Groupon and its clones had a week of terrible PR. I have rarely seen such bashing of a company on leading tech blogs and magazines such as TechCrunch, the Guardian, The Huffington Post, Mashable or Business Insider. Instigated by Groupon’s recent S-1 filing, those articles were mainly raising concerns about the viability of the model and the financials of the company. 

One of the more insightful, albeit too pessimistic analysis of the model, was this TechCrunch article calling for the collapse of Groupon. 

Since I am not a financial expert, I will leave financial due diligence to others.

Having founded a Groupon Clone myself (Reduti was a Groupon clone for premium offers, which was sold to Daily Deal), I can, however verify that we did see shortcomings of the model for the merchant. Our biggest concern was the lack of measurement as to whether this actually worked. What if the return rate of new customers was too little to make it worth the discount-investment by the merchant? What if most Groupon buyers are just looking for a bargain and will not return to the restaurant but instead try another discounted Groupon the next time they feel like going out for dinner?  

When merchants raise these concerns the typical sales argument by Groupon is that Groupon’s value proposition was to bring new customers through the door and that the conversion of those customers into loyal customers was entirely in the hands of the merchant. That argument works with Groupon users, who seek to find a new favorite restaurant or hair dresser that they did not know of before. It does, however not work with users, who just look for bargains and have no interest in returning to a merchant and ever paying the full price of a service. 

At Reduti we tried to overcome those shortcomings by firstly concentrating on premium offerings. With our deals being way more expensive than Groupon deals, the discounted, yet still fairly high price was not too appealing to the typical bargain hunter.

Secondly, we wanted Reduti to have a curator function and become more of a premium city guide for cash rich, time poor urbanistas. The discovery of great new places was the key value proposition, the discount just a luring side product. How did we do this? Every deal, for example was tested by our team members, including picture taking and a proper write up. Unfortunately that turned out not to be easily scalable.

So does that mean that the way Groupon operates hurts the merchants? In some cases maybe, but surely not in every case. Redesignmobile made a list of 6 cases, when it makes sense to run a Groupon and i could not agree more:

1. You have a new business

2. Your business has a subscription model or high lifetime value

3. You have fake pricing to begin with

4. You have a third-party really footing the bills

5. You are running an event with excess capacity

6. You are going broke anyway

Those use cases could leave enough space for some niche players focusing on segments. The question that remains to be answered about Groupon is whether those use cases are big enough to carry a company with more than 4.000 sales people. 

As the articles of last week and this list suggest, the current Groupon model has its flaws and may ultimately not work for established merchants in the long run.

In my opinion, Groupon needs to team up with location based services and start tracking loyalty and integrating loyalty types of deals. I like how Topguest leverages existing location based services for loyalty programmes. If Groupon stops concentrating on just selling off capacity at a discount and starts adding loyalty components to its product mix, it may remain victorious in the end.