Warning: this post may not go down well with some of my #JFDI cohorts…. 🙂 It’s been a funny old week.
Too much pen to paper, not enough on the early morning juice (I missed every 5am alarm apart from today, which shouldn’t be a problem but it seems that some of my Twitter followers set their alarms by my wake up call) and a lot going on elsewhere.
One thing that kept coming up in conversation was a Groupon type site for Datasentiment as part of the product offering. A nice idea and actually very easy to copy and inititally an easy instant revenue generator. Then this morning I stopped because of two reasons. 1. I’ve already got four products that need my attention. 2. I’d pee off retailers in the long run.
First things first Datasentiment exists to promote customer loyalty to the retailer. Groupon doesn’t do that in reality. It promotes new customer generation and at the cost to the retailer. I appreciate at this present time you need sweetners to get customers through the door but for some the economics just don’t work out.
Okay, here’s a real example (I did some sums). The dance studio in New York has a deal on for 5 classes for for $39, reduced from $150. A saving of $111. Not bad at all. So far (at time of writing) 375 people have signed up for the offer which is great. I’m sure it would have taken some doing to generate $56,250 of revenue. The offer is on though so that’s now slashed down to $14,625 that’s been generated. For the customer it’s all well and good. Pay the money, print the voucher and boogie x 5 can ensue. For the retailer…. time to count the cost.
Firstly the fee to Groupon. Depending on where you read it’s 30% or 50%. For this exercise let’s go for the former. So 30% is $4387.50 leaving the retailer $10237.50, or $27.30 per customer. For the pedants in the audience (me mainly) you could go as far as saying that it costs $5.46 per customer per session. With this sort of deal there’s actually a good chance of retaining the customer, I think it’s a good fit. But these are few and far between. There are variables we don’t know, the cost of acquring the customer and then the cost of the product to the customer I’m sure would come to more than $5.46 per session.
I would also wager that the retailer is making no real profit, nor really gaining a new customer. The majority of users to Groupon aren’t brand loyal, they’re coupon loyal constantly on the hunt for a good deal. Fair enough, can’t complain with that.
This level of deep discount creates a dangerous starting point for a relationship with a customer though. There’s a ton of competitors now and I wondered about a more local version but I’d suffer the same problem. So I’m more bothered about maintaining long term value for customer and retailer, that’s what I’m about.
So the question remains, what about Groupon. Aggressive mapping out of territories, acquisitions and the like. A huge valuation and an awful lot of staff. Is it a case of a very bright shining star that will burn out brightly? Keeping in mind other high profile sites like Yelp are now planning the same.