Should Groupon offer coupons for its own shares?Staff writer ▼ |
When Groupon offered its shares last fall, its IPO came in the middle of "Let's buy some IT share" frenzy and the future looked bright. In the middle of stock buying enthusiasm, nobody believed that coupons on the internet may fail and there were no serious market analysis. Now, when the company cut 648 employees in the past six months, the question is can it survive at all. We're afraid that the future is not bright at all.
Instead of taking a $6 billion offer from Google, the company decided to go on their own and now Europe is to blame. "We followed a different playbook in Europe, focusing on rapidly capturing market share at the cost of investing in technology and innovation and, too often, the satisfaction of our merchants and customers. With a weak European economy, we didn't have the necessary runway to integrate our international business before reaching a plateau in growth earlier this year," said CEO Andrew Mason. However, Europe is not the problem, the concept is.
The concept is simple: sell prepaid vouchers for discounted services. At the first sight, it looks good. Approach local company, ask it to lower the price, and split the revenue. It looked so good that copycats emerged quickly but they also learned very quickly that business is not working as they wanted it to. The problem is that all of those companies asked "What a consumer wants?" and no one asked "What's in it for the seller?"
There is one major and one minor problem with that concept. The minor problem is that for some merchants it's expensive to use coupon websites' services. The major problem is the return of the customers. Sellers were using coupons companies with hope that customers will come back after using a coupon but that didn't happen. And, frankly, why would they come back? If you get an offer with 70 percent discount, you probably expect another deal from the same company with another discount. If you don't get it, you'll find another seller with a discount. The result: time and money spent to attract a very small number of customers.
In fact, many of coupon users are regular customers which means that customer base didn't grow a bit. It's no surprise that surveys showed that one third of the sellers said they lost the money on promotions, and almost 40 percent of them said that won't use daily services again. And we can relate to that: if you offer a product or service below the production cost - with a huge discount - you can't expect to earn the money. The more discounted products you are offering, the more you lose and it's very hard to compensate that because you need more and more new customers. And they are not coming.
The merchants learned that good old advice - take care about your customers, reward them from time to time, and keep a great service - is still working like a charm. That's why Groupon and similar websites will have to invent something new or they'll face a very turbulent future and very nervous investors. ■