Are daily deal sites obsolete?
Presented here for discussion is a synopsis of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
Groupon skeptics have never been in short supply. Critics predicted it was only a matter of time before it would all collapse. With Groupon recently acquiring LivingSocial, once valued at $6 billion, for $0 and its own struggles, that time appears to be now.
“For some retailers, it did work because it allowed them to sell some of their soon-to-be-perishable inventory and for some there was always the hope they would get some people who would be non-users to suddenly try a product or service and then become regular users at full fare,” says Wharton marketing professor David Reibstein. “To the degree any of that happened, it worked for them, but I am skeptical about whether it happened very much because often the people who were attracted were the deal-prone customers, and they are not soon to become loyal customers.”
One approach for Groupon, says Eric Clemons, Wharton professor of operations, information and decisions, would be to refocus the model entirely away from its pursuit of mass market — or indiscriminate growth — and instead encourage trial by influentials. He said, “It’s a much smaller business, and it doesn’t pretend to be a form of group buying, but is a form of advertising in which we give attention to influentials. … This would offer great value to sellers, especially those in growth markets.”
The path to a successful business model, says Prof. Reibstein, lies in using data to differentiate between customers who are price-sensitive and those who are not so businesses are not forgoing revenue from customers who would just as willingly pay full fare.
Part of the problem with Groupon, however, is not knowing if you’re “cannibalizing your existing customers” or giving a discount to customers who would have bought from the business anyway,” said Prof. Clemons. Also, there’s no guarantee new customers would ever come back without a discount.
Moreover, intermediaries such as UberEats or OpenTable have better data to avoid promoting deals to existing customers. Prof. Clemons said, “If Groupon does not improve its business model quickly, it may soon become obsolete.”
DISCUSSION QUESTIONS: Do you see a way for Groupon to reposition its business model for sustainable growth? Will a more targeted versus volume-driven approach work better?