Is Groupon's CEO About To Break One Of His Most Important Promises?

Andrew MasonMason wants an agency.

Photo: Scott Olson/Getty Images

Groupon, once again, is attempting to dance down Madison Avenue with an ad agency, according to Ad Age.A source tells me that the report is somewhat premature, and that Groupon is actually only very casually flirting with the idea of hiring an agency.

Regardless, historically, ad agencies have been tough turf for the daily deal site, and the company has generally done better during periods when it hasn’t used them.

Geri Robinson, Groupon’s head of consumer brand marketing, told Ad Age that she’s taking bids on an assignment that could possibly include the 2013 Super Bowl.

Say it ain’t so.

First of all, let’s cast our minds back to the first time Groupon advertised in the Super Bowl, in 2011. The ads were so bad that Groupon fired the agency, CP+B, weeks later.

More recently, Groupon tried to work with ad agencies to persuade them to sell clients on using Groupon as part of national and regional campaigns. Agencies — which regard Groupon as a competitor, not a partner — were initially unreceptive. Groupon hasn’t mentioned the effort publicly for months.

Running new ads threatens to once again balloon the marketing budget. Being on the Super Bowl is not cheap — and the show is already 90% sold at $3.8 million per :30 spot. Groupon — which does not buy masses of airtime in bulk — will not get a good deal from CBS.

And, running traditional media ads belies the advantage Groupon has as over its traditional coupon dealers: It’s online, where distribution costs ought to be low.

But, most importantly of all, in 2011, CEO Andrew Mason promised he could make his company profitable by reducing marketing costs. He kept that promise, and in Q2 2012 Groupon showed a real profit.

Running a nationwide ad campaign is expensive. In Q2 2012, Groupon’s marketing costs were $88 million, or about 16% of revenues. They were as high as $600 million in Q3 2011.

So hiring an ad agency — and allotting it a multi-million dollar ad budget — is fraught with risks for Groupon. Ad Age suggests that a new campaign might goose the stock price. If it breaks GRPN’s profits by upping the marketing costs line on the income statement, it will do the opposite.


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