Can Groupon Survive in a Crowded Marketplace?

Can Groupon Survive in a Crowded Marketplace?

Yipit’s analysis of Groupon’s declining hold on the daily deals space indicates lower customer engagement, fewer deals sold overall and falling average revenues per subscriber for the email deal industry leader. In light of the company’s looming IPO, do these changes signal the death knell of the daily deal business model or is there still space for innovation in this area?

Ultimately, it’s not surprising that Groupon is beginning to see diminishing returns. When you operate a business model based on offering the lowest prices, you eventually attract competition in the race to the bottom, where prices become unsustainable and revenue falls. There’s no disputing that Groupon is seeing these challenges from companies like LivingSocial, as well as from local programs offering similar merchant deals on a smaller scale.

So the question isn’t, “Why is Groupon seeing a decline in business?” but instead, “What can Groupon do to differentiate itself from its competitors to drive higher engagement amongst over-sold consumers?”

Clearly, Groupon’s business model prevents it from raising prices in exchange for additional value – an option that most declining businesses have for increasing revenue. So instead, Groupon must attract more subscribers and implement strategies that both better personalize the deals for these members and stand out in a saturated market.

To an extent, the company’s “Groupon Now” program will help drive some of this engagement by enabling the burgeoning market of smartphone users to grab deals on the go. Although this option is currently only available in test markets, it’s expected to roll out nationwide and play a major role in the valuation of Groupon’s IPO.

But in my opinion, the key to Groupon’s success won’t be in offering new ways to access their deals, but in providing better targeting services for its existing and future users.

Imagine a subscriber who has recently signed up for Groupon’s service. He’s amazed by the savings presented by this business model, as well as the breadth of Groupon’s offers – including everything from local restaurants and spa services to off-the-wall activities like hang-gliding and brewery tours. He’s so amazed, in fact, that he goes out and signs up for several other similar services, all of which begin bombarding his email account with daily offers.

Anyone who’s over-subscribed to email lists knows what happens next. After receiving dozens of emails each week – few of which may be relevant, interesting or geographically appropriate – our subscriber is feeling burned out. Even if he purchased a few deals at the beginning of his membership, the drag of receiving multiple uninteresting offers day after day leads to lower engagement and fewer sales.

In light of this burn out, the key to re-engaging Groupon’s declining subscriber base isn’t reaching more people in more ways. It’s finding better ways to match the right people with the right offers.

Instead of sending every offer to every subscriber in a geographic area, find a way to allow users to opt in to specific types of offers in more targeted neighborhoods or give Groupon the ability to make recommendations based on past purchases. For example, if a subscriber purchases three restaurant Groupons in a specific neighborhood, give the subscriber the option of bypassing spa or service Groupons on the other side of the city to increase his engagement and likelihood of buying.

From the beginning, Groupon has been a leader in the daily deals business model, but failing to evolve as increased competition enters the space could turn Yipit’s downward-trending data prophetic. In order to succeed going forward, Groupon must implement methods to drive a greater level of engagement among burned out consumers, and adding enhanced personalization options would be a great place to start.

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This post was written by Jim Muehlhausen.


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