While Groupon’s financials have received plenty of attention since the company filed its S1, little commentary has been provided on the company’s strategy for continued record breaking growth.
Two major growth initiatives highlighted in the S1 are personalisation and real-time deals through a recent initiative, branded Groupon Now!. To date, the company has done neither well and success will hinge on Groupon’s ability to significantly increase content density, the total number of deals in a geographic region, both domestically and abroad.
According to their S1, Groupon has made significant improvements to content density. In Chicago, the company’s first and most mature city, the number of deals featured has increased from one per day to almost nine. In Boston, Groupon featured five deals per day in the most recent quarter.
Groupon’s flagship product gives users a year to redeem their vouchers; allowing planned visits for unplanned purchases outside of their core area. Groupon Now! promises it’s very name—deals available, near me, now! This not only pulls location into the question, it also narrows the field to immediate needs vs. future ones.
Actual personalisation on a geographic level requires a massive amount of content in order to provide deals that are both nearby and relevant for a user. Groupon’s nine deals in Chicago, or even the 69 showcased in Groupon Now!, pale in comparison to the 80,000 Chicago based retailers spread across the 2142 mile Windy City.
My company, Signpost, uses a filtering algorithm to predict the relevance of a deal to a user based on their location, preferences and past purchasing behaviour. As a proxy, Signpost’s deal density is 300 deals per square mile in Manhattan.
With .3 deals per square mile available on Groupon Now! Chicago, it would take approximately 100x that density to hit the 70% relevancy rate that Signpost enjoys in Manhattan.
To back up its growth initiatives, Groupon will need a seismic shift in the way it sources content. There are a number of solutions to attain this goal – all of which have implications on Groupon’s financials.
- Grow Internal Sales: More sales people will result in more deals, but with personalisation, Groupon will be selling fewer deals per merchant so profitability per sales person will decline.
- Offer Recurring Deals: Groupon needs to be willing to sell smaller quantities of deals over a longer period through initiatives like Groupon Now!.
- Recurring deals have a multiply effect over time as each month brings the benefit of the past month’s deals. This approach will require additional account management and sales people.
- Re-emphasise Self-Service: Groupon moved away from self-service campaigns earlier this year. Self-service is a cost-efficient way to add content but it is difficult to maintain a consistent brand voice, a valuable asset to Groupon.
- Develop Sourcing Partnerships: Groupon could take the Google Offers approach that involves a combination of internal sales and deals sourced by third party providers. At Signpost, for example, we source deals through a distributed sales force that takes care of the heavy lifting for businesses not quite ready for self-serve.
Considering these changes, Groupon could experience significant cost increases or a diminished brand voice if they don’t think carefully about how to scale their content to achieve their stated goals as the company moves forward.
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