What Ponzi scheme? Investors don’t seem to be deterred by all the myriad PR missteps and other critical or negative publicity in the six months leading up to Groupon’s IPO. The stock is up a whopping 40% in early trading. (Here’s how much money the Groupon principals are making today: millions and billions.)
What I want to discuss now, however, is the flawed logic behind the company’s mobile, real-time deals product Groupon Now. The critique equally applies to other mobile deal offerings as well.
The argument for Groupon Now says that the product addresses some of the relevance problems that have caused many people to complain about “deal fatigue.” There’s also a quasi-search dimension as people self-select for the kind of deals they want (at least the categories). This is also supposed to address the relevance problem.
In my view, however, most people are not going to be swayed by offers in the moment — out and about. At the margins I might be inclined to choose a restaurant, bar or other business on the basis of a real-time offer. If I’m considering a couple of places and one has a deal, okay that might sway me. But most of the time I’ll look for a discount on a place I’m already going. Otherwise, I’m likely to continue on to the place I’ve chosen.
Here’s where it works: I consult Groupon Now (or similar offerings like LivingSocial Instant) in the morning to see about lunch or in the early afternoon to see who’s got a deal for happy hour or dinner. But I’m unlikely to change my behavior “on the street corner.”
Deals are most helpful and influential in advance, during planning or to encourage me to buy something I might not otherwise: the hotel room, car-detailing package or museum membership for example. Whether the deal appears in email or some other digital form (search, display) it’s a much more useful tool for the merchant when a consumer is not “in the moment.”
When I’m “on the street” a decision has probably already been made. Again, at the margins I’m willing to concede that it might change some behavior. But most people using these mobile deals products are going to be looking for offers related to places they’ve already chosen. Merchants will thus probably be losing money on existing customers.
There’s a more nuanced argument to be made about deals driving frequency or increased loyalty. But the larger point is that there’s a flaw in the logic behind the product, which seems to be confirmed by Yipit’s earlier analysis showing it’s not taking off.