Groupon’s First National Deal Blows Out

Discussion
Aug 23, 2010
Tom Ryan

By Tom Ryan

Groupon Inc.’s first nationwide deal — an offer from the Gap for $50 worth
of merchandise at $25 — sold 445,000 vouchers for the retailer last Thursday,
bringing in $11 million in revenue.

Selling at a rate
of 10 vouchers per second and overwhelming Groupon’s servers, it was by
far the daily-deal discount site’s biggest seller yet. The previous record
was 41 a minute for an architectural tour of Chicago.

With more than 10 million
subscribers reaching 85 cities, Groupon had previously only focused on daily
discounts at local merchants, often small businesses such as restaurants, gyms
and spas.  But the deal doesn’t signal a change
in strategy.

"Local brick and mortar businesses are the foundation
of Groupon, and that isn’t changing," Julie Mossler, Groupon’s spokeswoman,
told Mashable. "Many of our customers have asked for a national
deal, so we’re testing the waters with Gap. It’s a perfect back-to-school
deal, and a great way for us to reach subscribers in Gap cities where Groupon
hasn’t yet launched. Customer feedback (positive or negative) will be
taken into consideration when we determine if we’ll do partnerships of
this scale in the future."

Analysts questioned whether the marketing gambit
was worth it for the Gap. Mashable estimated
that with sales of around 300,000 Groupons, Gap lost $7.5 million in revenue
on the $25-for-$50 coupon deal.

Patricio Robles of digital marketing publisher
Econsultancy, blogged, "Successful
businesses don’t simply move product; they acquire profitable customers. …
The risk for business relying on group buying sites like Groupon is that they’re
moving product (and lots of it) but many may not be acquiring profitable customers."

But
one blogger on Crain’s Chicago Business website believes
the deal enabled Gap to reach the many younger shoppers that Groupon has attracted.
Wrote the blogger, "The Gap knows what they are doing and getting into
with the offer. Their demographic is not people that read the newspaper. It’s
about time Groupon expanded into the national scene. Yes, smaller businesses
have been overwhelmed by their response but it only proves that this type of
advertising works and everyone is looking for a good ‘deal’. "

Discussion Question: What do you think of the potential for national deals
from daily-deal websites such as Groupon?

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18 Comments on "Groupon’s First National Deal Blows Out"


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Bob Phibbs
Guest
10 years 8 months ago

“Gap lost $7.5 million in revenue on the $25-for-$50 coupon deal.” It is delusional that profitable customers will return after you’ve trained them with such “deals.” I’m sure Circuit City’s former CMOs would also have jumped on this as a silver bullet.

Marge Laney
Guest
10 years 8 months ago

Sounds like Gap spent $7.5M to acquire 300,000 new customers, or are they just bottom feeders who wouldn’t buy full retail on a bet? It’s an interesting experiment for them and it just might have been worth the gamble if what the Crain’s blogger said is true. Gap is definitely struggling with traffic and maybe this will get some new customers in the door.

Anne Howe
Guest
10 years 8 months ago

I would like to think the The Gap has the marketing power and a plan in place to build relationships with consumers who decided to take advantage of the Groupon offer. The shopper engagement opportunity may not be worth $7.5 million loss of revenue initially, but in the long run, if managed well, could be well worth the effort.

I’d certainly be interested in hearing from consumers about the shopping experiences they’re having while redeeming the offer. I wonder if they have exit interviewers in place capturing insights, data, and attempting to begin some kind of shopper relationship beyond this offer?

As for Groupon, big splashy national offers is indeed a good way to open new markets for more local offers. I’d rather participate in Groupon to help support customer development for businesses around my local geography. But this effort does prove that online offer broadcasting is a legit form of “reach media” in today’s economy.

Gib Bassett
Guest
Gib Bassett
10 years 8 months ago

It’s been widely commented that services like this do nothing to help retailers, restaurants and other businesses develop better relationships with their customers. It is all about saving a buck, which is great for helping to smooth revenue or move inventory during slow periods. So as a tactic that can help drive business during slow periods, it’s immensely useful. But from a marketing perspective, businesses need to keep an eye on loyalty and generating repeat business independent of great deals otherwise the value proposition becomes all about price.

David Dorf
Guest
10 years 8 months ago

Groupon makes a game of tempting people to try new offers while providing safety in numbers. For retailers, their campaigns can only be successful if there’s a good chance of converting the new customers into loyal ones. I don’t think national vs local really matters here. It will take some time before we can judge whether the Gap campaign acquired new customers, or just gave away margin.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 8 months ago

The coupon for Gap on Groupon is not what made them successful initially and it will be interesting to see if they just become another junk email with so-so savings or continue to share amazing local deals that put them on the map.

I am sure investors in Groupon are pushing them to drive revenue by including national offers and that makes sense. They will just need to find a balance between the two. If not, Groupon will be another great idea that becomes ordinary instead of staying extraordinary.

Tony Kostick
Guest
Tony Kostick
10 years 8 months ago

BTS is about generating traffic and clearly Gap achieved that with Groupon. Interesting to compare the $7.5M to other options Gap had available. For one, Gap knew if someone paid $25 they are certainly coming to the store so there’s value right there. $7.5M for 445,000 shoppers?

What’s the shopper’s experience at the store? That’s what I’d love to learn.

Cathy Hotka
Guest
10 years 8 months ago

The under-25 crowd loves Groupon, so combining its brand with the Gap brand should have positive branding results for Gap. It should be interesting to track what kinds of return traffic result.

Ben Sprecher
Guest
Ben Sprecher
10 years 8 months ago

The problem with any un-targeted coupon is that you end up giving the wrong deal to many (perhaps most) shoppers. In the case of Gap, my un-scientific survey of friends who jumped on this offer suggest that nearly every purchaser was already a Gap shopper. In fact, many people told me that they didn’t sign up because they didn’t shop at Gap!

That said, Gap has the potential to get much more from the program than just new shoppers, increased spend by existing shoppers, and (cynically) breakage from some buyers. If Gap can get these shoppers into their CRM system, they can begin to track longer-term sales numbers, margin, and other key business drivers. Then, they’ll be able to take stock of the true impact the offer had on shopper behavior.

I’m interested to see if, when all is said and done, the $25 in discounts (plus Groupon’s fees, less breakage) pays for itself in increased spending by the redeemers.

Lisa Bradner
Guest
Lisa Bradner
10 years 8 months ago

Same old promotional strategy, different day. You know it’s too good a deal when it gets that kind of response. BTS has always been a time when retailers slit their own throats to drive sales, this doesn’t strike me as any different.

Glad Gap got the chance to try out the medium but I do wonder about providing such a rich discount. I hope it brings them new customers but as several people have already pointed out, it’ll only work if their merchandise and store experience measures up.

Roger Saunders
Guest
10 years 8 months ago
I looked at the Groupon offering for the GAP last week, and thought to myself, “This is going to blow the doors down. Wonder if the strategy will work for them?” Obviously the GAP generated traffic and sales. They are in a position to address how they came out in the C.R.A.F.T. steps that they may have in play. It would be interesting to understand how their consumers/shoppers acted on: C – CONVERSION from another retailer, particularly during Back-to-SchoolR – RECENCY and whether GAP brought back an ‘absent’ ConsumerA – ACQUISITION: who and what number were new consumers for GAP?F – FREQUENCY, did GAP incentivize loyalty and added tripsT – TICKET: did the check jump on this day last week? Seldom do sharp Marketers attempt to capture/bolster just one element of Consumer Behavior with their promotions. GAP, I’m sure, has a feel as to how this worked out. And, there have to be a number of vendors and local taxing districts that saw this one as a good play. The rest of us will see… Read more »
Jonathan Marek
Guest
10 years 8 months ago

Gap and Groupon had better be prepared to understand how much of this traffic is truly incremental. The economics of this deal are complex:
– some portion of customers will be incremental, others would have come in anyway
– of those that are incremental, some will come back again (incrementally) and others won’t, or won’t without another deal (deal seekers)
– for some customers, who would have come in otherwise, you gave them $25 they would have spent otherwise (or, if they would have spent ~$25 not $50, you gave them an additional $25 in goods)
– the breakage on unredeemed coupons is pure profit

If Gap is just trying out Groupon, as I suspect they are, it’s not a big deal. But if this is to become a real marketing tactic, they had better understand the true economics.

Phil Rubin
Guest
10 years 8 months ago

Last week it was Groupon and this week Gap is out with its “Gap Give and Get” promotion which is only 35% off (30% to the customer and 5% to a non-profit). Gap’s brand is less than relevant these days with a lot of consumers and their aggressive promotion is not going to hurt them. For Gap it’s volume and an opportunity to acquire new customers, much as the rest of the comments reflect. Plus they likely got some incremental lift beyond the $50 so the loss might not be as great as analysts think (hopefully Gap and/or Groupon will let us know!).

The other interesting thing to consider is whether Gap comes back to Groupon. While Groupon is hot, it remains to be seen whether marketers will return to spend money on a breakage model for customers that might not be profitable beyond the initial promotional transaction.

In a soft economy it’s one thing, in a better retail environment 50% markdowns are more questionable.

Doug Stephens
Guest
Doug Stephens
10 years 8 months ago

First of all, I’d like to understand how we’ve arrived so easily at the 7.5 million dollar loss. Is the assumption here that there were absolutely no incremental store sales resulting from this? I think that’s flawed reasoning and at best questionable math.

Secondly, although it’s tough to measure, there has to be some accounting for the PR value of this promotion. This was THE retail news story of the day and we’re still talking about it. What’s that worth? Lets just say lots.

Lastly, there’s an increasingly immutable law developing as it relates to brands and social marketing; that being that Pioneers are winning. Brands that invest in and explore new social marketing vehicles are performing better than brands that don’t.

Between this and their foray into Foursquare, The GAP has clearly recognized that social marketing is a key path for the brand.

So, I applaud the move–whether it pays for itself short term or not.

Ciri Raynor Fenzel
Guest
Ciri Raynor Fenzel
10 years 8 months ago

I too applaud the Gap for being the first national brand to try out this medium. Group Buying is one of the top five trends in social media right now–why aren’t more national retailers experimenting with it? I bet they will be now. All signs indicate that the group buying trend will only increase in popularity over time. In fact, Groupon asserts that 97% of merchants featured on the site want to be featured again, which further demonstrates just how much demand is out there.

What is also interesting (and worth keeping an eye on) is the host of group buying software-as-a-service products cropping up. Will we see retailers creating their own Groupon programs? My belief is a definite yes.

Negating group buying as a viable social media tool to open the doors to new customers and drive traffic in store, would be to ignore the needs, expectations and demands of a new generation.

Steve Montgomery
Guest
10 years 8 months ago

The cost of generating the sales may seem high but will depend of a variety of issues. Including the following:
– Did the GAP acquire new customers?
– Did the GAP get some former customers to return to their stores?
– Did the customers buy more than the $50 and thus mitigate some of the cost?
– Of the new customers what is their conversation rate to on-going customers?
– Did they increase the likelihood of former customers increasing their spend with The Gap?

The issue is not the cost (although the retailer has to be able to fund it). The real question is the return on investment. Given some of the earlier comments, I believe this test is worth the attempt by both Groupon and The Gap.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 8 months ago

The same pubescent mentality that drives millions of clicks on the latest idiotic YouTube offering will drive Groupon. It’s viral. Teens and twenty-somethings constantly communicate with each other in what I call “randomly-organized electronic” ways to talk about music and many, many other topics. So now they can talk about buying stuff – retailer brands and product brands. It’s not a huge leap.

Bob Phibbs
Guest
10 years 8 months ago

This discussion got me so concerned for retailers profitability that I asked my Facebook Fan members if any had used Groupon. Within an hour I had one and used it as the basis of this blog “Groupon: Worst Marketing For Your Local Business – Case Study

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