Is Groupon Past its Sell By Date?

One of the fastest growing tech companies in the history of the planet appears to have lost its shine.

Storming across the US and into Europe in recent years, Groupon arrived in a blaze of glory, a consumer champion promising the customer unbelievable discounts and, for the retailer, unrivalled access to bums on seats.

In the midst of a recession, businesses flocked in droves, discounting their products and services by as much as 80%. Customers followed suit, buying at alarming rates. These bargains were too good to miss.

But they have a fatal flaw in their business model and, I suspect, the cracks are beginning to show.

It's a simple crack, right at the core: No business can afford to discount by 80% permanently.

So in order to succeed and grow, Groupon needs an ever extending supply of businesses from which to draw and they are clearly running out. This much is evidenced by their repetition of deals of seemingly marginal interest. Do we really need another 60x80 canvas print, or an electronic cigarette lighter for £18.99? Hold me back.

Groupon may give businesses access to the discount seeking masses. But who really wants customers like that?

Sure, for a while you'll be really busy, and some will stay as customers for a longer term, but for the vast majority, it will be a one hit wonder.

In an earlier blog I wrote about how discounting can work for the business, as long as a strong degree of planning goes into the deal. And that still remains true.

However responsible and sustainable business is a two way street. It always has been.

If businesses are expected to provide a living wage, then consumers must be prepared to pay a realistic price. This is responsible behaviour for long term sustainability.

As a matter of principle, we are horrified by stories of sweatshop practices and the exploitation of children in the pursuit of even cheaper goods. Then on Saturday we shrug it off, march down to our local supermarket and spend a tenner on four T'shirts, which probably cost 25p to make.

Groupon's approach is pushing us in the same direction.

How long before these businesses, having cut their income by 80%, start struggling to survive?
How long before they start cutting back on staff?
How long before they shut their doors altogether?

Ultimately it's the consumer who pays for the cost of marketing in the price of the goods and services. Groupon has reversed that equation, and now it's the business. However 80% marketing costs is too great a burden for even the most successful of businesses to cope with. And it will be the consumer who pays the ultimate price with less market choice, higher unemployment and gross deflation.

So the next time you grab a bargain, give just a fleeting thought to how you would be affected if you had to give 80% of your income away and consider, even for a moment, that there may just be another way. And if you do go ahead and press the button, enjoy your experience of that business: it may well be your last.