Groupon: the Opposite of CRM

There’s been a lot of noise over the last few months about Groupon, the noted group-discount-buying site. As befits any Silicon Valley company, the noise wasn’t really about the company’s product but instead about the size of the potential offer that a suitor made to acquire it. In December, Google reportedly offered $5 to $6 billion for the company, according to reports, and was turned down, much to the astonishment of many. Personally, I would have taken the $5 billion and built the combination airplane museum/batting cage/winery/bungee jumping park of my dreams, rather than waiting for Google to chuck $300 million of its own money into developing a clone, but hey, what do I know?

Here’s what I do know: I would have sold if only because Groupon is, ultimately doomed. It’s doomed for several reasons – it’s not particularly great financially for the companies whose products and services are offered on the site, it plays at being “social” but it’s not, it’s not likely to find an endless supply of partner companies willing to pump loss leaders into the process – but one reason above all suggests it is soon to be in decline.

It attracts an audience that is largely apathetic about the customer experience, and it reinforces in them behaviors that make them less desirable as customers.

Groupon is what I call anti-CRM: it effectively trains consumers to bypass all the things we hope to establish with CRM (loyalty through good service, personalized offers, and a relationship with the customer) and instead make decisions based entirely on price. They come to Groupon to get a good price, they buy from the vendors on the site based on price, and they go back to Groupon to hunt for the next low price. They’re also less likely to buy additional items or services.

Are you likely to hold on to these customers when there’s no discount in place? Maybe, but I suspect that the moment your competitor offers a discount they’ll be out the door. And even if you wanted to attract them back, you have no customer data. This is a big problem – why run a marketing campaign if you can’t even create a record of the people you’re marketing to with the big discounts?

So it does nothing for loyalty, provides you with no useful data and enables you to reward the least desirable customers for a one-and-done customer lifecycle. If you believe in CRM as an effective customer concept, why would you use Groupon, again?

Last month, Facebook rolled out Facebook Deals, a Groupon-ish feature that promises to sap some of Groupon’s potential audience, if not put a serious dent in the company’s revenues.  At the very least, Facebook is good at collecting data about people (Lord knows!) and they are exceptionally good at putting a social spin on things.

In a real way, Facebook is thus far better at CRM than Groupon. Perhaps I should ask Mark Zuckerberg if he’s interested in funding a combination airplane museum/batting cage/winery/bungee jumping park.

10 thoughts on “Groupon: the Opposite of CRM

  1. Chris,
    First things first – WELCOME TO OUTSIDERS! I am sure that Clint, Jan and Nick have talked to you about the rules. When the dust settles on the press release, Martin and I will take you out for a drink and give you the inside scoop. I had a lot of fun writing here, some great banter with Martin and others as well. Clint and I go way way back – but that is a post for a different day.

    Second part – great post, and this rings very true, from a CRM perspective. That said, from a business and customer perspective, deals and discounts are what customers are asking for. The IBM study which I wrote about states it quite clearly (no link bait, on my first comment to you). So, what exactly is the answer? Playing devils advocate for a quick moment – could Groupon used right attract people to see what else you have to offer? Is it any different from the ‘loss leader’ in the Sunday paper flyers?

    You know me and my perspective on things, but isn’t it possible that Groupon will bring people to your establishment who might never have come before and you can show them what you are really made of? Take a look at from a SugarCRM perspective – Sugar gives away software to thousands of people every month, who they do not really have a relationship with, in the hope that people will like what they saw, and will come back for the real stuff.

    The ‘R’ is critical to loyalty and the future, Groupon is dangerous, but if used properly, it might offer something.

    Just a thought – welcome to Outsiders – Mitch

  2. Thanks, Mitch!
    There’s every possibility that some businesses will pick up some customers from Groupon, just as from any other coupon offer. However, a coupon in the Sunday paper costs the business a lot less, and in a lot of cases is an attempt to get customers to switch brands in the same stores they already shop in.
    And thanks for the welcome – this blog has tradition (or as much as a CRM blog can have) and I plan to do my best to uphold it. Thanks to you and Martin for setting such a sound foundation!

  3. This is an excellent analysis. Thanks for summing it up so perfectly. You nailed our experience (as a vendor) perfectly. Wish I would have known you six months ago!

  4. Pingback: Groupon is *Not* The Anti-CRM « Social Media Musings by Tom Humbarger

  5. just a quick comment in regards to the business model followed by groupon, I personally doubt about it’s ability to make it a sustainable business model, specially since it eats away at the credibility of any given brand participating, thus reshaping the value-for-money perception of the public towards that particular brand. As an end user I ask myself, why should I eventually pay full price for this product which I am getting now at less than half the price? the groupon business model may just awaken a sense or irony in a consumer segment and substantially lower the perception of value of any given brand. For anyone whose brand is an important part of it’s competitive advantage I’d think this is food for thought. Going back to my comment above, “I doubt about it’s ability to make it a sustainable business model”, well, maybe it was never meant to be sustainable at all. I guess time will tell.

    • Great comments, Hideki. I agree forcefully with your assessment. I assume you too would have grabbed the $5 billion and run for the hills (or you new private island, or whatever)?

  6. I personally would have gone for the “basketball-dome/gourmet-filled/heliport/personal-paradise-island” (with MJ as personal trainer) instead of the “airplane museum/batting cage/winery/bungee jumping park”. LOL. But the truth is that with last week’s introduction of Google Offers and the ever changing scope of the market is difficult to predict where things are going. Yet another point to make, perhaps, is that businesses nowadays don’t necessarily aim to be created with a 100 year view ahead, if as an institution your target and purpose was fulfilled in 10 years and you fold before it starts to get ugly I see it perfectly, from my pragmatic point of view, possible and reasonable. Scratch and start a new exciting venture again. “Cost-competitive” businesses can be as profitable as “Customer centric” businesses, I just doubt it’s sustainability.

    • That’s a really great take on it, Hideki. You’re right – it may be more pragmatic, short-term, to build a cost-competitive company and then get out while the getting is good – but most businesses envision that exit strategy as a sale. I wonder if the challenges for the acquiring company of altering culture to bring the acquired property into alignment with a more customer-centric approach will factor into acquisition pricing. I think that would be a smart thing to consider – but I also think most businesses never consider such elemental things during acquisitions, often to their detriment.

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