Will Groupon Survive?

Groupon has demonstrated that group discounting can be successfully translated into digital and social memes at scale. To some extend Groupon, Living Social, which recently took in a big investment from Amazon, and its growing ranks of competitors are animating and digitizing the original analog version of group discounters – The Entertainment Book, which still offers offline word-of-mouth distribution of hyper-local deals and discounts.

With some 40 million subscribers, Groupon has set the pace in using the social graph to distribute deals. They will expand from strictly local to deals with national chains and franchises by the fall. Yet as Social Living, with 20 million subscribers advertises on TV and grows, they now face hard core competition from Facebook Deals with access to 500 million subscribers and from Google Offers with access to everyone online everywhere. The question is will access, scale and social potential beat a head start, a strong brand positioning and base of happy customers?

Consumers are flocking to these e-mail offers because it automatically comes to you, the offers are targeted and because most are relevant and easy to take advantage of. It’s unlikely that the channel, e-mail, every retailer’s workhorse medium, will make much of a competitive difference or that distribution via social network will yield higher or faster rates of enrollment. The game will turn on the real or perceived value of social sharing either for consumers or merchants.

At the moment, consumers get significant discounts, Groupon gets 50 percent of every sale and merchants get access to new customers, the potential for up-selling, cross selling and/or increment purchases plus the potential to turn promotionally-driven buyers into loyal customers. The jury is out on whether merchants really get these pay-offs and Groupon has a real renewal issue coupled with a Main Street perception that merchants using Groupon are desperate or in serious financial trouble.

Groupon is reticent to share case studies and data to prove actual merchant benefits. Marketers trying to evaluate this channel rely mostly on anecdotal evidence even though it flies in the face of direct marketing orthodoxy which is that promotional buyers are always promotional buyers. They rarely convert from their value, bargain-hunting posture into valuable, loyal, high-margin buyers.

The new entrants claim that they will facilitate greater and easier social sharing which potentially will give group offers wider distribution and more virility with the added mojo of implied endorsements from your friends. I’m not sure how to measure or evaluate this since we don’t know how much social sharing happens now or what the impact of social sharing on sales is. If we don’t have a baseline or a rule of thumb, we can’t assess superiority claims.

Size, scale and general arrogance aren’t enough to convince me that Facebook and Google can do mass group discounting any better than the independents nor do I blindly believe that they can deliver better results to merchants, especially since they each have a track record of misses in the advertising sales and merchant services space.

Stay tuned. Things are about to get interesting.

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