Groupon has already had a number of highs and lows in its short life so far. The recipe was brilliantly simple. Massive savings on local products and services for the customer, dramatic increase in sales for the businesses, healthy cut of the revenue for Groupon. Everybody’s happy! But things haven’t been super smooth for Groupon and I’m beginning to wonder if they’ll fall like many of the original dot com boom organisations did at the turn of the millenium. Here’s why… (oh and please add your vote to the poll).
1. Many customers are not happy
I’ve heard of many cases where a groupon deal has been bought, only to find out that the business can’t fulfill the order, or at least not in a reasonable time frame, because they couldn’t cope with demand. You could argue this isn’t the responsibility of Groupon but many of these local businesses simply don’t have the knowledge and experience to see it coming. For example, a classic deal on Groupon is for a massage or spa break. A friend of mine bought one of these for his wife. When she called to book, they told her due to demand they couldn’t book her in till the new year. What? Because she’s already paid Groupon for the offer, she has no choice but to go ahead with it.
I have bought a photo print from an online shop through Groupon. For the month after I bought the deal on Groupon, the website couldn’t handle the traffic and number of orders so you had to be put in a queue. Finally a month later I was able to order my print and then I’m told it could take up to 2 months for it to be produced!
2. The local businesses aren’t happy
I assume that the issues in point 1 are happening because Groupon aren’t supporting and guiding the businesses enough, which is leading to them thinking that a Groupon deal is an easy win for more business, brand awareness and hopefully repeat business. But because of the issues in point 1, many customers are disgruntled with the business, giving them a bad name and probably no repeat business.
Another reason the businesses offering the deals aren’t happy is because Groupon has them bent over. When you buy a Groupon deal, you pay Groupon. If you don’t redeem the vouchers in the allocated time, Groupon will not pay the local business. It may be that the business has decided to take a hit on profits with the savings offered in the deal in order to bring more customers to the brand. But then if a user for whatever reason doesn’t redeem their voucher, the business will not see the money and their margins will look even worse.
3. Groupon are yet to make a profit
Although the idea is simple and it works using email, probably the cheapest method of direct marketing, Groupon are yet to make a profit. Despite making $878 million, they still lost $103 million. A lot of this is to do with high initial marketing costs in order to get as many people as possible signed up for the deals as quick as possible. Groupon think that once a customer is signed up, it is unlikely that they will unsubscribe from the daily deal email (thus effectively not being a customer). I wonder what their plan is once all the deals of all the local businesses are interested have been done and it just becomes recycled. I for one am already bored of seeing “fish manicures” and “canvas photo prints”.
Another reason for this lack of profit is also because Groupon is a ‘glocal’ (globally-localised) company, thus meaning they need many 1,000s of employees to ensure the company can manage all the local business offers that occur every day all over the world.
4. IPOuch!
Groupon were slammed for their valuation of $20 billion before floating on the stock market. By valuing themselves too high, investors don’t want to take them seriously anymore and are running away faster than Usain Bolt.
5. Even their employees are turning on them
Recently, an employee of Groupon has filed a law suit claiming that Groupon are not paying their employees for the time they’ve done.
Voice your opinion and vote!
So what do you think? Would you invest in Groupon? What do you think of daily deal services like Groupon and Living Social? Do you agree with me that the don’t have the business model to last? Please voice your opinions in the comments section and the poll below.
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