Once cherished by many before its IPO launch in 2011, it appears the public has used its “collective damning power” to condemn Groupon to death (Figure). This damning power has caused the stock price to plummet from $28 to $7 just 8 months after its IPO. Is death the only fate of Groupon? I believe the company can save itself.
True, right now Groupon appears challenged if not doomed. After its IPO with opening price at $28 on November 2011, Groupon has accounting problems that stemmed from the ways to estimate the reserves needed for refunds to its customers. There is rising competition from Living Social with backing from Amazon, not to mention Google Offers, Amazon Local, and the daily-deal aggregator Yipit or even copycats in many other countries including groupon.cn in China and groupon.ru in Russia. Merchants complain about losing money to Groupon customers (because they keep only 25% of the regular retail price after offering 50% off to customers and 25% of voucher sales to Groupon). More importantly, merchants complain about not being able to translate Groupon sales into repeat customers paying the regular retail price. Customers do not seem delighted either as they complain about lower quality service provided by the merchants who need to handle a surge of Groupon customers in a short period of time.
But it is a challenge to fix problems on a train that, until the recent past, had only been accelerating. To meet stock market expectations, Groupon continued to expand globally in 2012 by hiring more employees, by acquiring new merchants and new customers, and by improving its internal operations. But as Groupon’s revenues soared exponentially, so did operating costs. This is why market analysts are pessimistic about the viability of Groupon’s business model of “collective buying power.”
Here is what Groupon needs to do prevent its otherwise impending doom. Currently, Groupon is giving customers points for patronizing participating merchants with a registered credit card with the intention to increase customers’ and merchants’ loyalty to Groupon. This form of loyalty can reduce Groupon’s operating cost for acquiring new merchants and new customers, but it does not appear to create much value for Groupon.
Instead, Groupon needs to leverage mobile/digital technology to unlock the value of its loyalty program. Through Groupon’s multi-merchant loyalty program for different industries (restaurants, spas, nail salons, etc.) in different locations, Groupon can capture data on customers’ purchasing behavior (when, where, what, etc.). This the same as what Apple and Google are doing with smartphones and tablets each time we use an app or read or buy an e-book. This data base is a “gold mine” because Groupon can use business analytics to mine this data and create value in two ways for itself. First, it can sell business intelligence to merchants to improve their business. Two, Groupon can offer this business intelligence to companies in different industries (food and beverage, beauty care, cosmetics, etc.) further upstream in the supply chain from the merchant.So, perhaps Groupon should rethink its strategy and morph itself from a coupon provider and customer-aggregator for merchants into a powerful “business intelligence provider” and customer-information-aggregator. Only by leveraging its mobile/digital loyalty program can Groupon keep the circling vultures away!
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