Groupon Fail Affirms the Value of Direct Marketing

On August 20, The Wall Street Journal headline read, ”Groupon Investors Give Up,” noting that backers of Groupon, Inc. were “heading for the exits, joining investors who have lost faith in companies that had been expected to drive a new Internet boom.”

Groupon Inc corporate office and headquarters in Chicago

And that’s the less frenzied report. Last October, Marketing Japan blog proclaimed Groupon a disaster! “What did I tell you? … I’ve been writing since last year [June 2010] that I thought Groupon was a flash in the pan and a crap company .. It is common knowledge now that Groupon is a disaster.” This dim view was confirmed in the October 2011 words of Sucharita Malpuru, a Forresters’ research analyst, “”Groupon is a disaster … It’s a shill that’s going to be exposed pretty soon.”

It’s true, as far back as 12 months ago, in the fall and winter of 2011, pundits all over the country were warning that Groupon was headed for a nose dive. Restaurant experts, investment analysts, and marketers were all saying that the Groupon concept was flawed and unsustainable.

Nevertheless, when Groupon launched its IPO on November 4, 2011, it hit the markets high. The skywalk didn’t last long. By May, the stock has “tempered considerably”  and by late August 2012, the share value was in the toilet, having shed 75% of its stock-market value. Last week, Groupon stock capped off a week of lows, falling another 25 cents and landing 77 percent below its initial public offering price.

So, What Put the Stink on This Blooming Rose?
Three things sank Groupon.

1. In essence, Groupon’s real customers — the small businesses who put their services on the line for an upfront infusion of cash — got taken to the cleaners and, boy, did it hurt.

Because the Groupon model called for business participants to get a percentage of sales before fulfillment, many cash-strapped, struggling small businesses didn’t consider how they would meet the commitment. Consider these headlines.

St. Louis … Business owners are souring on the once-mighty coupon start-up.

London … Bakery Forced To Make 102,000 Cupcakes

Washington, DC … Or how about the tragedy of Allie Ham, the Washington, DC, massage therapist who sold 4,000 massages and ended up working multiple all-nighters to fulfill deals that left her $50 short on every sale and put her deeply in the red.

2. And then there were Groupon’s second-tier customers — you and me and everybody else who paid for coupons and never used them (about 18 to 22 percent of us). As noted in DailyFinance, “the most expensive groupon is the one you forget to redeem.” Or didn’t have time to redeem. Or thought you had forever to redeem. Yada yada yada.

3. And then there were the third tier, the investors who bought Groupon very high at the IPO in November 2011 and today — 10 months later — are sitting on a 77% loss from the IPO price. The August 17 WSJ blog noted that “cash burn” is now a big concern for Groupon.

So, if that’s the back story, what’s the lesson for marketers?

Lesson Gifts to Direct Marketers from Groupon

1. Snatch and run customer rip-offs will fail.  Add customer anger and you’re toxic.

2. Flashy marketing models are a flash in the pan.

3. Clever and snide copy sells. Customer service endures. Note: The CustomerService Scoreboard gave Groupon a 54.58% overall rating (that’s in the “terrible” to “disappointing” range.

4. Buy-cheap-now, use-later schemes appeal to our “something for nothing” tendences — until we realize we got nothing for something. For 18 to 22% of us, that non-redeemed meal or service was highly irritating.

The Possible Winner In All This? Direct Marketing and — In Particular — Direct Mail
Look, Groupon was successful because customers love a good deal, especially when the economy is struggling. Unfortunately,  Groupon, proved to be more of a gamble and less of deal — a gamble for participating businesses, a gamble for coupon buyers, a gamble for investors.

On the other hand, think about the difference between direct marketing coupons and Groupon.

• Think about that package of coupons that comes in the mail, the package you know you’ve seen before.

• Or consider those coupons included in that “new neighbor” package you were thrilled to have when you moved.

• Or how about the coupons that a business near your home or business sent along on a postcard or in a letter.

Yeah, that feels good. What’s the difference?

All these coupons are targeted and delivered to a customer with a predetermined likelihood of interest (it’s called direct marketing).
It’s no accident when your grocery stores hands out coupons based on purchase history. It’s not random when you receive a coupon or premium in a fundraising appeal … or when a major retailer sends “thank you” coupons. In direct marketing, nobody is asking you to pay before you play. The sender has a good idea of your interests and is sending an invitation.

And, really, aren’t invitations so much more polite, respectful, and enduring than cheap pitches?

Well, yeah. And now we know it.

 

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