Groupon bought their friends… and paid for it.

by Ben Aronson, Managing Director at Juice Digital

A commentary on the following article: http://www.wired.com/business/2012/08/headline-headline-headline/

Groupon was once offered $6billion dollars by Google.  They turned that down in favour of an IPO and saw their initial valuation touch $13billion.  But now… 9 months later… their stock is down more than 80%.  Without getting into a discussion about market cap and valuation, does this signal the beginning of the end for many “daily deals” sites?

Less than 2 years ago sites like Groupon, Living Social, and others all over the world popped up offering massive discounts (sometimes upwards of 60% off) on products and services to consumers registered to receive these regionally directed email blasts.  The coupons were massively successful (and are still quite successful) from a redemption standpoint.  Maybe too successful.  Businesses were losing money on couponed customers, unable to handle the increased traffic, and saw minimal customer retention from what turned out to be a highly price sensitive bargain hunter who was subscribing to the email lists.  In fact there have been a few occasions where Groupon coupons have actually forced companies to go out of business.  Amazing right?  Ads so successful they were a negative?

Groupon has only been around for a little less than 4 years, and a lot of these problems have arisen due to the massive amount of followers/subscribers that it has.  We can also blame some of the problems on businesses that did not adequately price coupons or prepare for the increase in customers.  However the main issue at play is that just because something can drive traffic, it doesn’t mean it’s the right traffic.

When it comes to social media marketing everyone is obsessed (whether they want to admit it or not) with quantity over quality.  How many followers do we have, we need more followers, we need more click throughs, get people to register, etc..  For people to see the maximum benefit of social media they need to start focusing on building relationships rather than collecting them.  Groupon is the perfect example of buying your friends; a method that rarely works in the long term.  Identify your target market, figure out what sustained value you can bring them, and build your relationship over the long term on that premise.  As we learned in marketing 101, it’s not always about attracting new customers but rather increasing the lifetime value of existing customers.