November 13, 2011 in Blog by VisualMob

Why I think Groupon will ultimately fail

While the title is pretty inflammatory I do not personally like the Groupon business model at all. Plain and simple I think their cost vs. benefit is too high and the customer retention and customer quality is too low.

After more research and looking at some of the horror stories online I simply don’t like the idea that price rules it all when making a purchase. If anyone has ever read any blogs from Seth Godin or subscribe to the fact that successful marketing and brand building sells products, not just low prices, then you will know what I am talking about.

Groupon can fit into the marketing of some business. If you make millions of widgets at a profit of 400% you can afford to sell them cut rate on Groupon and still make a profit. If you in fact work hard making a product that includes sweat, love, and ingenuity; and a profit margin of 20-50% you cannot make it work. They simply take too much of the pie.  The lesson learned at the Posies cafe in Oregon is one that has been shared all over the interwebs. It may have, in fact, become the lesson of why not to do a Groupon. The angle as I see it is, from a marketers perspective, why should you lower your products price temporarily (read have a sale) ever?

1. It is expiring or needs to be used (supermarkets sale on eggs)

2. You want to offload items to make room for more or newer products (brands selling last years colors).

3. You want to give a special deal to loyal customers or entice new customers with lower than normal price.

If you business model necessitates having sales people will expect them over time and not pay full retail price for your products because they think they can get them cheaper if they wait. You also run the risk of devaluing your products or image. So what should you do instead of playing race to the bottom? Simple. Do what car companies have been doing forever. Market your business or product as better. Create some creative campaigns to position yourself as a good value at retail price. Because you offer an experience, or service standard that no other can match. Separate yourself. Another concept that many business forget. Find out what your customers want more of, cater to them, an build a tribe of loyal followers who want it. Everyone feels good and no one gets ripped off or feels used in the end.