
Why root for Groupon? - coloneltcb
https://medium.com/@andrewmason/why-root-for-groupon-8f95dea7f234#.a2x85odlg
======
sparkzilla
I was one of the many unhappy customers of this company. They made tons of
money for themselves and investors using an aggressive and unpleasant sales
force to overpromise results to small businesses, who had to discount deeply
to make the system work, and who never got any repeat business. This guy was
responsible, and he still doesn't get it. They can burn for all I care.

~~~
pbreit
Curious what happened. Were the economics really bad for your business or did
the response overwhelm? Slow payouts?

~~~
sparkzilla
The business model was bad, and the sales tactics were bad, and the handling
of the contracts was unethical at best. The salespeople pushed us to give a
big discounts on the list price of our service, saying that the promotion
would bring long-term business. But that never happened due to the one-off
nature of the advertising. Instead, we made a loss on every customer due to
the discount, while Groupon made their commission (25% of the list price if I
recall correctly) whatever happened. Making excessive money while your clients
lose money is not a viable business model. So we dropped them, as many others
did, and they moved on until they finally ran out of victims. If I recall
correctly, the second time we tried, they changed the contract percentages on
us without informing us, similar to the story another business owner tells in
a comment on the Medium post: [http://bit.ly/1SRjksX](http://bit.ly/1SRjksX)

~~~
pbreit
You do understand that with traditional advertising you spend money with no
guarantee at all that it turns into sales?

I don't understand why people are so down on advertising that guarantees foot
traffic when most/all other advertising is a total crap-shoot.

~~~
Throwaway23412
I imagine it has to do with the type of customers the advertising attracts.
The type of customers a Groupon attracts would generally be short-term,
coupon-chasing customers. I personally have around a dozen gift cards in my
desk for restaurants I wouldn't normally go to but will eventually go to for
the sake of spending the gift cards. Many entrepreneurs, from the owner of a
market stall in India to the owner of a bootstrapped startup in Silicon
Valley, will tell you that the frugal, hard-haggling, discount-chasing
customer is the worst customer to have.

~~~
X-Istence
In my experience those customers also expect and demand the world for the
discounted price, whereas those that pay full price are generally less
demanding. Not sure why that is...

~~~
jeffdavis
Purchasing luxury goods and services is generally about personal
relationships, atmosphere, and other context.

If you pay too little (not just get a discount or other small favor, but
actually pay too little) then you are compromising your own experience and
actually getting _less_ value than the people paying full price.

So it's no surprise that such people are ultimately less satisfied. The
primary benefit they are getting out of it is the chance to tell their friends
how low of a price they got.

------
andrew
Hi guys, Andrew here (author of the medium post). Thanks for the feedback. I'm
just going to try to summarize the questions/criticisms that have been raised
in the comments - it seems like they're all mostly hitting on the same few
things. I think it would be great for Groupon to answer them.

Here it goes:

* Groupon attracts bargain hunters that never come back. It can't be compared to other forms of advertising because the customer you get as a result of a Groupon is less valuable than customers you get from other forms of advertising.

* Groupon cannibalizes sales from customers that would have otherwise paid full price.

* In summary, why should I believe that Groupon is a good form of advertising for small businesses when compared to the other options?

* Whatever the answer, why should I take the word of this corporation over the many small business owners who have reported poor experiences?

Let me know if I missed anything and I'll add it.

Andrew

~~~
fijal
Hi Andrew, thanks for taking your time.

Since you're trying to capture it in one place, there is a comment hidden down
with ctiticism that you did not capture in your list, here it goes:

"unclebucknasty 3 hours ago

That and the fact that those customers were Groupon's customers, not the
businesses'. Their loyalty was to Groupon and the never-ending stream of
discounts they provided. OTOH, the businesses that offered the discounts were
essentially commodities in the scheme. They created the value via their
discounts that Groupon then sold to customers. Few cared about the businesses,
as people were not buying the underlying service or product from those
businesses. Instead, the product was the discount itself, which they were
buying from Groupon."

~~~
andrew
IMO that just seems like an elaboration upon / the reasoning behind "groupon
customers are bargain hunters and won't come back", yes?

~~~
fijal
I think there is a distinction here between "groupon customer" and "business
customer" highlighted in that comment that goes beyond the term "bargain
hunter". You can still have bargain hunters that would only come to your shop
once you display 10% off or once you're selling out stock that did not go
away, but they still bring value to your business. That's different than a
situation where neverending stream of discounts means you can change your
provider as long as you're loyal to groupon.

That might be just word semantics that I'm missing, but I think there is a
major distinction.

------
nirmel
Groupon, and Andrew, really did solve something hard: local customer
acquisition and attribution. Others who had been toiling away at this problem
for years were stupefied. Really? That's the most valuable local commerce
company (as Andrew notes)? But when those looked in the mirror they couldn't
say they were guaranteeing customers with no risk. That's a powerful value
proposition to the small local business.

~~~
wavefunction
I believe they were capable of generating an increase in customers but I think
the incremental customer base rarely converted into repeat business or very
loyal customers, since the sorts of people who are looking to take advantage
of "too-good-to-be-true" customers are not the sort of people who necessarily
express consumer loyalty.

They're looking to take advantage of whatever deals (consumer advantage) are
available and so the value-proposition offered by a Groupon campaign was way-
overvalued by both Groupon and the businesses who bought into it.

~~~
sbuttgereit
I do think there are those customers that are just looking for rock-bottom
deals as you suggest, but I think the problem is more one of presence of mind
than necessarily for the deep-discount shopping only crowd. For example, if
you see a single ad, you don't remember the business... you need multiple
impressions for it to start to stick. I think the same can hold true for new
potential customers: the first visit may be positive, but in a couple or so
weeks, it's not necessarily the first place they'll think of the next time
they have need of the product.

Groupon (and others like it) represent should be one small part of a larger
marketing initiative. It can give you the opportunity to get in front of
customers you wouldn't otherwise get in your store/buy your service/etc. But
capitalizing on that first impression is where many small business fail. With
a clever bit of follow-on marketing, I think you can get it to pay off.

For example, for those that come in with the Groupon, offer another coupon for
the next visit... don't make the deal so sweet perhaps, or make it a bring-
your-friends sort of deal (2 for 1, etc). You train them to come back and
think of you while at the same time train them to start accepting your regular
pricing.

Naturally this depends on your business... if it's wedding photography, you
probably don't go down the Groupon type path to begin with. But if it's say, a
dining establishment... this sort of thing could work.

Of course. Many small business owners are simply not good business people when
it gets right down to it. The small bookseller who loves and knows literature
inside and out may not know how to market that business, find opportunities
and niches, nor appreciate the financial pros/cons of any given decision. I
think that's the biggest issue of all. They're the types likely to sign up for
Groupon a get the initial visit, but never capitalize on that.

~~~
wavefunction
I agree, that's what I meant by "overvaluing" the proposition offered by
GroupOn. I think they were great as an introduction or reinforcement to
existing customers but the value of the deals demanded to run a promotion was
too high.

A staged proposition as you have outlined seems far more prudent.

------
j_lev
"Are you _seriously_ using that coupon company instead of Groupon?"

This was the bitchy-voice Groupon sales rep phoning me direct when I used a
different coupon service in Japan. I asked whether she was talking about the
same Groupon of "Great Osechi Ryori Disaster and CEO's Fake Apology of
2011"-fame and it shut her up real quick.

So many things wrong with this company, failure couldn't have happened to a
more deserving bunch of people.

------
jackgavigan
I'm not sure that Groupon ever had - or ever will have - a viable business
model. It raised enough money when it IPO'd to keep it solvent but that safety
net appears to be on the verge of running out -
[http://jackgavigan.com/2015/11/04/is-groupon-on-a-glide-
path...](http://jackgavigan.com/2015/11/04/is-groupon-on-a-glide-path-to-
bankruptcy/)

I'd love to know whether Mason and Lefkofsky ever genuinely believed they had
created a viable company or whether they knew they were riding an
unsustainable growth hack.

~~~
hitekker
My money is on the later. I recall reading an article in which Groupon got
extremely tight-lipped about the viability of its business model. Like someone
asked a few questions about how sustainable it would be once it scaled and
then the person representing Groupon basically went into siege mode and gave
only short, resentful answers.

Wish I bookmarked that one.

------
philfrasty
Does anyone know of actual data (blog-articles, surveys) regarding the
behaviour of Groupon customers: e.g. % of repeat customers, difference in CLV,
difference in cost of customer-acquistion compared to other channels, etc.

The discussion of Groupon usually ends up in „they don't add value“ vs „they
add value“ but without actual data it seems easy to find explanations for both
sides.

~~~
xiaoma
Yes, I used to work at Groupon. As one would expect, we tracked merchant
satisfaction very, very closely. Most merchants were satisfied and most did
repeat business. Of course, it's usually the angriest people who are the
noisiest and even in the case of very vocally happy merchants, it's not that
exciting of a media story.

Also it's worth pointing out that the value proposition for different types of
businesses is wildly different. As you can imagine for an info product,
Groupon is just like doing an affiliate deal with virtually no downside, for a
high margin item like a spa it's excellent, and for something with very high
unit costs, like a meal at a restaurant, the merchant has to be a lot more
judicious about creating Groupons.

I'm blown away by all the hate, though. Maybe it comes down to how good /
aggressive the sales team is. From a merchant's perspective, Groupon should be
treated like marketing. You don't spend so much money on Adwords that unit
economics are bad without some plan to create repeat purchases on the back
end. Why would promotional discounts be different?

~~~
unclebucknasty
> _Why would promotional discounts be different?_

There are several differences between Groupon's model and standard
discounting/advertising. The spirit of these can primarily be summed up as
"most advertising services don't compete directly on price with the clients
for whom they are supposedly advertising."

Groupon's product was its discounts, which it sourced from local merchants,
then sold to its own customers. The businesses were not so much customers, but
suppliers. However, the businesses paid Groupon for the benefit of supplying
the product (the discount), and yet competed directly with Groupon when
Groupon sold discounts for the restaurant across the street the following
week.

Now, here I have discounted deeply and taken a loss, however, I cannot compete
with Groupon in my efforts to retain any new customers and recoup those
losses. This is because Groupon encourages a certain customer mindset, based
on demand for deep discounts. This is a demand which Groupon alone can
endlessly satisfy because no individual competitor could sustain such losses.
However, the aggregate loss of those businesses is the very source of
Groupon's profit.

In short, Groupon was actually a hyper-competitor to the businesses it was
supposedly serving.

------
oldmanjay
Why would this be taken as anything but a plea to have the stock he holds
increase in value? It's sort of mind-blowing to see this discussed as if it
has any other purpose.

------
godzillabrennus
I root for Groupon because I'm in Chicago and it's great for a company of that
size to have originated here. Andrew has a great reputation in the area but
Eric and Lightbank are almost universally detested which is a shame. I hope
the company turns around and more importantly I hope Eric and Lightbank
revisit how they treat entrepreneurs.

~~~
alawrence
I didn't realize LightBank was looked down on. I'm also in Chicago and work
for a Lightbank-funded startup. Have you heard from other local entrepreneurs
about poor treatment from LightBank?

~~~
godzillabrennus
Yes, the overall mentality of anyone I talk to is don't even approach
Lightbank. Word on the street is they are terrible for entrepreneurs to work
with. It doesn't help that Lightbank has seemingly had high turnover and my
limited interactions with them in other matters have sent me mixed messages.
Again, it's a shame. Brad Feld from Foundry replies to almost every email he
gets. Chicago needs a guy like that.

------
danso
I found the little plug for his current startup to be interesting:

> _My current company, Detour, is for all intents and purposes at its current
> stage, a small local business. We sell walking tours of San Francisco. To be
> successful, we have to do the exact same things other local travel companies
> do._

That description brought to mind exactly the startup SideTour, which Groupon
bought out in 2013:

[http://techcrunch.com/2013/09/18/groupon-buys-sidetour-to-
ad...](http://techcrunch.com/2013/09/18/groupon-buys-sidetour-to-add-more-
local-bespoke-activities-to-its-grouponlive-events-business/)

Sidetour did more than walking tours...I only used it once, to go on an
excellent tour of the now-defunct 5Pointz in New York...and according to the
TechCrunch write-up, the point of Groupon buying out SideTour was to include
the kind of things that Detour purportedly does:

> _A little over a week after Groupon announced the acquisition of hotel
> booking service Blink, today comes one more purchase that moves Groupon
> further yet out of the realm of daily deals. Groupon has bought SideTour, a
> marketplace where people can book places for small-scale, bespoke
> activities, and post their own events, too._

~~~
rahimnathwani
SideTour sounds quite different from Detour. The latter is an iOS-only audio
walking tour app. There are no humans involved in content delivery (except at
the creation stage, of course). It's not the only mobile-audio-walking-tour
app, but its content is really, really good.

(I'm a satisfied customer of Detour.)

------
crabasa
"I often find myself wishing that the original deal-a-day version of Groupon
was around today; looking at the other paid options available to me as a small
local business owner, I can’t imagine a lower risk, more cost effective, or
higher impact way than having Groupon send a one-time offer to 500k people in
the Bay Area about Detour, with a few thousand of them buying it for half
off."

Daily deals cannot scale and Andrew knows this better than _anyone_. When
you're small you can price daily deals in a way that works for SMBs and your
bottom line. But when you're huge, you only have 365 deals per year and the
price you need to charge is out of reach for small businesses. You have
effectively equaled the reach of a traditional media company.

~~~
andrew
Here's a quick history of the evolution of the Groupon model.

Groupon started out as one deal a day. We had a massive waiting list from
merchants - 9 months, at one point.

With so much merchant demand and Groupon only running one deal a day, clones
started to appear. Instead of waiting to be featured on Groupon, merchants ran
with the clones.

Most customers didn't really care whether they bought from Groupon or its
clones. So we realized what in effect was happening was that the model was
moving to a marketplace... just one that was distributed across multiple
sites.

We decided if the inventory was going to exist, it would be better on Groupon
than spread across a zillion clones, so we moved to a marketplace model.

In other words it was mostly competition in a fairly commoditized space, and
not scalability issues, that drove us to the marketplace.

That's not to say that scalability wouldn't have been a challenge with a daily
deal model, but there are things you can do. A lot of the needs in the space
actually balance out nicely. Some merchants want 20k customers, others want
20. Most merchants prefer new customers, some are indifferent. Both customers
and merchants want category diversity so Groupon remains interesting and non-
cannibalistic. In theory you can get all those things with smart segmentation
and personalization. We experimented with that in the transition to
marketplace but ultimately went ahead with moving to the "many deals" (which
in the short term, is exactly what customers want) to stay ahead in the brutal
competition for marketshare. Hard to say whether I'd do that part differently
today... if we'd been less focused on maintaining marketshare NYTimes might
have just written the obituary for Groupon instead of Livingsocial.

~~~
crabasa
Respectfully, I don't buy it and I think the the marketplace is bearing this
out. Local advertising was _temporarily_ disrupted when Groupon owned the
market (eyeballs) and offered a product that businesses _thought_ was superior
to traditional forms of local advertising.

Once competition fragmented the market and businesses realized that 50% off
coupons attracted bargain hunters rather than loyal customers, there wasn't
any going back.

------
Hytosys
>My experience here has reinforced the truth at the root of Groupon’s success:
if you have a small business, it’s hard to reach customers.

I love this. You are the founder of a big company known for being predatory,
and you're recognizing that big companies are predatory.

------
ianbicking
Ads only work when you can convince people to try someplace or something new
using words and images and symbolism. There's lots of experiences and
businesses that can't do that - not just because of size or money or location,
but because words are fairly limited. I don't want local businesses to just
have better ads; I don't even know how that would help me.

Used well I think Groupon let's a business really put themselves on the line:
we're willing to probably lose money on customers because we think those
customers will learn the value of what we provide by experiencing that value.
That's a risky proposition, but a fair one. Used that way, yes, I think it's
good Groupon exists.

------
kelukelugames
I have yet to hear a single positive testimonial for Groupon.

~~~
asah
I'll give one, both as consumer, merchant and partner. I have never owned
stock in the company and don't know anybody there.

As a consumer, I've discovered tons of new restaurants and services through
Groupon.

As a merchant, I ran several groupons and they kicked butt. Of course you need
reasonable expectations about margin and repeat customers.

As a partner, I've referred dozens of brands to Groupon Goods, who are easy to
working with, pay their bills on time and pay MORE than traditional retail
channels, because there zero loss/spoilage.

I can't speak to sales tactics but my experience was virtually 100% positive.

------
wpietri
That's just sad.

Cognitive dissonance is a powerful thing. I can get why he wants to look in
the mirror and say, "No, I really did do something worthwhile. Really,
really!" And it's great that his wife is trying to buck him up.

But trying to convince the rest of the world? Via rambling, need-an-editor
Medium posts? Where he helpfully analogizes Groupon to a drug that turns
people into shuffling, addicted zombies and destroys their lives?

It's just sad.

~~~
pbreit
Totally disagree. Andrew is a super smart and generous guy, built an
extraordinary company, albeit not as successful now but still multi-billions
in value. Local business, a totally admirable market to serve, has a very
difficult time marketing and Groupon is/was a godsend.

~~~
wpietri
Not knowing him, I have no opinion on his smartness and niceness. But as far
as I'm concerned, Groupon was an enormous pump-and-dump built on a short-lived
marketing fad.

I agree that local business is a great market to serve, which is why I think
Groupon is especially repulsive. In his race to cash out, he caused enormous
pain to an enormous number of local businesses. Whether he did that willfully
or negligently I have no idea, but either way his attempt to chipper his way
out of Groupon's history is sad.

