Google vs. Groupon: Let’s Revolutionize (or at Least Fix) Groupon’s Social Coupon Model

Posted on May 3, 2012 in Marketing, Mobile Marketing | 0 comments

Daniel M. Ladik, Ph.D., Blogger, Dig Nuggetville, Associate Professor of Marketing, Stillman School of Business, Seton Hall University

Imagine this scenario: A shopper pulls into a shopping mall and before she gets out of the car, she opens up her Groupon app on her smartphone, and then opts in. The Groupon app immediately communicates back to the databases at headquarters in Chicago and identifies this user’s profile (i.e., likes and dislikes) based on purchase history. By the time she walks into the mall, Groupon would have already electronically auctioned information to retailers and service providers at this location who previously uploaded specific deals, which are then activated.

By the time the shopper walks through the front door, offers that are tailored to her specific interests are pushed to her Groupon App home screen on her smartphone. This process doesn’t take 5 minutes and the shopper has offers that are significantly more immediate and actionable given her interests and location. All deals can be activated via a bar code/id number on her smartphone screen and will expire in a 3 to 5 hour time window.

This is the business model Groupon should move towards if they would like to survive the beyond next 18 months. I know it’s easy to pick on Groupon. Their stumbles have been widely documented in the business press (here’s yesterday’s latest, in VentureBeat)…and for good reason. Most of their wounds are self-inflicted, however, nothing is more damming than their underlying business model. It’s flawed, it’s unsustainable, and it will be their undoing…unless they blow it up and fix it…now!

My goal here is not to continually criticize Groupon (we all know they have had their fair share), but rather offer some helpful suggestions for the executives at Groupon to consider.

Briefly, let’s review Groupon’s current state of play:

First, Groupon sends at least one, perhaps two emails to its “customers” per day. If an offer is attractive and enough customers buy the deal, then the Groupon offer takes effect. Interesting to note, Groupon does little to no targeting of their offers to various target segments other than geography (i.e., a traditional mass marketing shotgun approach). When watching the “60 Minutes” segment on Groupon, the founder and current CEO Andrew Mason looked straight-faced into the camera and said (I’m paraphrasing), “We have recently learned that men and women do not like receiving the same offer so we’ll do more targeting in the near future.” I don’t even have to detail how absurd this is logic is; it’s speaks for itself.

Second, how does Groupon find all these deals? Well, they have an army of salespeople calling on small and large businesses around the country to lock up some future Groupon offer. You read that correct: high-paid, commission earning salespeople selling an extremely low margin item: a coupon. And according to that same “60 Minutes” segment, Groupon is hiring more and more salespeople every week. No wonder why their S,G, & A on their balance sheet is so out-of-whack.

Third, and most damaging, these Groupon offers arrive via email. Email is passive and is not checked as often as text. While many of us can check our email via our mobile phones, Groupon’s offers are better optimized for the computer screen, not the cell phone screen. The final nail in Groupon’s coffin is the passive nature of its offers and users. Who knows what offer is going to come their way that day? It could be something great, but it also might be not needed or missed altogether. In this model, the consumer is a passive participant on any offer that arrives in their inbox.

By contrast, Google’s model is active (here’s a ComputerWorld overview of Google Offers).

If one were to do a search for “hotels in Atlantic City” in a Google search box, this is an active search and years of academic research show significantly stronger effects for active vs. passive offers. No surprises here. I would be more receptive to commercial messages about Atlantic City hotels if I were actively interested and searching for information on Atlantic City hotels. This is the complete polar opposite of Groupon’s passive – who knows what offer I will get today – model. Moreover, almost all of Google’s ads are sold via an automated auction model (read: no high-paid, commission earning salespeople).

To summarize the above comments:

Groupon sends passive offers via email,
does little to no targeting for their offers,
uses high-paid, commission earning salespeople to find these offers, and then
distributes these offers to “customers” who most probably did not wake up that day thinking they needed to go to a Mexican restaurant 22 miles away from their home.

Thinking back to the scenario that opened this essay, here is how Groupon can fix their business model:

Shift from email dominant distribution of offers to mobile distribution of offers. The future is mobile and even Facebook knows this with their billion-dollar bet on Instagram. Groupon can accomplish this objective with new and improved apps for iOS and Android devices.
Move away from passive offers towards active offers based on GPS location and purchase history. (Yes, you would opt in to receive offers once you opened up your Groupon app).
Move away from using high-paid, commission earning salespeople towards an automated auction based method for acquiring deals. Coupons, by definition, have razor-thin margins. By automating this process Groupon can not only disintermediate those expensive sales salaries, but also their associated sales commissions. Excellent highly skilled salespeople could then be moved to key accounts like Target or Macys therefore saving substantial resources acquiring deals from the local Mexican restaurant.

Shoppers love coupons and shoppers love deals. Groupon has a loyal following, but at the same time, how they acquire and distribute deals to that loyal following will put them out of business. Groupon should shift to an active, shopper initiated and mobile model and therefore create more value for their customers. In the end, by creating more value for its customers, Groupon can prosper like Google, as opposed to, falling apart like Pets.com.

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Dr. Dan-o (AKA Daniel M. Ladik, Ph.D) is an Associate Professor of Marketing in the Stillman School of Business at Seton Hall University in northern NJ. His main teaching and research interests include marketing strategy, personal selling and sales management, servant leadership, and web 2.0/social media.

Prior to Seton Hall, Dr. Dan-o taught for seven years in the Sawyer Business School at Suffolk University in Boston. Dr. Dan-o earned his Ph.D. in marketing at the University of South Florida in Tampa and holds BS (economics), MA (international marketing) and MBA degrees from Saint Joseph’s University in Philadelphia.