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.