Posted by Was I ever wrong about Groupon.
Back in 2010, I was very bullish on Groupon (more on that here: One Product. One Sale. One Day Only. One Exciting New Business Model). It wasn’t about prospecting or trying to ride the latest craze or trying to score at the stock market. I, genuinely, felt like they were able to crack the code of local merchants using digital marketing channels to create interest. That part, I wasn’t wrong about. I also wasn’t wrong about how many copycats and more would come along (more on that here: The Pending Implosion Of Daily Deal Sites). I was wrong about their ability to scale and the power of the brand. It seems like Groupon "owned" the space. While LivingSocial is still strumming along, when people think of daily deal websites, they think of Groupon (much in the same way we think of Kleenex when we think of tissue paper), but the returns just don’t seem to be there anymore (for the most interesting take on Groupon, please read this piece from the always-insightful, Om Malik: Groupon is not a tech company. Why was it valued like one?).
What happened to the brand?
When you’re a public company, you’re expected to act in a certain way (we can dance around this issue all we like, but it’s true… just ask Facebook). The public part wants one thing: more money. This puts tremendous pressures on businesses to figure out new and inventive ways to generate more income (consistently and constantly). When you have a company like Groupon, this means that you need more people buying more of your daily deals, or you need more daily deals so more people will buy them (and share them). On top of that, because their business is based on local merchants, they need scale (being able to grow Groupon in as many cities as possible, as fast as possible). What sounds like a recipe for success can sometimes become a recipe for disaster. In truth, the problem isn’t about Groupon. The problem is about the customers.
As customers, we’re tired… very, very tired.
The best marketers know this. With each and every message that is blasted in front of a consumer, you are creating two opposing reactions:
- The positive reaction: through repetition, we create awareness. Awareness creates a feeling of comfort or discovery. Through this, customers will feel more comfortable choosing your brand, product or service.
- The negative reaction: fatigue. Consumers get tired. It can happen very fast or it can creep up on you and happen slowly, over time. If you look at email marketing, fatigue is one of the biggest challenges that marketers face. After offer after offer, the payout just isn’t there for consumers.
How we react to the negative reaction affects everything.
I’ve seen smart marketers scale back on the frequency of sending a message out and increasing the value of the offer (which could be better content or a better discount). These types of marketers are few and far between. What we’ll see more often is that when things are working, they pump up the frequency, and they do a little of the same when they start seeing their numbers drop as well. As Groupon struggles to scale, they’re creating more offers and sending out more and more emails. This is creating fatigue.
Surprise and delight.
That was (and can still be) the magic of Groupon. That one email with that one little surprise and delight about a local merchant. It was a good story. Now, it’s handfuls of emails each day from non-local merchants that are highly untargeted (I’m hardly in the market for a barber, let alone a Brazilian waxing) and the fatigue is setting in. On top of that, they have aggressive competitors who are sending messages (some of them spam) and local newspapers and media outlets trying to cash in on the daily deal craze too. Now, we have noise and fatigue… and all of this affects Groupon as well.
It’s not about Groupon. It’s about what’s next.
Two news items prompted this train of thought. ClickZ published a news item on August 20th titled, Smartphone Content Buyers More Favorable to Mobile Ads, that stated: "An August report released by the Online Publishers Association found that 38 percent of smartphone content buyers said smartphone ads are similar to Internet ads, and 42 percent said they are hard to ignore. Among smartphone users who don’t buy content, that number dropped to 28 percent. A higher percentage of content buyers also said smartphone ads motivate them to research or buy items – 25 percent compared to 14 percent of all smartphone users." On the same day, Marketing Charts ran a news item titled, Most Smartphone Owners Open to Receiving Weekly Promo Emails, that stated: "Smartphone owners are far more likely to be open to receiving promotional emails from their favorite brands on their devices than are standard mobile phone owners, per results from a StrongMail survey conducted by Forrester Consulting, released in August. 65% of smartphone owners said they would want to receive promotional messages once a week or more, almost double the proportion (34%) of standard mobile phone owners. Smartphone owners were also more likely to say they were open to receiving promotional emails once a month (12% vs. 4%), and far less likely to want to avoid these emails entirely (23% vs. 62%)."
Marketers, let’s not mess this up.
As we transition to a mobile world, we’re seeing the same types of data points that we saw when online advertising was first introduced. It’s novel and interesting. It surprises and it delights. Consumers are looking at our advertising, open to it and yes, even clicking on it. What we do next will be very telling. This is not about opening the floodgates, but rather taking a step back and thinking about the relationships that your consumers have both with your brand and with their mobile devices. Think about how they connect – to your brand and to one another – and then start putting a plan in place to ensure that you don’t fall into the trap of blasting them more frequently because you need to keep your numbers all juiced up. Fatigue is going to happen (and happen fast) in the mobile space. So, just as we’re getting primed for the marketing opportunities, we need to be equally primed for how quickly the fatigue will set in.
Good luck.
Never another podcast episode or article 
This is in line with research we just concluded with Runa.com. When sites make site wide offers of 10% they only get 8% return on sales. When they use personalized offers of under 3% margin they get about a 19% return.
One of the reasons that supermarkets are using personalized offer apps now – http://www.nytimes.com/2012/08/10/business/supermarkets-try-customizing-prices-for-shoppers.html?_r=1&smid=go-share and airlines and hotels have done it for years.
Great article, Mitch. I’ve actually had a different take on the daily deal model though. In my opinion, the whole daily deal concept is really bad for small businesses. Actually wrote a post on the issue last year: http://spearsmarketing.com/1235/why-the-groupon-model-is-bad-business/ Really can’t say I’m surprised at the direction these businesses have gone.
Good points Mitch- i am actually a listener of your podcasts- and love ur insights as much as i love the other chap thats with you…
my take- i see this as a classic “too many businesses trying to exploit a very small market syndrome”- i have seen a lot of new spaces created in india, the entrepreneurs that create the market explode in the next 2 years, and then go broke in the next 2- typically because their success spawn a lot of me-too entrepreneurs , who jump into the market,but the size is not big enough to accomodate them, and they bleed like crazy trying to build heft and market share, by offers, poaching good customers and suppliers, discounts and deals and basically ruin for everybody what was developing into a perfectly good market had things gone a bit slower…
Rajeev
http://bit.ly/rajeevblog
Good perspective, Mitch, thank you. From my perspective in Chicago, where I watched the rise and fall of Groupon over the past couple of years, I’ll add a couple of points:
– Hiring v. Retention. In 2008-2010 it was easy to land a low paying, long hours job at Groupon because there was little else going on in Chicago for inexperienced college grads. As Chicago’s economy recovered a lot of young talent brought their experience to marketing firms, startups, and Google for higher pay and 40-50 hour work weeks.
– Message frequency v. Relevance. The value of the daily email is in the relevance of its content. Because the emails cost me, the consumer, nothing to receive, I have little incentive to keep getting them when they’re no longer relevant to my interests. Local is good, but 20 miles isn’t local for city residents. For this group “local” is between the office and the apartment, and “relevant” is businesses we already support.
I think there’s a lot of opportunity in the digital daily deals / customer loyalty space. It may be that small businesses have to do the work in house rather than buy into a service provider model. Who knows better than the bartender where, and when, the customers appear?
Thanks for sharing your thoughts on this Mitch. It is something that I totally resonate with as my inbox gets filled with tonnes of daily deals (through my own fault of being “greedy”).
In Singapore where I live, promotional hardsell advertising is the most common form of “marketing” that companies do. Hot deals, special offers, discounts, one-for-ones flood our cluttered media landscape on a daily basis. The digital couponing business has spawned so many competitors that they’re all fighting tooth and nail.
The saddest thing about this phenomenon is that it becomes an downward spiralling addiction by the companies involved. Once you put your price on the line for a “limited time offer”, consumers will immediately associate your brand with “cheap”, “discount”, and “economical”. Trying to claw back up the value ladder will be difficult.
By the way, I love your podcasts and they are a must listen while I’m jogging. I like your disarming honesty and no BS approach to marketing – something which you don’t find very often these days. Keep up the great work!