The Future of Groupon

Amidst today’s eclectic selection of daily deals sites-LivingSocial, Google Offers, WeDeal, you name it-it’s hard to imagine what it was like before Groupon started the phenomenon back in 2008. Groupon grew to a value of $1.35 billion in less than two years, and it had claimed that it would continue to grow rapidly. After it went public in 2011; however, Groupon’s earnings were quite disappointing. Some observers had long ago suspected that the company’s business model was not sustainable… is this indeed the case?

Some businesses that issued Groupons claimed massive losses and very little increase in sales, if any. One of the most famous examples is of a small British bakery that had to sell 102,000 cupcakes at below cost in order to satisfy a Groupon deal. As the owner had put it, it was “the worst ever business decision I have made”. Because Groupons are usually deeply discounted in order to attract customers, businesses absorb losses in order to satisfy these deals. More and more businesses are becoming wary of using Groupon, and the once flourishing company is now suffering.

Why do businesses issue Groupons in the first place?

Marketing. Publicity. Foot-traffic.

In a competitive and highly diversified market, such as restaurants, marketing is the key; and no one does a better job of it than Groupon. Groupons can be great tools for businesses as long as they understand how to use it. Groupon’s mistake is in not providing sufficient guidance before and after business issue the Groupons. We often hear about restaurants dishing out subpar service to Groupon users—this is one of the worst mistakes businesses can make!

Businesses take on losses to bring Groupon customers in, if anything, they should treat them even better than the average customer. Furthermore, Groupon users happen to be some of the most internet-savvy, blog-posting, social-media-tweeting, customers they will ever encounter, so businesses should capitalize the opportunity to leave a good impression on them.

If Groupon explains these concepts more clearly, businesses will benefit more from the experience à more businesses will want to issue Groupons -> and Groupon will be booming once more.

I believe that there is still hope for Groupon; they need to focus on helping the local businesses understand how to utilize the Groupon issuance, and making sure that businesses are not issuing the deals unprepared.

Has your company ever issued Groupons, or thought about issuing them at some point? Do you think that the Groupon business model is flawed? Let us know what you think!

Written by: Anna Han