Friday, October 7, 2011

Nontrepreneurism Part 5 - Groupon Hari Kiri

Nontrepreneurism Part 5 - Groupon Hari Kiri

Continuing Discussion of: How Nontrepreneurism is Killing the U.S.

Benjamin Pimentel of MarketWatch reports Groupon to ‘significantly’ cut online marketing
"This appeared to be a dramatic reversal of an Aug. 25 email in which CEO Andrew Mason wrote the following: “We are currently spending more than just about any company ever on marketing. ... Why do we spend so much? The simple answer is ‘because it works.’ ” Mason did say in that August message that Groupon “eventually” would “ramp down marketing just as fast as we ramped it up,” adding, “We aren’t paying attention to marketing budget (just marketing ROI) in the way a normal company would, because we know that even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire.”

Why is this Nontrepreneurial?

Products have a cost and a price. Groupon is great at lowering price, but not cost. The refrain is that people that try your product or service will become repeat customers is slowly being challenged. 

Ever notice that Apple products rarely go on sale?

SmartMoney covers the failure to retain: 50% Off? Repeat Groupon Customers Can Do Better:   
"The program is likely meant to entice more businesses than consumers. Judging by the several hundred sites on the market, consumers just can’t get enough of 50%-off facials, kickboxing, Thai takeout and other cheap luxuries. Yet studies show that less than a quarter of customers go back to that business for a second, full-price visit. And why would they, when there’s another spa, gym, or restaurant offering that enticing 50%-off deal? That poses a problem for sites trying to entice retailers, and retailers hoping to gain new customers by offering that steep discount.

Smart Businesses Learn Quickly

If my inbox is representative, the discounts are becoming less enticing (beekeeping classes, concealed firearms classes, and cosme-ceutical offers). I liken the offers to the Amazon's "Today's Deal, Best Deal Widget" - where Jewelry is constantly 70-80% off. I guarantee you that I will never pay full price for standard (non-differentiated) items. 

If you have a terrific (differentiated) product or service why would you discount it by 75%? Social Media (i.e. YELP) should be driving traffic to you. What are the margins built into your product/service if you can consistently sell at 75% off?

Basic Business Question:

How long can you attempt to attract customers at 70-80% off?

Groupon is cutting their advertising budget, but encouraging to continue to buy their advertising and cut your prices, on the hopes of customer acquisition (which happens with each 75% off sale) and customer retention (which appears to be less likely at full price). 

Bottom Line:

Watch what they do, not what they say - although, in this case, they finally admit their limitations. 


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