share last November. Today it sits at $4.82. How’s that for a 75% off deal?

(Exceprts from posttrib.suntimes.com 9.18.12)

 

Daily Deals Get Lovelier The Second Time Around

Ever wonder what happens to social coupons that get purchased, but never redeemed?  CoupFlip.com is providing a second life to neglected deals. The site buys and resells unused social deal coupons and it’s already gaining traction in the U.S.

To offload a coupon, sellers download a PDF of the deal from their coupon site, then upload it to CoupFlip. Payment then comes via Paypal or in a mailed check. People who buy the coupons after that will save a couple dollars or so off what they would have paid by buying it directly from ‘group buying’ sites like Groupon or LivingSocial.

However, if you look closely at LivingSocial’s Terms of Service, it expressly forbids the reselling of their coupons. But will LivingSocial really go after their own customers? After all, LivingSocial gets paid whether or not their coupons get redeemed.

Yelp Factor Weighs Heavy On Social Coupon Deals

 

Groupon and Living Social have sold tens of millions of daily deals and are now a major force in retail. But they rely heavily on getting businesses to offer their goods and services at deep discounts. In exchange, businesses hope for payoff in the form of return customers. Sometimes, though, the flood of extra business causes more problems than it solves.

Deal-Hungry Crowd

Ailie Ham had just opened Creative Hands Massage in Washington, D.C., when she decided to offer deals through Living Social and Groupon last year. Within an hour, 900 vouchers were sold; soon, all 4,000 massages were gone. “We got to the point where, literally, we [had] eight phone lines and every single day, every single mailbox was full,” she says. “While we were answering the phone lines, the phone was ringing.” Initially, that seemed great. Ham split the sales with the dealmakers and received her cut — a quarter of the normal massage price — up front. Then, it was off to the races. Ham and two dozen other masseuses worked around the clock, massaging new clients. They swapped out their break-room table for a massage table. She says about one-fifth of the daily-deal clients returned again and paid full price. “But I think the crowd that is attracted to a deal is attracted to a deal,” Ham says. “It really sets a standard for how you sell your product, meaning … this is the crowd you’re going to draw, and that’s going to be the expectation.”
The deals also put her deeply in the red. Each voucher left her $50 short after she paid for rent, labor, laundry and massage cream. Ham had to borrow $150,000 from banks, friends and family to cover the costs of running her business.
But that’s not even what bothers Ham. She says that to handle the volume, she pulled multiple all-nighters, writing down all the phone numbers of Groupon customers seeking appointments by hand, only to be berated for not responding to calls sooner. “I woke up crying,” she says. “Many, many, many mornings, I woke up crying.”

‘Unequivocally Good’

Contrast that with Joel Mehr’s experience. He owns Pete’s Apizza, a gourmet pizza restaurant that has used Groupon twice to draw customers to new locations in the D.C. area. “For us, I really think it’s unequivocally good,” he says.

Mehr says the typical Groupon user spent more than the coupon. And although he can’t prove it, he says it seems to have increased foot traffic.
But the deal came with one notable downside: Fewer stars from customer reviews on Yelp.
“Generally, the Groupon customers that comment on Yelp are not very good, actually,” Mehr says.

Worse, More Influential Yelp Ratings

This, it turns out, is common. John Byers, a professor of computer science at Boston University, recently researched millions of reviews written about many thousands of businesses that ran Groupon offers.

“The Yelp star rating was 10 percent lower for Groupon users than people who had visited the merchant prior to the Groupon offer,” he says.
Byers says Groupon buyers are not only vocal, but they also test businesses with a keener, more discriminating eye.
“Their reviews are longer than typical reviewers, their reviews are more widely cited, so their reviews carry more power, more weight, than just the typical run-of-the-mill review,” he says.

Groupon: Be Prepared

For their part, Groupon and Living Social say they offer on-the-ground support and online analysis tools to help businesses manage the flow of traffic and to help them structure the best deal.

Groupon says a lot of businesses do make it work and that a quarter of its customers are repeat business.
“It’s up to you to make sure that your staff is consistently delivering excellent results and that you’re capturing the attention of that traffic that comes in your door,” says Julie Mossler, a spokeswoman for Groupon. “So I’d say far and away the issues that merchants see are not capacity — but it’s that they’re not prepared.”

Source: Yuki Noguchi, NPR Morning Edition 7/6/12


Merchant Alert: The Groupon Grope Gets Exposed

Groupon, Inc. has been under the microscope since it went public in November, but now the percentage Groupon pays its merchants is under scrutiny.

Accrued merchant payables — what Groupon owes its merchants from running daily deals — have been growing faster than revenue, suggesting a drag on Groupon’s profit margins.

Groupon has lost more than half its market value this year on concern about waning demand for its daily deals and the company’s accounting troubles.

The company recently revised fourth-quarter results, admitting to “material weakness” in its financial statements — a disclosure that triggered the latest decline in its share price.

On April 30, Groupon appointed two new directors to the audit committee of its board to stave off criticism of its accounting practices.

However, on the same day, Groupon was named on a North America Biggest Concerns List with 23 other companies by the Center for Financial Research & Analysis, a forensic accounting research firm.

According to analystis, Groupon’s accrued merchant payables jumped 23 percent to $572 million in the fourth quarter, compared to the third quarter. Meanwhile, net revenue grew 14 percent to $492 million over the same period.

If merchant payables increase faster than revenue, that may suggest merchants are asking for a bigger cut of the money Groupon collects from its daily deals, the CFRA analyst added.

Groupon has traditionally taken about 40 percent of this money, something known as the take rate. Merchants keep about 60 percent, but are paid over about 60 days after a deal runs in the U.S. (and longer in international markets).

This take rate will be a major focus when Groupon reports first-quarter results on May 14.

If merchants negotiate a more favorable take rate, for example 70 percent to the merchant and 30 percent to Groupon, revenue would fall and merchant payables would rise. In the case of the $20 discounted coupon, Groupon would recognize $6 in revenue while $14 would be booked to accrued merchant payables, according to CFRA.

“If Groupon’s merchants are taking a bigger cut, that will eat into revenues and make it harder for the company to reach scale,” the CFRA analyst said. “There may not be enough revenue to support Groupon’s operations, including its large sales force and heavy marketing spending.”

Sameet Sinha, an analyst at B. Riley & Company, expects Groupon’s take rate to decline as merchants push for more favorable terms.

Google and Amazon.com which have rival daily deal businesses, are likely offering a bigger cut to merchants and may be paying them more quickly.

So what does this mean for the daily deal giant? The company mentioned the risk in its annual report, filed on March 30.

“To the extent we offer our merchant partners more favorable or accelerated payment terms or our gross billings do not continue to grow in the future, our cash flow could be adversely impacted,” Groupon said in the filing.

Excerpts courtesy Chicago Tribune, ©2012 Reuters

Groupon Invester Confidence Resembles 50% Off Deal

Shortly after Groupon went public just five months ago, the stock soon reached a high of $31.14 per share. Now, Groupon stock is hovering around $14. Is this just another half-off strategy meant to entice more investors into the social coupon pool? Unfortunately, analysts don’t jump on stock deals the way they might purchase a facial or a skydiving lesson.

Is Groupon flying without a parachute? Well, let’s just say that the social coupon giant has been plummeting through the cloudy realm of increased competition, nonexistent profit, questions over its accounting practices and a plunging stock price.

Doubts over the operation were heightened last week, when Chicago-based Groupon unexpectedly revised its financial results for the fourth quarter, saying it had overstated its fourth-quarter revenue by $14.3 million. That put its actual loss for the quarter at $65.4 million.

The company blamed the revisions on increased customer returns that it did not anticipate, but one investor filed a lawsuit in federal court, seeking class-action status and accusing Groupon of making false and misleading statements about its financials.

Potentially far more serious is a report, attributed by the Wall Street Journal to unnamed sources, that the Securities and Exchange Commission is investigating the company.

“The jury is still out on the long-term sustainability of the daily deals industry,” said Herman Leung, an analyst at Susquehanna Financial Group. “There is a daily deals fatigue in the marketplace right now.”

There are concerns that partnerships with local merchants will continue in large numbers, Leung said. Many merchants have already been burned by customers who use daily deal coupons for discounted goods or services and never return to buy items at full price.

“The rate for the same customer to come back without a Groupon right now is only 1 in 5,” Leung said. “If merchants don’t fix the model and drive better consumers then they have a definite issue to worry about.”

A major effort by Groupon to not only grow but also differentiate itself from competitors was to venture into much higher-priced offerings — such as laser eye treatments for more than $2,000 — than its usual restaurant or spa treatment deals.

But that effort got the company into hot water. In its filing with the Securities and Exchange Commission that revised revenue, Groupon said it had underestimated the rate at which customers would return such high-end deals. To that end, the company blamed “a material weakness” in its internal controls.

Jordan Rohan, an analyst with Stifel Nicolaus, said that the higher rate of returns may signal that Groupon will have trouble cracking the luxury goods and services market.

“The company just told investors that expanding into more complex and more expensive offers is difficult,” Rohan wrote in a note to investors. “Essentially, more consumers were dissatisfied with big ticket purchases than would have been dissatisfied with a discounted burrito or massage.”

If the company is ultimately unable to persuade shoppers to buy luxury cruises or four-star restaurant dinners, Rohan said, that could be a problem “bigger than an accounting or trust issue.”

Last week’s restating of revenue by Groupon was hardly its first accounting error to come to light. Last summer, the company was forced to tweak its accounting methods after facing criticism that it was inflating profits by excluding marketing costs, customer acquisition costs and stock-based compensation.

Then, in the run-up to its IPO, Groupon was forced to restate its financials after facing scrutiny over an error that counted fees paid to merchants as revenue.

Bottom line: Every business–from big mega corporations to small mom & pops–need repeat full-price customers in order to survive. Small businesses that work with social coupon sites ARE full-price customers, despite their own self-inflicted deep discount. But how many will be repeat customers of Groupon?

Exerpts from Los Angeles Times: http://www.latimes.com/business/la-fi-groupon-growing-pains-20120407,0,3798871.story

Into The Lifeboat… Women And Coupons First!

If you are a struggling business hoping that your social coupon offer may be the lifeboat it needs, consider this: You may be jumping from the Hindenberg onto the Titanic.

In the media’s eyes, social coupon sites have gone from sparkling pillars of a new ecomomy to billowing factories of smoke and mirrors. So, wherein lies the truth? Granted, Groupon and LivingSocial’s fortunes are immense. But so is the quantity of cash they are hemorrhaging. (This, for companies with no warehouses, inventory or distribution?) The sad truth is, social coupon sites are not out to fuel your growth, but theirs. The very reason social coupon sites are burning cash–your cash–at such a staggering rate is that acquisition costs of new customers are skyrocketing and revenue is plummeting. If Groupon or LivingSocial were in the same business as you, wouldn’t they be out of business by now?

In this age of hyper-targeted marketing, social coupon sites are still using a blunderbuss to hit a fly. Although Groupon has recently attempted modernizing itself with geo-targeted deals such as Groupon Now, most users get the same offer as every other Groupon subscriber in their city. Which means Groupon is basically in the business of delivering digital junk: Untargeted, uninterested individuals receiving unopened, unwanted offers. Sure, everybody likes a great deal. But how great is half-off Brazilan waxing offered to my grandmother on the other side of town? (Sorry, Grandma).

In many ways, Groupon is applying the ancient media principle of “tonnage” to making sales. It is spending truckloads of cash to deliver a horse and buggy solution–noncustomized email–to reach tiny groups of consumers inefficiently and ineffectively.

Consumer Catwalk: Cheap Is The New Black

Recent research conducted by Valassis has uncovered some not-so-surprising findings from their 2011 RedPlum Purse String Study. In particular, consumer sentiment is still wallowing the doldrums. In fact, 82% of consumers surveyed have the same or less confidence in their financial outlook compared with last year. This is mostly driven by ongoing reports of long-term high unemployment, rising food and gasoline prices and political gridlock in Washington.

As the economy continues to sputter, money-saving behaviors such as couponing is becoming an ingrained habit with many consumers. Coupon usage has steadily increased for the past five consecutive years, creating a generation of “forever frugals” who plan to continue with their spendthrift ways even when (or if) the economy improves. Bottom line: Scrimping is here to stay.

Does this spell bottom-line bad news for merchants participating in social coupon offers? Perhaps, if one simply looks at the topline discount being offered. But aside from the usual half-off discount being dictated by most social coupon sites, merchants still control 70% of variables in any social coupon offer, including duration, limitations on quantity, purchase requirements and time restrictions.

The entire model of social couponing is built upon the hope of repeat business. Great products and services will always be a primary driver of that end goal. Very few social coupon customers will return after a bad experience, even if their repeat visit is cajoled with another 50% off.

Is Groupon Now! Hoping For Later?

Six months ago, Groupon introduced the next generation of its social coupon platform entitled “Groupon Now!”, which they pitched to investors as the greatest thing since sliced coupons. In a nutshell, Groupon Now! is aimed mostly at smartphone and tablet users to instantly identify limited-time offers from merchants in the user’s immediate surroundings. So, let’s say you are hungry. You tap on Groupon Now! from your smartphone, and you will be instantly informed of restaurant deals happening right now in your proximity. Sounds great, no?

Well, maybe great for deal hunters, but perhaps not-so-great for merchants and Groupon itself. Let’s examine:

Upon launching Groupon Now! in May of this year, Groupon predicted that mobile deals would represent 50% of its sales within two years and have the potential to eclipse its current daily deal business. So far, after 6 months (and despite heavy promotion), Groupon Now! has generated less than $1MM in net revenue (Groupon’s net revenue for the same period is estimated at $200MM) Furthermore, Groupon Now! has a much lower commission rate (15-20% compared to 50% for regular Groupon deals), thus lowering its potential to earn similar revenue as its parent–now or in the future.

But from the merchant’s perspective, doesn’t Groupon Now!’s 15% or 20% commission sound better than Groupon’s usual 50% cut? Certainly, from a numbers standpoint. However, one thing to consider is Groupon’s inability to service and promote Groupon Now! deals with the same vigor as their regular offers because of its limited revenue potential. Without question, the merchant is setting themselves up for quiet disappointment in both awareness, solicitation and perception. In fact, one reason that Groupon Now! has failed to take off is the widespread consumer belief that Now! deals are perceived as being lower quality products and services. Ironic, since the average Groupon deal discount (55% off) is deeper than the average Groupon Now! deal (40% off)

Moral: Never underestimate the power of discounting in terms of your brand.

Groupon Tries Its Own Half-Off Strategy

Could Groupon be offering Groupon for up to 50% off? This is a question investors and analysts are posing for Groupon’s upcoming IPO, scheduled for November 4th. What originally started as a speculated $25 billion offering has been reduced by more than half, even at the high end. With expected trading at around $16 to $18 per share, that’s only between $10.1 billion and $11.4 billion (only!). Analysts speculate that Groupon may be limiting the number of shares offered in order to entice investors to jump into the pool. Keep in mind, this valuation is still almost double the supposed $6 billion bid from Google less than a year ago. Also, keep in mind that the 30 million shares Groupon is offering represents just 5% of the company’s stock (5%!). Ironically, with all these big numbers flying around, Groupon has reported that it has lost money for the past three consecutive quarters. Huh?

If the Groupon IPO delivers the kind of investor enthusiasm that they are hoping for, other IPOs waiting in the pipeline will likely grow confident that the world is ready for new companies to enter the public market. If not, we may be in for a long, cold winter–and not just in the daily deal sector.

Shakedown Continues Within Daily Deal Industry

Could it be that the daily deals industry is getting a taste of its own discounting? Yipit.com, the nation’s largest daily-deal-site aggregator, has reported that during the first half of this year nearly one-third of all daily deal sites nationwide—or 170 of 530 sites—have shut down or been sold. This is the first major sign that the bloom is off the rose, especially for newcomers entering the daily deal rabble.

One of the biggest problems facing these daily deal sites is the rising cost of operations—especially the cost of securing subscribers who are already getting dozens of other daily deals in their inbox. Case in point: In the first quarter of 2010, Groupon spent about $7.99 to acquire each subscriber who actually redeemed a daily deal. By the second quarter of 2011, that figure had nearly tripled to $23.46. According to regulatory filings, Groupon spent $378.7 million in marketing initiatives in the first half of 2011, up from $35.5 million in the first half of 2010. Smaller deals sites just can’t compete with those numbers.

Will we see a future where Groupon will offer a half-off Groupon for… Groupon? Probably not. But it will become more and more difficult for Groupon and other players to maintain their explosive growth in this category. The prognosticators have long predicted that only a handful of social coupon sites will remain standing once the daily deal dust has settled.

More Daily Deal Data Defies Doubters

According to a recent PriceGrabber Local Deals Survey of over 2000 consumers, 44% of respondents say they use or search daily deal sites. That sounds like good news, no? Well, yes and no. It’s clear that daily deal sites are here to stay. In fact, there are now more than 3,000 daily deal companies worldwide, inclluding more than 1,000 in China, more than 900 in Europe and more than 600 in South America. No wonder, in the same suvey, 63% of consumers receive emails from two or more local deal websites per day. However, in the same breath, those same respondents felt that the daily deal industry is getting overly crowed with too many sites.

So what does this mean for the average merchant participating in a social coupon deal? The first thing is deal dilution. Gone are the days of massive hordes of coupon buyers overwhelming hapless Mom & Pop operators. Earlier this year, LivingSocial boasted selling more than 600,000 coupons for Amazon in one day ($10 for $20 worth of purchases). But considering the breadth of products you can purchase on Amazon, the deal was akin to a bank handing out $20 bills in exchange for $10 bills. In reality, most daily sales volume is small to moderate, and its individual success can be attributed to price, discount, business location or simply the general desire for a product or service being offered.

The less revenue being generated per deal will make it harder and harder for deal sites to make money. So, in the not-too-distant future, we may see a mass consolidation of daily deal sites into a more manageable number. But that prediction has not dampened the enthusiasm of venture capitalists. In fact, during the first 6 months of this year, VC firms have poured $1.69 billion into the top 10 deal sites.

Deal Fatigue: Customers Snooze, Merchants Lose?

It seems that the excitement surrounding social coupon sites is turning into exhaustion, according to recent studies tracking the leader in social couponing, Groupon. Most telling is a report by Hitwise, which states that traffic to Groupon’s main website is down nearly 50% since its peak in mid-June. Daily deal sites overall were down 25% during this same period.

So what’s going on? Wasn’t the social coupon phenomenon supposed to be the be-all, end-all in retailing? Well, not so fast.

The decrease may be attributed to several factors, including summer doldrums, increased competiton amongst daily deal sites and consumer “deal fatigue”–the latter being a little-diagnosed syndome whereas daily deal customers become weary of the proliferation of deals arriving in their inbox. It seems that the very process of “deal hunting” is losing some of its mojo. In fact, PriceGrabber recently conducted a survey revealing that, while 44% of respondents said they use daily deal sites, 52% expressed feeling overwhelmed by the number of daily deals assaulting them.

So what does this mean to merchants participating in social coupon deals? Obviously the first outcome is a decrease in social coupon purchases. There will be fewer and fewer coupon deals which garner hundreds (or thousands) of purchases. That can be good–or bad–depending on how you look at it in relation to your business. Also, as social coupon customers become more selective in their purchase behavior, we may see a more qualified social coupon customer emerging from the horde (who is more likely to become a repeat customer). Regardless, one thing is assured: As revenue for social coupon sites decrease, the pressure for merchants to sign up will increase. Therefore, don’t be surprised if your local social coupon site salesperson will require a restraining order to hold him or her at bay.

In Your Face… Book: Daily Deal Service Closing

Just in case you were thinking that it’s a simple slam-dunk to effectively open and operate a daily deal site, consider this: Facebook Inc. is shutting its Deals local-discount feature, opened in April to help the social network compete with daily-deal sites including Groupon Inc. and LivingSocial.

“After testing Deals for four months, we’ve decided to end our Deals product in the coming weeks,” said Annie Ta, a spokeswoman for Palo Alto, California-based Facebook. “We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.”

Deals was introduced earlier this year to help Facebook harness demand for daily discounts, a market BIA/Kelsey predicts will generate $3.93 billion in 2015, up from $873 million last year. Facebook is adding services in its tussle with Google Inc. and Twitter Inc. for users and ad revenue.

Facebook’s closure “suggests that large media and tech companies can’t just ‘turn on’ daily deals and expect them to work,” Vinicius Vacanti, co-founder of daily-deal market researcher Yipit Inc., wrote in an e-mail. “It has to be more thoughtfully integrated into their existing product.”

Besides offering its own deals, Facebook’s service boasted discounts from partners including ReachLocal, Gilt City, Tippr, HomeRun.com, PopSugar City, KGB Deals, Plum District and Zozi. Facebook said in April it would run Deals in five cities, including Atlanta, Dallas and San Francisco.

“Gilt City is focused on exclusive experiences and insider access in the great cities in the U.S., and Facebook Deals performed well for us,” Nathan Richardson, president of Gilt City, said in an e-mail. “We still believe in the Facebook platform.”

The daily-deal industry, led by Chicago-based Groupon, had a 7 percent decline in revenue in July from the previous month in top North American markets, Yipit said this week.

Groupon Chief Executive Officer Andrew Mason said Facebook’s deal sales are “less significant’’ than those of other rivals, according to an internal memo sent to employees and obtained by Bloomberg.
Source: Bloomberg News

Social Coupons: The Pitch Sometimes Makes A Sap

Before you bite off on the sales pitch from a social coupon site, take a moment to ponder these factors…

Non-Redemption Rates: Some social coupon sites claim a non-redemption rate of 30%. Independent studies have shown that non-redemption rates fall well below 10%. The point is somehat moot, as you are participating in a social coupon deal to get customers to try you, not to garner your 25% cut of the income from individuals who purchase a social coupon and never redeem it.

Repeat Business: Some social coupon sites claim that about 17% of customers who redeem a social coupon will become repeat (full price) customers. Depending on your type of business, repeat customers can be less than 5%. Oftentimes, your social coupon customer will be a “coupon hopper”, moving from one deal to the next with no loyalty.

Multiple Coupon Purchases: Many social coupon sites allow for multiple coupon purchases, which makes for the wrong kind of repeat business. Question: How many social coupon customers does it take to screw up a balance sheet?

Advertising Exposure: Social coupon sites often tout the tens of thousands of dollars’ worth of advertising exposure your daily deal will receive. However, what they fail to point out is that your name is being exposed to many, many people as a half-price discounter. Brand erosion, anyone?

Existing Customer vs. New Customers: Take a straw poll with your existing customer base and ask if they subscribe to any social coupon sites such as Groupon and Living Social. Why not reward your already loyal customers with 50% off? You will still make double the margin of a comparable social coupon deal.

Traffic: Can your business handle the flash mob of traffic at the beginning of your social coupon deal? What about the less-talked-about expiration date of your coupon? Usually a social coupon deal expires several months after you have garnered your cut from the social coupon site. Then the week before the end date, there is an unexpected bum rush from stragglers looking to cash in. You are stuck with two opposing forces: Plummeting revenue vs. increased labor and supply costs.

More Poop On Groupon

Groupon is basking in the spotlight even more than usual with their highly anticipated public offering. Here are some interesting facts from their SEC filing:

Featured Merchants: 56,781 in the first quarter of 2011, up from 212 in the second quarter of 2009
Subscriber Base: 83.1 million at March 31, up from 152,203 at June 30, 2009.
Employees: 7,107 at March 31 (about half of Groupon’s employees are salespeople, as you are probably acutely aware!)
Groupons Sold: 28.1 million in the first quarter of 2011

According to the Harvard Business Review, the average Groupon deal sells approximately 550 coupons at an average cost of $34 per user. How does this compare with your social coupon offer?

What does a social coupon customer look like?

Currently the majority of social coupon users (60%+) are college-educated women, and average household incomes are upward of $50,000. A 2010 survey of restaurants by market-research firm, Restaurant Marketing Group, reported that nearly 48% of customers are looking for a deal. Even the affluent are interested. The annual Survey of Affluence and Wealth in America, co-produced by The Harrison Group and American Express Publishing in 2010, reported that interest in coupons and published discounts is up 22% for those with $100,000+ in annual disposable income.

How does this compare to your customers?

To Deal Or Not To Deal? That Is The Question…

The subject of daily deals is very controversial, especially in the restaurant world – there’s an active debate about whether restaurants ultimately gain or lose. A recent Technomic survey of 5,000 consumers reported that 48% of buyers of restaurant deals from online sites used a daily deal at a restaurant they had not visited before; 67% later returned to the same restaurant without a daily deal. However, many restaurateurs complain that the financial structure of daily deals results in big losses and that deal customers are problematic – they don’t make incremental purchases, don’t tip on the full amount of the bill, and don’t become repeat customers, instead moving on to the next deal. “I think deals requiring huge discounts are incredibly dangerous for restaurants – they’re all about trial and first timers. What happened to providing a better experience for a loyal customer?” asks Bob Phibbs, author of Groupon, Why Deep Discounts are Bad for Business. “These deals are heavily tilted towards the customer; the restaurant can’t help but lose money, and ends up cannibalizing itself.” Fred LeFranc, founding partner, ResultsThruStrategy, adds, “It’s simple math – if food and labor costs run 55-65%, as soon as you offer a 50% discount you’re already losing 5-15% and you haven’t even considered other fixed expenses.” Fred believes many restaurateurs who do deals don’t think about how they can convert the deal customer into a regular. “If you’re going to offer deals, do it strategically and get your staff on board – let them know why you’re doing it and focus on converting the deal customer into a repeat guest; at the very least capture their emails,” he advises.

Source: restaurantbriefing.com

Do Daily Deals Encourage Repeat Business?

Companies are skeptical about the long-term payoff of daily deals.

While daily deals become increasingly popular with consumers, there is conflicting information about whether such offers are worth it for businesses. For some, the payoff does not justify the payout even though others enjoy profits and new customers from the venture.

In a June 2011 MerchantCircle survey of small businesses, the leading reason for liking daily deals was customer acquisition (58%) while at the same time ineffective customer acquisition was also listed as the top reason for not offering a daily deal again (42.4%).

Giving discounts to consumers who would have patronized the establishment anyway is also a concern. According to a ForeSee Results survey, this is not unfounded. Thirty-eight percent of daily deal buyers—the largest share—said they were already loyal to the business offering a deal. However, nearly a third were new customers and the same percentage had been swayed by a discount after having either visited only sporadically or had stopped patronizing the establishment altogether.

Source: eMarketer

The Top 10 Downside Issues With Social Coupons

1. Greater expenses – Typical deals featured on sites like Groupon are discounted by 50% off the original retail price. On top of that, Groupon keeps 50% of all voucher sales that it obtains for its clients. Thus, business owners generally earn only 25% of what they’d normally make on any sale generated through a daily deal website.

2. Brand dilution – The huge price cuts that are required to be featured on daily deal sites like Groupon severely damage a brand’s image. This can be especially harmful to brands that are associated with higher quality products and services. By discounting the price your brand becomes susceptible to a reduction in perceived value by the customer. Premium quality product and service providers aren’t the only ones that can dilute a brand. Discount stores that utilize deal websites too often may train their customers to simply wait until the next promotion is offered before making another purchase.

3. Attracting the wrong customers – Some business owners that have used Groupon to promote their services in the past have commented that Groupon buyers are not the kind of customers you want. They’ve complained that daily deal buyers are just out for the deal and they will spend as little as necessary at your establishment in order to redeem their deal. This includes lower tips on average and a lower rate of tipping.

4. Too many customers too soon – The power of group buying can rally enormous numbers of people to your place of business. While it’s always great to earn new sales, the high traffic in a short period of time can be disasterous to a business that’s not prepared. If you don’t have the man power on hand to accommodate this huge influx of new customers, the quality of service you provide for your customers will suffer. As a result you’ll see your online ratings on review sites like Yelp and OpenTable crash and burn.

5. Less online traffic and links – Sure you get the foot traffic to your physical storefront but your website doesn’t get the bump in online traffic it normally does through traditional web based ad campaigns. The diminished online ads results in less incoming links that could be gained by publishers visiting your website via the online ads. Furthermore, daily deal sites feature your business over a single day or two whereas online ad campaigns can increase awareness as long as they’re running.

6. Hiring more employees – The huge influx of new customers that result from your deal offering means you’ll likely have to hire a few extra employees to handle the increased workload. This requires that you create and pay for job listings, setup interviews, and train the new workers. All of that costs extra so you’ll need to take those costs into consideration as well.

7. Lower profit margins – Forget about making any profits from customers that buy deals. Most businesses that offer deals are lucky if they break even. Remember, you’re only making about 25% of what you’d normally earn if your deal discounts the original price by 50% (Groupon takes half, too).

8. Short lived exposure – While daily deal sites can generate an enormous amount of attention for your business, that intense spotlight only lasts for a few days. After that, it’s all downhill in terms of deal impressions and the battle to deliver unprecedented customer service to stingy deal crazed consumers begins. Can your business and employees survive that added pressure?

9. No customer addresses gained – Growing one’s customer database may be the single most important goal for a business owner. A strong email list is essential for nearly every business to achieve success in a market. Unfortunately, Groupon and other daily deal websites do not share the buyers’ contact information or email addresses with the merchants.

10. Employee morale may suffer – Business employees have complained that Groupon customers tip very little because they’re trying to squeeze the most out of a deal. Simply put, lower tips combined with heavier workloads may leave your employees clamoring to find another job.

Source: ToMuse.com

The Psychology of Social Couponing

The most valuable lesson that social coupons can teach us has to do with the use of behavioral psychology for selling to small businesses. That has long been the holy grail of anyone in B2B: the sheer size of the market is tremendous. But until Groupon, that market had also been known by the sheer reluctance of small business owners to part with their cash for any reason, let alone marketing and PR.

Before Groupon, to generate real traffic, a retailer might have had to cut prices 50 percent and pay for an advertisement. This the small business owner hated to do. Bootstrapping makes for incredible stinginess with actual cash when the outlay is in advance of a promised sale. The sense of risk can be heightened in proportion to a lack of trust in the potentially snake-oil-selling marketer, but in general a social coupon’s magic is in its micro-payment approach to the advertising/customer-acquisition budget. (Or so it appears.)

Notice that with Groupon, the cost (and its pain) is bundled and contained within a multitude of sales transactions–risk, meet much more immediate reward. Social coupons have already extracted an incredible amount of cash from small businesses, but only on condition of a sale (a lure so potent that some business owners have been driven to near bankruptcy by it). Behavioral psychology will tell you that people value not losing money more than gaining it, and Groupon’s success-so-far bears this out.

What is the most salient feature of the social coupon, after all? It’s not the coupon idea. It’s not online delivery. It’s not steep discounts. All of these were available before. (Even the massive audience Groupon provides was around in one form or another.) It’s the transposition of the sequence of events (the small business owner and Groupon make a sale…and then Groupon takes the lion’s share). You could call it misdirection: Watch this sale! says Groupon, and the smiling business owner fails to feel the difference, that it’s not really their sale anymore.

Notice that the small business owner still has to take the marketing theory on faith: These customers will return, spending like sailors! (Not that this doesn’t happen–but Groupon’s ability to guarantee conversion rates is not, I suspect, much better than anyone else’s.) So the main thing that has changed, really, is simply that Groupon has deferred charging for this trial-offer form of advertising until that first sale is made. It’s still the small business owner’s money, but it’s associated in time with the benefit of making a sale.

(Timing is key on the B2B side as well as the consumer side: nothing motivates a business owner like an immediate uptick when business is slow, and the purchase cut-off creates a sense of scarcity for the customer when, in point of fact, there’s an over-supply.)

A canny business owner will still sit down and pencil out break even points, but psychological appeal (and/or recessionary desperation) is evident in the amount of small businesses who clearly haven’t. And this is what is different: small business owners flocking to try social coupons as a form of advertising, when an up-front payment would dampen their ardor significantly. Groupon, of course, doesn’t assume extra risk for nothing–that’s why they have been able to get the lion’s share that a more competitive field is clawing back.

Again, it’s the timing and automation of the micro-payment process that matters here, because without that, Groupon would be spending even more than it does on sales staff. Chalk up one more thing that newspapers–the industry that can’t out-design Craigslist–should have done, but didn’t. As critical as people can be of Groupon’s model, it remains true that they don’t get paid unless a sale occurs, and then only in proportion to the sale price; newspapers, who already had coveted local audiences, were not willing to take even that chance.

Still, the great Groupon experiment stands right up there with the App Store as a paradigm shift in investment and payment, one that takes into account the hard-wired in human nature. Groupon led the small business horse to water and made him drink. Who’s next? What other sectors are limited by psychological barriers, rather than purely financial ones?

Excerpt from Michael van Baker, Editor & Publisher of The SunBreak

Facebook & Google & Groupon, Oh My!

Here’s a recent ditty from DailyTech.com…

Facebook introduced a new feature to its popular social networking site that will allow consumers to purchase coupons for public events.

The coupon concept has been catching on with internet giants like Google, which started marketing daily deals through a service called “Offers” in Portland, Oregon. In addition, Amazon put $175 million into a privately run social commerce company called LivingSocial last December.

“Although the market has seen huge growth and there are big players already there, it’s not something that’s locked down,” said Ray Valdes, an Internet analyst at research firm Gartner. “I expect to see churn among the vendors as they try one thing and it works for awhile and other vendors find new ways of better meeting user’s needs.”

Now, Facebook is joining the mix by offering Facebook Deals, which are coupons that consumers can purchase directly off of Facebook for social events such as concerts and wine tasting. The coupons are geared toward group activities since Facebook is a social networking company that encourages connections.

“It’s not about taking someone else’s business model and force-fitting it into Facebook,” said Emily White, director of local products at Facebook. “Ultimately we’re providing what we hope is a really great user experience by looking at what people come to Facebook to do, and that’s interact with friends.”

Facebook is offering Facebook Deals to Austin, San Francisco, San Diego, Dallas and Atlanta at first, and plans to spread the Deals to other U.S. cities later in the year. For each coupon sold, Facebook will receive a cut of the transaction, but the social networking giant has not mentioned exactly how much that cut is.

Analysts expect Facebook’s coupon deal to be particularly successful since it is conveniently placed right on Facebook, where over 500 million users are active.

 

From CNN-Confessions of a Grouponaholic

By LZ Granderson: Grand Rapids, Michigan (CNN) — There’s a deliciously seductive power to Groupon, isn’t there?

It creates an illusion of urgency by using flashy fonts and touting retailers who limit the number of people able to take advantage of the tantalizing discounts. So instead of stopping to ask, “Do I need this?” there is an overwhelming sensation to grab it before it’s too late. It’s like Black Friday, except instead of standing outside in a long line at 4 a.m. for a 6-inch waffle maker, I’m getting my shopping thrill online.

It’s a brilliant concept really and builds on one retailers have been using for years, such as offering rebates knowing a good percentage of the customers won’t bother to mail them in. It’s easy money — which explains in part why Google tried to buy Groupon for $6 billion. That may be a bit generous of an offer until you factor in that Groupon charges the merchant a hefty 50% of the sales made through its website. It’s a lucrative business and one frugal customers like me love.

What I can’t figure out is what does the company offering the discount get?

Besides screwed.

If you take a service that normally costs $100, the company may end up with as little as $25 once everyone else gets his or her share, assuming all the coupons get used. And that’s before staff or utility bills are paid.

“There is an initial hit, but over the course of the year, there is a return,” said Julie Mossler, a Groupon spokeswoman. “You can blindly spend a lot of money advertising on the radio or something like that, but Groupon does the best job exposing your business to thousands of people who may not be aware you even exist. That’s the service we provide — amazing exposure. And we work with our clients to help them retain those new customers.

“But our clients have to take responsibility, too. We can get the people in, but if the service isn’t good or the quality isn’t good, you’re not going to benefit. … If you suck, there’s nothing Groupon can do.”

Ouch.

But she’s so right.

Joining Groupon’s increasing mainstream popularity will likely bring in a rush of new customers, making it easier for small business owners to overlook the fact that they’re getting squeezed between Groupon’s fat cut of the take and the huge discount offered to consumers. And while initially Groupon may seem like a smart investment for small, struggling companies looking for a jolt, it shouldn’t take long for mom and pop shops to see they may be cannibalizing what little business they have.

That’s because the loyal customers who used to sustain the business at full price are now coming in with 50 percent-off coupons. But if it does take them long to figure that out, well, Groupon is probably the least of their worries. They’re probably not a very good business to begin with, and they’re paying Groupon and opportunistic customers to highlight that fact.

Now as I said, I’m a Grouponaholic so whatever problems I have with the company’s practices is not enough to get me off the sauce. I love waking up each morning to see what new deals Groupon, Living Social and the other similar sites have are out there.

But truth be told, if I were starting a small business, I wouldn’t do it.

Why?

Because the problem with attracting customers like me is that we’re not loyal.

We’re cheap. That’s why 40 million of us signed up for discounts in the first place.

So even though Groupon works with merchants to help retain new customers, if we’re offered a similar service or good from another company at a cheaper price, chances are we’re gone.

Groupon’s great at getting a customer’s attention, but loyalty can only be earned.

It can’t be purchased.

There’s a boutique men’s clothing store I frequent that doesn’t do Groupon and only occasionally has sales. But I’m a regular, full-price paying customer because it does an amazing job.

It’s like that line from the Oscar Wilde essay, “The Decay of Lying”: If one cannot enjoy reading a book over and over again, there is no use in reading it at all.

For a new business owner the goal should be making the few customers believe whatever is being offered is worth the price, as opposed to selling the goods and services short to a lot of customers who may not even come back.

It’s one thing for a company to see Groupon as a marketing investment. But if management believes it has to shell out upward of 75 percent of the receipts to get people to dine at their restaurant, then something may either be wrong with what’s on the menu or with the people serving. And as Mossler said, if you suck, there’s really nothing Groupon can do about it.

Besides something feels odd about a business model in which a restaurant owner stands to make more money if people don’t show up to eat. At least not with the coupons sent out to attract people to show up to eat. That fancy steakhouse I mentioned earlier may make a profit off of my unused coupons. But it didn’t earn repeat business, which in the end should be the most important thing.

Face it, if you’re a businessperson struggling to make ends meet, Groupon’s less of a solution and more like a magnifying glass.

LZ Granderson writes a weekly column for CNN.com. A senior writer and columnist for ESPN The Magazine and ESPN.com, he has contributed to ESPN’s “Sports Center,” “Outside the Lines” and “First Take.”

 

Welcome to Merchant Gorilla!

Merchant Gorilla is a revolutionary concept in merchant marketing, which maximizes the impact of “social coupon” offers from Groupon, Living Social Deals, KGB Deals, Gilt City and countless other one-day-only and limited-time offers. We provide small merchants and retailers with affordable, yet comprehensive marketing programs–that until now–were only available to large businesses with deep pockets.

With our keen understanding of merchant marketing, along with our seasoned team of researchers, analysts and creatives, we apply a combination of time-tested and cutting-edge tools and techniques designed to incite trial, encourage repeat visitation and maximize revenue.

Best of all, our fee structure matches the discount percentage of your social coupon offer. So if you are a merchant or retailer offering 50% off through a social coupon offer, we will match your offer by discounting our fees by 50%.

Specialties:

Dining & Nightlife Marketing, Health & Beauty Marketing, Fitness Marketing, Retail & Merchant MarketingActivity Event Marketing, Travel & Hospitality Marketing, Database Capture & Management, Advertising & Promotion, Social Media, Guerilla Marketing

We look forward to providing a comprehensive resource to assist your small business with big marketing muscle. Friend us on Facebook and follow us on Twitter to ensure you are connected to the best thinking in small business marketing.

Sincerely,

The Merchant Gorilla APE-SHIFT Marketing Team

www.MerchantGorilla.com

Champions of small business marketing