Friday, March 1, 2013

Does Groupon know who its customers are?

Some people are surprised to learn who Google's customers actually are. Most people think that Google's customers are the people who enter search terms in web browsers, watch videos, and use other Google services. Nothing could be further from the truth. Google, Facebook, and the like don't have users as customers. These companies' actual customers are the advertisers who pay them money to put ads on the services. Therefore the companies tailor things for the benefit of their customers.

Knowing who your customers are seems like such a basic thing. But some companies just don't get it.

Groupon just fired its CEO, Andrew Mason. It turns out that Groupon under Mason had a whole slew of problems. But I'm not sure if Mason's ouster will take care of Groupon's basic problem - namely, that Groupon pays more attention to its users than to its customers.

Groupon's users, of course, are the people who sign up to get deep discounts for products and services.

Groupon's customers are the companies who provide those products and services at deep discounts. The customers want to see business growth through their association with Groupon.

Perhaps, as Martin W. Smith notes, the entire model is flawed.

Groupon’s 50% price cuts were and are the very definition of a bad marketing idea....

Value perceived is value created.

What happens ... when you are at a party and someone tells you they just ate at your favorite restaurant on a Wednesday night, ordered your favorite dish and got the same meal you buy on Saturday 50% off?

Word-of-mouth advertising, normally the best recommendation engine always, just worked AGAINST the restaurant foolish enough to believe customers gained with such steep discounts can ever be profitable. They won’t and can’t.

While some companies have had success with Groupon deals, bad news travels quickly, such as the story of Back Alley Waffles from last July.

A Washington, D.C., restaurant named Back Alley Waffles claims it is going out of business because it had to wait too long before Groupon sent it the cash it raised from one of the daily deal site's email offers.

How long? According to Back Alley Waffles, MONTHS.

Does Groupon then electronically deposit the money that the customer paid them for the coupon into the business' bank account overnight like credit card companies do? No. After taking a big chunk of the money as its share, Groupon holds on to the business' share, using it while the business waits. And waits. And waits. And waits.

After about a month, Groupon issues the first of three payments to the business. By check. Then it has to "process" the check, which can take up to ten days. Then it snail mails the check. A month later, the process is repeated for your next installment. Then, a month later, the process is repeated again for your final installment.

So how did Groupon respond to Back Alley Waffles - Groupon's customer?

Mr. Nelsen initially approached Groupon and our merchant advisors structured a deal to best encourage overspend and help his business grow. We also required Back Alley to cap the number of Groupons sold to ensure the feature was in the best interest of both consumers and the merchant. We scheduled his feature on his terms, on a date he selected, under a contract he reviewed and signed. According to our records, only 132 Groupons, or 18% sold, have been redeemed since Back Alley ran two months ago, and Mr. Nelsen has received 2/3 of his share of the revenue to date. We always hate to hear that a local business has decided to close, but the math does not point to Groupon as the cause.

So the Groupon salesperson was just a helpful person who presented a reasonable campaign to Back Alley Waffles. Well, an anonymous former Groupon employee reported to TechCrunch that some salespeople look our for Groupon customers, but some don't.

One very common phrase is in regards to the merchant “freaking out,” and this happens every single day. What this is almost always in reference to is a merchant who can’t handle the traffic that they end up getting, forcing a live cap of a deal (almost always because it benefits the sales people not to cap it, obviously, and they advise merchants to sell more Groupons than the business is able to handle, mostly by low-balling the estimate of how many will sell)....

[O]wners care about their businesses, and sales people care about their bottom line.

It's always true that a salesperson and a customer are motivated by different things, but ideally they find themselves in a win-win situation where the salesperson gets commission and the customer gets whatever the customer wanted to buy - widgets, increased business, whatever.

But when the salesperson has to do things such as "low-balling the estimate of how many will sell," then you have to ask if the business is truly serving its customer.
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