Thursday, June 7, 2012

What's the big deal?

Before it was cool to bash Facebook's profitability, Groupon was the hip tech company everyone loved to hate, given its questionable revenue base and easily replicated business model.

Groupon's stock is less than half what it was worth when it made its IPO in November, and despite a recent rally, its prospects remain shaky in this amateur anaylst's opinion. I need look no further than my own inbox, which is daily filled with no less than five deal-of-the-day emails of one variety or another, including Groupon. Recently I used a Groupon to buy a membership to Angie's List, which triggered a subscription to Angie's List own daily deal emails. Among Groupon's other competitors in my inbox: Amazon (offering local deals), Living Social, and the Pittsburgh Post-Gazette's version.

I've purchased deals from Groupon and Living Social, and my experience with one was not substantially different from the other. And therein lies the rub: My satisfaction as a consumer with a daily deal depends almost entirely on the business for which I am purchasing the deal. For example if I buy a Groupon for a restaurant, my experience is determined by the restaurant, just as it would be if I had decided to eat there on a whim. My wife and I had a fantastic experience after using a Groupon to book a room at the Omni Bedford Springs Resort. Our reaction was "We can't wait to come back here and stay again" not "We can't wait to buy another Groupon."

In other words, from what I've gathered, there is no real brand experience offered by any of the major daily deal players, which means that there is no reason for me to choose one over another -- save for the sole variable, which business being promoted in that day's deal. That would seem to be an incentive for companies like Groupon and Living Social to try to strike exclusive arrangements with the businesses that have offered the most popular deals. And that is an incentive for Groupon and the like to steward the businesses that participate, offering them best-practice advice on how to get deal redeemers to repeat as customers.

The challenge for Groupon, and Living Social for that matter, is that they are known only for one thing -- offering daily deals. If they can't differentiate they service they offer from their competitors, than the default reputations of those competitors -- Amazon, Angie's List, your local newspaper -- may just be what sways consumers to purchase those deals instead.

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