Groupon’s command of the daily deal sites market is impressive to say the least. Since launching in November of 2008, it has expanded to serve 22 countries and hundreds of cities with a total of 11 million subscribers worldwide. Despite its commanding lead on other group buying competitors, the percentage of traffic from organic search is very little. According to Compete, nearly all of Groupon’s traffic comes from email and social marketing (e.g. Twitter, Facebook) referrals. Clearly Groupon’s brand is a very powerful and trusted source for attracting local merchants and deal crazed consumers. If Groupon’s brand or its product (i.e. deal vouchers) was diluted in any way, the effects could therefore be devastating.
Reducing The Urgency To Buy Now
Groupon instills a sense of urgency and exclusivity into its product to ensure a killer, time-sensitive deal that sells out within a single day or two. The flash sales aspect of a deal is paramount for getting buyers to refer others to Groupon and ensure that the minimum number of sales are achieved to activate a given deal. Expanding the time frame to purchase any deal reduces the incentive to share it and negatively impacts its perceived value. Simply put, if a specific deal voucher that you want can be purchased up to a year after the actual deal offering ends on Groupon, why should you buy it now? By increasing the window of opportunity to purchase any deal, group coupon resellers and deal voucher marketplaces could negatively impact Groupon sales.
Potential For Voucher Fraud
As more Groupon resellers emerge, the number of fraudulent voucher sales will inevitably increase without a regulatory mechanism in place to ensure the authenticity of deal coupons. This should be another serious concern for Groupon as fraud can also dilute the perception of a trusted brand. If the incident of voucher fraud increases enough through these deal marketplaces, it could influence the initial coupon buyer’s decision. That is, the reseller market provides buyers with an easy option to recoop their funds in case they decide not to use their deal. Hence, if Groupon’s are being counterfeited and sold in deal marketplaces to a high degree, buyers may simply choose to purchase from LivingSocial or another group buying site competitor to ensure they can easily resell their vouchers.
Higher Coupon Redemption Rates
Buying and reselling Groupons will most likely drive the coupon redemption rates much, much higher and result in greater expenses for the merchant. Currently Groupon takes 50% of all voucher sales it attains for merchants leaving them with only 25% of what they’d normally charge for their service (see group buying business model). Merchants that use Groupon are just barely able to break even (see Groupon calculator) for a deal offering because of the current voucher redemption rates. If the secondary market causes coupon redemption rates to climb in the face of an already staggeringly high 50% commission fee, merchants may be forced to choose a less expensive alternative to Groupon. If that occurs, Groupon will have no other choice than to lower the fees it charges to clients, unless they 1) change the terms of their service to prevent the reselling of their coupons, 2) they enforce a per coupon service fee for all sites that partake in the reselling of Groupons, or 3) they enforce option #1 and create their own exclusive secondary marketplace for users to buy and sell their Groupons.
More Savings Per Deal
Some deal coupon marketplaces require that sellers cannot list their voucher for more than its original price. Others coupon reseller sites do not require this allowing the buyer to actually earn money by reselling their coupons. So unless the group buying site limits the number of vouchers each person can buy, one could corner the market so to speak for an exclusive deal and then resell the vouchers at a profit elsewhere. This may not have that great of an effect on the group buying site itself but it could manifest more problems for the merchant who has to redeem them. In contrast, the alternative of offering deals at lower prices through the resellers market could definitely impact Groupon sales. Buyers may be more inclined to pass on a deal if they think they can obtain even greater savings by purchasing at a coupon marketplace later.
Potential For Subscriber Loss
Email lists are the life’s blood of the daily deal site business model. Email marketing offers much higher click through rates and conversions than social marketing channels like Twitter and Facebook and it’s probably the most important asset for Groupon. The possibility exists that the coupon marketplaces could become the focal point for the consumer rather than the group buying sites if all the buyer is concerned about is obtaining a better price for each deal. Thus, consumers might choose to opt-out of subscribing to Groupon and opt-in for the coupon marketplace. One point of hesitation for doing such a thing is the possibility of being defrauded when purchasing second hand deals. However, this may not be a real concern for marketplaces buyers on sites like Lifesta where coupon authenticity is guaranteed and full refunds are provided.
Final Thoughts
In summary, the effect reselling deal coupons could damage the group buying market by 1) diminishing the time-sensitive nature of a deal, 2) decreasing the buyers incentive to buy now and refer their friends, 3) providing a venue for which fraud could be perpetrated and therefore negatively impact a brand, 4) changing the focal point to the coupon marketplaces and losing valued email subscribers, 5) offering deals a lower prices, and 6) driving costs for merchants higher through elevated voucher redemption rates. For these reasons it would be in Groupon’s best interest to either work with the coupon marketplaces to verify the authenticity of its vouchers that are resold, take a stand against them, or launch their own secondary coupon marketplace. Regardless of which strategy Groupon adopts to address the issue, their actions will have wide reaching effects on the deal voucher market.
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