Groupon CEO Fired...daily deals is a "flawed model"

10 years ago

Their model is one with very little in the way of barrier to entry by other players, especially those who do deals as just another profit unit. (local newspapers and Amazon come to mind) You can't own that space which is what they tried to do. Now they're trying to get into other online deals, but I think that will not be an area where they can be anything special either. Groupon is very flawed IMO.

Thanks

{{ DiscussionBoard.errors[7799976].message }}

elCapitan

10 years ago

Groupon was really fresh and different when it first started, since then it's been nothing but spam and junk e-mails.

They should have sold it to Google when they had the chance, didn't Google offer an enormous valuation at the time?

Thanks

Signature

Promise yourself that you will not give up.

{{ DiscussionBoard.errors[7800196].message }}

NewParadigm

10 years ago

the deal sites are turning into total spam so the novelty has surely worn off. They also don't do a good job of encouraging users to filter the offer categories. Categories are not specific enough. If I get another mani/pedi offer I'll prob unsubscribe entirely!

Mason at least had honesty and integrity taking responsibility and owning up to mistakes. Very refreshing honesty.

Thanks

Signature

In a moment of decision the best thing you can do is the right thing. The worst thing you can do is nothing. ~ Theodore Roosevelt

{{ DiscussionBoard.errors[7800354].message }}

Arzak

10 years ago

"I've decided that I'd like to spend more time with my family. Just kidding - I was fired today."

At least he took it well

Thanks

{{ DiscussionBoard.errors[7800423].message }}

jgant

10 years ago

Flash in the pan. They sent too many emails. Nobody cares.

I think it would be better if they split up according to type of business (niche or industry) instead of solely geography.

Thanks
1 reply

Signature

How I hit $10,000+ per month very fast w/ 1 niche blog - Click Here to learn more (no opt-in).

{{ DiscussionBoard.errors[7802487].message }}

Written 10 years ago

Eh, kinda saw something like this coming.

Groupon hired me to write for them last summer, and while everyone seemed really nice, it was clear from interacting with the company that they didn't have their act together. I remember getting getting e-mails from them telling me to disregard the instructions provided in previous e-mails and not knowing whether to laugh or facepalm.

I hope they survive, but I doubt they will
- Thanks
Signature

"Pay bananas, expect monkeys." -John Moore
{{ DiscussionBoard.errors[7802518].message }}

thomasmps

10 years ago

Andrew Mason is taking it well because in one of the big rounds of financing he got 30 million personally and has stock worth about 225 million...so he won't be going to the poor house even though professionally it was a set back.

Thanks
1 reply

{{ DiscussionBoard.errors[7802599].message }}

Rollmodl

10 years ago

Groupon's business model was flawed from the start.

Businesses are required to cut their price for the "Deal".
Groupon takes 30%-50% commission.
Business are overwhelmed with one time customers. Some whom also leave bad reviews.
Business get paid after 30 days minus refunds and complaints.

Great for consumers not so much for small businesses. It was good while it lasted and they milked it.

Thanks
2 replies

Signature

Your Video Magazine for Local News and Entertainment

{{ DiscussionBoard.errors[7802692].message }}

Aaron Doud

10 years ago

Originally Posted by Rollmodl

Groupon's business model was flawed from the start.

Businesses are required to cut their price for the "Deal".
Groupon takes 30%-50% commission.
Business are overwhelmed with one time customers. Some whom also leave bad reviews.
Business get paid after 30 days minus refunds and complaints.

Great for consumers not so much for small businesses. It was good while it lasted and they milked it.

You summed it up pretty well.

Though I disagree with it being good for customers. It may have been good for a few deal seekers but it harmed most.

The company was giving 75% off but groupon was keeping 25%. Customers would have been better off had the business offered one or two 75% off days. Hell the free PR they would get would be enough to promote it better than groupon.
Regular customers often paid full price but got crappy service due to the overwealmed businesses. It wasn't just groupon people getting bad service. I would guess that many businesses actually lost business because those paying full price were getting screwed over by the groupon crowd.

The reality is that you can offer big deals as a business to bring in business using traditional media. You will get deal seekers either way but with groupon all you would get is deal seekers.

The biggest winner in this whole groupon thing is google. They saved billions because this guy was a moron and turned down their offer.

Groupon should have been a winner but their business model was built around debt and cashflow vs. profit. That works to a point as long as you can keep growing but in the long run building a model on profit will always be better. Let's be real if you can't be profitable in year 1 why should I as an investor believe you will be profitable in year 5 or year 10?

[ 3 ] Thanks
1 reply

Signature

Aaron Doud - Sales & Success

{{ DiscussionBoard.errors[7802796].message }}

RRG 10 years ago

Excellent breakdown, Aaron.

Though I'm sure many successful companies were not profitable within 12 months.
- Thanks
- 1 reply
{{ DiscussionBoard.errors[7802818].message }}
- Aaron Doud 10 years ago
  
  Originally Posted by RRG
  
  Excellent breakdown, Aaron.
  
  Though I'm sure many successful companies were not profitable within 12 months.
  
  Yeah 12 months may be a bit harsh. It does depend on the company. But every company should aim to be profitable as soon as possible.
  
  And remember profitable is not debt free. Many profitable companies have large debt but that debt is managable when compared to cash flow. I'd say very few businesses are debt free and it doesn't make sense for most to be debt free.
  
  Many forms of debt such as "floor planning" for car sales or inventory for a manufacturer promote profit. After all would I rather sell 100 at 10% profit or 100k at 6% profit by taking on debt?
  
  Debt should always be an investment and not an expense. But many companies don't understand this. If I am losing 3% on every deal would I want to bring on debt to sell more and lose more? Your basic model must be profitable otherwise expansion doesn't make sense.
  
  Groupon's model (as they ran it) was not profitable thus the only way to sustain the company was by selling more (increasing cash flow similar to how ponzi works honestly) and/or take on more debt. When your business is selling a service and your biggest expense is the people to sell and deliver the service it is very scary when you are not making a profit. That means your model itself is flawed.
  
  A manufacturer might take longer to make a profit because in a physical product there are economics of scale. At 100 pieces you might be losing money while at 100k pieces you are extremely profitable.
  
  Services can and IMO should be profitable from day one.
  
  [ 2 ] Thanks
  
  1 reply
  
  Signature
  Aaron Doud - Sales & Success
  
  {{ DiscussionBoard.errors[7802924].message }}
  
  OnlineStoreHelp 10 years ago
  
  There was great novelty with Groupon and they were/are fantastic marketers. What made them successful was persuading small business that they were a customer when in reality they were only a supplier and should have gone into negotiations thinking that way.
  
  The problem was, there was no barrier to entry for this business. Businesses can run their own groupons on their Facebook page now and keep 100% of the proceeds. I helped one local business do just that and worked a heck of a lot better, plus she built her email list and Facebook likes at the same time.
  
  As for Google buying, I never understood why Google wanted to buy one of their larger advertisers. Do you remember when every page you went to on the net had a groupon ad from Google on it? But even if they had bought Groupon under the terms they wanted, they never would have paid out 6 billion. All these deals have earn out provisions over 2 to 3 years and Groupon never would have passed those.
  
  Go check your Google Places listings, you can provide a fat coupon right on your listing!
  
  Thanks
  
  1 reply
  
  Signature
  Learn how to set up a powerful, functional yet easy to use e-commerce website at cartprep.com.
  
  Not sure what ecommerce solution to use? Watch my video walk through of popular shopping carts.
  
  {{ DiscussionBoard.errors[7803022].message }}
  
  Rollmodl 10 years ago
  
  From Twitter:
  
  Rakesh Agrawal ‏@rakeshlobster
  Groupon owes merchants $671 million. Not good, folks.
  
  Thanks
  
  Signature
  Your Video Magazine for Local News and Entertainment
  
  {{ DiscussionBoard.errors[7803131].message }}

Biz Max

10 years ago

Originally Posted by Rollmodl

Groupon's business model was flawed from the start.

Businesses are required to cut their price for the "Deal".
Groupon takes 30%-50% commission.
Business are overwhelmed with one time customers. Some whom also leave bad reviews.
Business get paid after 30 days minus refunds and complaints.

Great for consumers not so much for small businesses. It was good while it lasted and they milked it.

That is the big downfall. Another big problem is that when these businesses realized
they could not handle the workload, they'd not do the work. Meanwhile taking
one or two of the 3 payments they get from Groupon.

When some of these checks are $5000 a piece and Groupon gets a a boatload
of refund requests, who covers that $5000-10,000?

Horrible business model. Groupon loses. The businesses lose (as mentioned above)
and consumers get trained to never pay full price for anything.

It makes as much sense as 30 grit toilet paper....

Thanks

Signature

Small Business Marketing & Branding Specialist
http://BrandWhisperer.net

{{ DiscussionBoard.errors[7809202].message }}

stockpost

10 years ago

Google offered them 5 Billion Dollars - They should have taken it.

And one of my nephew was to gift me a Coupon for awnings worth $500.00
He just need to spend $100.00

I asked him to check on the and only came to know it would have been a waste of his $100.00

Well, I should have shorted that stock at that time.

Thanks

{{ DiscussionBoard.errors[7803163].message }}

NewParadigm

10 years ago

Groupon did all internet marketers a favor. They proved that businesses would pay up to 50% of gross sales for a customer.

Think about it. Hell, even 25% is huge.

Businesses will pay out the ass for immediate customers.

Businesses were STUPID in managing their groupons. There are plenty of ways for a business to make bank off the influx. If you didnt' negotiate w/ the deal site you were STUPID to agree to 50%. If you didnt negotiate down to 35/30/25% you were STUPID. If you didn't follow up with your customers and get them on a list, or up-sell them you were stupid. Groupon has issues but merchants' business stupidity isn't one of them.

My friend owns a spa and makes bank bank bank w/ daily deals sites, structuring deals correctly, negotiating % splits, and capturing every single customer that comes through the door. It's amazing that businesses are too stupid to even get the customer contact info on these deals. Even if you take a hit on the first visit(which you really shouldnt) you have a lifetime customer value after the redeemed coupon. To say that they are only cheap people who never come back is defeatist and a poor excuse and reflects on the business owner being stupid.

I think groupons customer acquisition/marketing costs must be high as they have sales people doing shoe leather work hitting all the businesses. They were probably growing so fast they may not be very efficient at it yet. That leaves opportunity for someone in the future.

The deal sites better quit spamming(not literally but close) and double down on tailoring offers to each customers taste. If I get one more mani/pedi deal i'll scream. Ive opted out of categories too but they arent specific enough. Deal sites seem to hide and not promote their deal filters in order not to limit their potential buying audience for a deal, but they are only destroying themselves. Deals need to be more relevant and laser focused to the individual.

To ask why don't businesses just offer 75% off themselves? Well, WHO are they going to offer it to? The value of groupon was bringing in new customers in a hurry, their customer list was the value. Don't spam your list!

daily deals aren't dead, they'll evolve and adapt, focus, metastisize, specialize and will be very powerful tool in business.

Thanks
1 reply

Signature

In a moment of decision the best thing you can do is the right thing. The worst thing you can do is nothing. ~ Theodore Roosevelt

{{ DiscussionBoard.errors[7803396].message }}

Rearden

10 years ago

I partially agree.

A couple of things though.

1) Groupon and LivingSocial customers are... Groupon's and LivingSocial's cusomters. Think about it.

2) You're going to piss customers off who don't get the deal. Especially the ones who've been long-time, full price-paying loyal customers. The only fair thing to do is give them the deal, too. Point is there's room for the customer to lose trust, thus business.

3) Is a customer who pays $100 for a month of group fitness training fundamentally different from a customer who pays $300 a month for group fitness training? I think so, not to mention how the customer was acquired (through Groupon's daily deal looker list). That's why I passed at the time when I could have needed the volume.

4) Impact to operations. No matter how you look at it, a massive influx of prospects into your business is a risk. A staffing risk, a capital risk, a loyal happy client risk, and a brand risk. The fact is that 95% of these businesses have no idea -- much less any idea or understanding in the value of the list of new clients they got -- how to manage it.

Here's how Groupon should have positioned and executed. It should have been the small businessman's growth partner. Groupon needs to teach businesses the value of the list they're getting, and how they can leverage it to get continued business. In a word, GroupOn salespeople should have become Offline Marketing Gurus versus daily deal peddlers.

Originally Posted by NewParadigm

Groupon did all internet marketers a favor. They proved that businesses would pay up to 50% of gross sales for a customer.

Think about it. Hell, even 25% is huge.

Businesses will pay out the ass for immediate customers.

Businesses were STUPID in managing their groupons. There are plenty of ways for a business to make bank off the influx. If you didnt' negotiate w/ the deal site you were STUPID to agree to 50%. If you didnt negotiate down to 35/30/25% you were STUPID. If you didn't follow up with your customers and get them on a list, or up-sell them you were stupid. Groupon has issues but merchants' business stupidity isn't one of them.

My friend owns a spa and makes bank bank bank w/ daily deals sites, structuring deals correctly, negotiating % splits, and capturing every single customer that comes through the door. It's amazing that businesses are too stupid to even get the customer contact info on these deals. Even if you take a hit on the first visit(which you really shouldnt) you have a lifetime customer value after the redeemed coupon. To say that they are only cheap people who never come back is defeatist and a poor excuse and reflects on the business owner being stupid.

I think groupons customer acquisition/marketing costs must be high as they have sales people doing shoe leather work hitting all the businesses. They were probably growing so fast they may not be very efficient at it yet. That leaves opportunity for someone in the future.

The deal sites better quit spamming(not literally but close) and double down on tailoring offers to each customers taste. If I get one more mani/pedi deal i'll scream. Ive opted out of categories too but they arent specific enough. Deal sites seem to hide and not promote their deal filters in order not to limit their potential buying audience for a deal, but they are only destroying themselves. Deals need to be more relevant and laser focused to the individual.

To ask why don't businesses just offer 75% off themselves? Well, WHO are they going to offer it to? The value of groupon was bringing in new customers in a hurry, their customer list was the value. Don't spam your list!

daily deals aren't dead, they'll evolve and adapt, focus, metastisize, specialize and will be very powerful tool in business.

Thanks
1 reply

Signature

David Duford -- Providing On-Going, Personalized Mentorship And Training From A Real Final Expense Producer To Agents New To The Final Expense Life Insurance Business.

{{ DiscussionBoard.errors[7804772].message }}

Eddie Spangler

10 years ago

Originally Posted by Rearden

I partially agree.

Here's how Groupon should have positioned and executed. It should have been the small businessman's growth partner. Groupon needs to teach businesses the value of the list they're getting, and how they can leverage it to get continued business. In a word, GroupOn salespeople should have become Offline Marketing Gurus versus daily deal peddlers.

This sounds good in theory but in reality how were they going to get massive growth by having their reps holding hands with small biz owners.

There is no way they could train a bunch of kids to be offline marketing experts and have them pound the hell out of phones looking for clients.
That wasnt the business model. Subscribers were looking for a new deal every day from a wide variety of businesses, not necessarily to become loyal with any particular one.

Thanks

Signature

Promise Big.
Deliver Bigger.

{{ DiscussionBoard.errors[7804822].message }}

Young Financier

10 years ago

They said that his severance package was $378.36. That's crazy. But like someone else pointed out, he's far from broke though.

Thanks
1 reply

{{ DiscussionBoard.errors[7803534].message }}

NewParadigm 10 years ago

Originally Posted by Sean T Alexandre

They said that his severance package was $378.36. That's crazy. But like someone else pointed out, he's far from broke though.

wonder if that was half off.
- [ 1 ] Thanks
Signature

In a moment of decision the best thing you can do is the right thing. The worst thing you can do is nothing. ~ Theodore Roosevelt
{{ DiscussionBoard.errors[7803821].message }}

Rus Sells

10 years ago

Here's how Groupon should have positioned and executed. It should have been the small businessman's growth partner. Groupon needs to teach businesses the value of the list they're getting, and how they can leverage it to get continued business. In a word, GroupOn salespeople should have become Offline Marketing Gurus versus daily deal peddlers.

One would think so, but doing that is fundamentally against their business model in the first place.

Their whole leverage against the small business was the fact that they, "Groupon" owned the list and they understood the power of the list. So it's sort of defeats the purpose to teach the business owners the value of the "List".

Not teaching the business owners keeps them dependent upon Groupon. See how that works? lol

Thanks
1 reply

Signature

Review Sentry

Russ --> Aphasia

{{ DiscussionBoard.errors[7804816].message }}

Rearden

10 years ago

Rus -- I guess Ford's strategy of "planned obsolescence" in the 60s worked out OK, too, right?

The problem with not rising above a daily deal peddler is that it becomes a sucker's game.

The brand damage is done to GroupOn for now -- there ain't many suckers left to host a daily deal frenzy anymore, as the potential damage done to the host outweighs the potential short-term reward.

Think if GroupOn shared the list information -- taught the business owner how to leverage it, maximize sales, continue to market to it at little to no expense.

Think of the goodwill created from that. If the business owner saw long-term success, don't you think they'd be willing to go "back to the well," with another or different offer and a larger, fresher list of prospects?

PS: All I know is I wish I shorted the sh*t out of GRPN during the first few days of its IPO.

Originally Posted by Rus Sells

One would think so, but doing that is fundamentally against their business model in the first place.

Their whole leverage against the small business was the fact that they, "Groupon" owned the list and they understood the power of the list. So it's sort of defeats the purpose to teach the business owners the value of the "List".

Not teaching the business owners keeps them dependent upon Groupon. See how that works? lol

Thanks
1 reply

Signature

David Duford -- Providing On-Going, Personalized Mentorship And Training From A Real Final Expense Producer To Agents New To The Final Expense Life Insurance Business.

{{ DiscussionBoard.errors[7804868].message }}

Rus Sells

10 years ago

I might be wrong here so please say so if I am. But I don't think Groupon did anything to teach business owners how to truly leverage the new buyers.

Groupon holds all the power by owning the list, why would they want to teach the business owner how to create their own list using Groupon deals as the medium. They'd effectively be teaching them how not to use them, "Groupon" any longer.

Originally Posted by Rearden

Rus -- I guess Ford's strategy of "planned obsolescence" in the 60s worked out OK, too, right?

The problem with not rising above a daily deal peddler is that it becomes a sucker's game.

The brand damage is done to GroupOn for now -- there ain't many suckers left to host a daily deal frenzy anymore, as the potential damage done to the host outweighs the potential short-term reward.

Think if GroupOn shared the list information -- taught the business owner how to leverage it, maximize sales, continue to market to it at little to no expense.

Think of the goodwill created from that. If the business owner saw long-term success, don't you think they'd be willing to go "back to the well," with another or different offer and a larger, fresher list of prospects?

PS: All I know is I wish I shorted the sh*t out of GRPN during the first few days of its IPO.

Thanks
1 reply

Signature

Review Sentry

Russ --> Aphasia

{{ DiscussionBoard.errors[7804901].message }}

Huskerdarren

10 years ago

Originally Posted by Rus Sells

I might be wrong here so please say so if I am. But I don't think Groupon did anything to teach business owners how to truly leverage the new buyers.

Groupon holds all the power by owning the list, why would they want to teach the business owner how to create their own list using Groupon deals as the medium. They'd effectively be teaching them how not to use them, "Groupon" any longer.

I suspect most businesses will be happy to see the deep discount coupon method go bye bye if it's not already here permanently. Small business owners were probably promised the moon and stars by Groupon, but they have to go in with their eyes wide open. Would the discount alienate existing customers? Would they be able to convert new customers into regulars? Do they understand why Groupon has value to them and could they learn from the experiment by cultivating their own list for all kinds of future offers via mail, email and text? Would they lose money on the deal? I've heard success stories and horror stories from small business people. For the ones who hated it, I think they believe they just bought magic beans and hoped for the best just by signing on. We don't hear the stories of the business people who flat out laugh at Groupons salespeople because they could see the flaws and pitfalls a mile away.

Thanks
1 reply

{{ DiscussionBoard.errors[7805111].message }}

Rollmodl 10 years ago

ABC video report on Groupon. Just like I said, business owners are attracting one time customers at a loss.

Coupon Giant Gets Clipped, Groupon Fires Founder | Video - ABC News
- Thanks
Signature
Your Video Magazine for Local News and Entertainment
{{ DiscussionBoard.errors[7808925].message }}

aduttonater

10 years ago

Good... their emails are so annoying.

Maybe they can change their business plan and pull themselves out of the water.

Thanks

Signature

http://newinnovativeenterprises.weebly.com

{{ DiscussionBoard.errors[7804978].message }}

Groupon CEO Fired...daily deals is a "flawed model"

Trending Topics

Multiple Marketing Techniques for Site

Silly Walks Day

How to optimise product pages on your Google Merchant listing

ICYMI: Google Ads had an outage

Why are brands finding it harder to succeed on Instagram?