Photo: The DEMO Conference/Flickr
Groupon has been the darling of the media in terms of hot new startups. A few months back, Forbes famously proclaimed that Groupon is the fastest growing company ever. And, while Groupon continues to be the market leader within the group buying sector, recently, Groupon has ran into some problems.Here below are 5 problems that Groupon is now facing:
1. Doesn’t always work for retailers financially
Recently, I decided to plan a ski trip to Mt. Baldy ski resort. I searched for Mt. Baldy lift tickets as I was prepared to purchase the tickets directly from the Mt. Baldy website. However, on Google, there was a sponsored listing for a deal site which offered 50 perceny off lift tickets at Mt. Baldy.
Instead of spending $64 – I spent $32 for a lift ticket. Keep in mind that the deal site takes up to 50 per cent of what I pay, so Mt. Baldy ended up getting about $16 – $20 for my lift ticket whereas if they weren’t signed up with the deal sites – I would have spent $64.
This is the sort of cannibalization that many retailers have experienced. The deal sites are supposed to bring in new customers who wouldn’t have purchased something otherwise. However, the margins are very low at best on those new customers that are aquired – and sometimes existing customers take advantage of a deal when they otherwise would have been willing to pay full retail price.
Also, the retailer often will take a loss on the first transaction in the hopes that the new customers will come back again. However, deal hunters, by their nature, want great deals, meaning they are going to be less likely to pay retail prices in the future.
2. Customer Service Issues
Small businesses who participate on a deal site frequently get overwhelmed by the response and they can’t support all of the customer inquiries that come through all at once. Other times, a company will go out of business and the consumer won’t be able to get a refund for what they had purchased.
And perhaps the most frustrating thing for customers comes from when the pricing is different on the Groupon site then the company’s main website. This recently happened with FTD – they offered a Groupon for Valentine’s day flowers which offered $20 off from $40 worth of stuff. However, the actual FTD website offered lower prices than the site which users were able to access through the Groupon link. These types of situations have presented themselves several times – whereby the prices through Groupon are increased by the retailer to make up for the coupon that the consumer has.
3. A Ton of Competition
Groupon has proved to be a good business model, but there are several competitors in the marketplace. The most notable competition comes from Living Social, which is partly owned by Amazon. All of this competition ultimately will force Groupon to continue to innovate and stay on its toes if it is going to remain the market leader. So far Groupon has been able to do so – but the low barriers to entry in this space will make it difficult for Groupon to maintain its current market share.
4. Turning down Google
Groupon recently turned down Google’s $6 billion offer. It was a move which may turn out to be smart but it was still a very risky move. This type of decision can turn out to be a cloud over a company’s head – because with any troubles that Groupon has – the media will bring up the fact that Groupon shouldn’t have turned down the $6 billion offer. Groupon has big shoes to fill, and the media certainly is going to keep the pressure on when Groupon has slip ups.
5. Horrible Super Bowl Commercial
It was widely reported that Groupon’s Super Bowl commercial was seen by many as offensive. Groupon actually pulled the commercial the following week and apologized. Nevertheless, the commercial left many customers irate and with so much competition in the group buying space – many customers said they would take their business elsewhere. And while the commercial fiasco will likely blow over in time – it certainly didn’t help Groupon to keep its momentum and it could turn out to be another cloud over Groupon moving forward.