We asked our Zintro experts about Groupon and if the online couponer is good for business, and what is making its business model work.
Eric Lituchy, an expert in digital marketing, ecommerce, and direct marketing, says that Groupon and its competitors have shown they can drive new customers to a business. “The question is can they drive new business that converts in to loyal customers, and I think that is were these sites all fall short,” he says. “Acquisition marketing is meant to drive new customers to a business, but without retention marketing these programs regularly fail. You can argue that it is the merchant’s responsibility to perform these duties, which could be as simple as an email marketing program, but most of the merchants using Groupon simply are not good marketers.”
Lituchy says he would like to see the deal sites take the model to the next level and offer retention marketing services. “It’s a natural progression of the model and would bring incremental income. It would provide the merchants with the chance to hit a bunch of singles, rather than relying on a grand slam,” he says. “The model works, but the current method needs to mature. Deals must be more targeted and need to be hyper-local. How many times is one person going buy a massage because it is half price? How many restaurants will I try that are outside my neighboring towns, and more importantly, how many will I go to a second time?”
Rick Isenberg, ecommerce and catalog / direct mail marketing consultant, says that the offer you give to the consumer, the split you get with the couponer and your margins is what is good for business. “Many articles have been written about businesses that saw a huge influx of customers that cost them money as they lost money on each sale and didn’t come back a second time,” he says. “Online couponers, such as Groupon, should be looked at like any other customer acquisition vehicle: create a P&L and do a forecast as to the expected purchase rate, usage, and then repurchase (without a coupon). The offer should be limited in scope so that the business gets enough purchases of the offer to see how things work, and then run the numbers after redemption to see how many customers come again without a discount. It all comes down to analyzing the profitability of a customer, including acquisition cost. If the cost is too high, the customer never is profitable”
Jason Taylor, an expert in merchant accounts and online payment, says that the concept of coupons and deals of the day have been around for decades. “Groupon is the latest version of a loss leader marketing for businesses to attract new customers. The technology is great; however, the costs to the business owners are rather high. As more and more competitors enter this space, we can expect the price to business to be commoditized. This will be followed by a quick consolidation in the industry,” he says.
Taylor says that the quickness of Groupon’s IPO should be a concern. “Without time for the market to mature, any shareholder will have to take financials and projections with a grain of salt. There are few ways for coupon companies to accurately project growth and earnings in this emerging market. I would expect very high P/E ratio with zero dividend and a short play on the stock. The light at the end of the tunnel for Groupon is that it is still in a decent position for takeover by a major player looking to integrate the technology,” he says.
Our experts would love to hear from you! Post your question for industry experts here. Are you a subject matter expert? Sign up as a Zintro expert to start generating free leads for your business.
The post Is Groupon a deal? appeared first on Zintro Blog.