Would the further localization of Groupon still work?
Ok, so its been a while since posting around here, there has been a lot going on in the LBS world, way too much to effectively catch up on here in a single post. I’ve been meaning to write about the whole background location coming on iPhone, Metacarta, Cityvoter, MyTown and Anttenna, and Socialight‘s new DIY LBS platform all of which seem pretty damn interesting and worthy of a closer look, but this whole time management thing keeps getting in the way.
So I’ll just dive back in with one of the ones that I have been wanting to investigate further, just because it seems to come up the most and I’ve been negligent in checking them out… it’s Groupon and what I’ve heard more than a few times about them growing into a big player in the future of location based marketing.
So I finally spent two minutes signing up for Groupon and loaded up their iPhone app. As a consumer it’s pretty damn easy, simply register and tell Groupon what city you live in and every day they tell you about a super duper new deal that you can get at an area business… like a yummy Cheesesteak sandwich for $4 instead of the regular $11, or an $88 round of golf for $42. As with most anything there is some fine print, but it doesn’t seem too bad, and the savings often pretty significant.
For businesses the biggest benefit is driving sometimes huge amounts of foot traffic through the door to take advantage of the deal. Even if they make less (or no money) because of the deep discount, a bunch of customers being driven through your front door is usually not such a bad thing… and did I mention that unlike regular coupons, there is no upfront costs, Groupon just takes their cut once enough customers buy the deal through the Groupon website.
Coupons have been with us for over a century, and Groupon is just coupons on digital steroids with a few differences besides the no upfront costs for businesses. Unlike traditional coupons with Groupons there is just a single offer per market per day… so there is a sense of scarcity and ‘getting a deal’ created, and arguably Groupon gets customers a bigger discounts than most comparable paper coupons. Deals are marketed both by Groupon itself, but also since a minimum number of buyers is necessary for anyone to get the deal, customers are encouraged to promote the deal to their friends adding another powerful social marketing partner in the customers themselves.
So there you have it, a quite successful example of a company using a unique approach and leveraging digital technology to drive good old foot traffic into a brick and mortar store. Online driving offline… woo hoo! The power of social networking… you betcha! Digital cutting out the middleman once again… yep. But is this really a killer location based opportunity? I am not so sure.
In the general sense, the offers are available on a market by market basis so in that sense its a location based offer, but only in the most basic sense. It’s not what I’d call hyper local or even local since they seem to be targeting large major metros… and from one point of view the lack of submarket geo location can be seen as a detriment… that $4 cheesesteak sandwich that is usually $11 is great but the heck if I am going to hop the subway ($4.50 round trip) for an extra 20 minutes during my lunch hour to go 25 blocks out of my way to save $7 on a sandwich… and that’s the problem I’ve had with many of the offers I’ve seen from Groupon so far: nice savings, but often not products relevant to me or convenient to places I go. The company seems to argue that this is kind of the point, getting people to go new places and try new things by dangling the carrot of a super low price in front of them.
But for Groupon, going more local than they currently do could begin to get tricky. In many ways their current model and going more local seems to work against one another… the web lowers barriers to make it easier and easier to get more and more people involved, achieving the big numbers of buyers that Groupon needs to be effective. Creating more locally targeted offers is great for potentially increasing relevance, but it also creates more and more offers diminishing the impact of any one offer, both in the marketing ‘wow’ factor and the number of folks who may be virally promoting any one offer. Too many friends ‘promoting’ their area deals would run the risk of devolving the offers into something that looks more like spam than a can’t miss opportunity, and seemingly the amount of Groupon promotion behind any one offer would also be diminished.
I also wonder how much of a role redemption rates play into their model… as in someone bought it because it seems like a cool thing to try and for not much money, but never get around to redeeming it. Stats seem to vary about redemption rates with gift cards ranging from 4% to 15%+ of gift cards going un redeemed, and 33% of the value never being redeemed (tower group). And you’d think that the potential for un-redeemed Groupons may even be higher for something like a $4 cheesesteak sandwich versus say a $20 Best Buy gift card. This is another area where more localization may work against their current model, the closer and more convenient a retailer is, the less likely that they Groupon will go un redeemed.
It sounds like increased localization is already on the Groupon roadmap, it will be interesting to see how they do it and if it’s a success. The amount of buyers they can get excited and on board for deals sometimes seems pretty amazing. I suspect there is a certain snowball effect derived from viral components of online social networking marketing that drive those large numbers of buyers today… the question will become how they’ll continue to exploit that when deals are geographically more fenced in, inherently limiting (or at least muddying the waters of) who is being marketed to for any single offer.
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