5 reasons Groupon might be only a passing fad
Social couponing, which blends social media with marketing via targeted online discount offers, has become big business. Companies such as LivingSocial® and Groupon® have shown explosive growth as consumers have flocked to their online coupon platforms, which incorporate deep discounts, targeted mobile-device technology and email marketing to promote local merchants to potential customers. Groupon in particular has ridden the top of this trend, amassing 35 million users nationwide and even rebuffing a $5 billion buyout offer from Google® before going public.
It's an impressive business record to say the least, but can it last? Although the technology of social couponing is new, the marketing model isn't — and some longtime marketing executives are dismissing Groupon and its competitors as merely another passing fad. Here are five reasons why they're skeptical:
1. Short attention spans
In today's fast-paced world, consumers' attention spans are short, and they quickly move on to the "next big thing," according to Scott D. Goldberg, an instructor in the University of Phoenix MBA program and a marketing industry executive for 30 years.
"My opinion of these types of social couponing companies is negative, and a lot of the marketing trade publications I've read seem to agree," he says. "I believe this is a passing fad that will shortly outlive its product life cycle."
Following the huge success of companies such as Groupon and LivingSocial, scores of copycat companies have cropped up — and that means trouble for the whole platform, according to Goldberg. "I think this market will quickly become saturated, which often happens with this type of promotion," he says.
3. Spam overload
Social couponing companies send out "daily deal" emails to registered users, sometimes several of them a day. With so many emails coming in, it's easy for consumers to start tuning them out, Goldberg says. "I believe that constantly hitting the consumer with these email offers is a turnoff for them," he adds. "As they see more and more of these email offers come in, they just become synonymous with spam."
4. An improving economy
Companies that offer deep discounts to consumers, such as Groupon, do well in an economic downturn, but as the economy continues to improve, merchants will return to other more traditional marketing methods to attract business, Goldberg argues. "There is a strong correlation between coupon use and downturns in the economy," he says. "This has been well proven over the years."
5. Poor cost-benefit ratio
The "deal of the day" format and deep discounts (50 to 90 percent) offered on most social couponing platforms can offer poor investment return for merchants, especially the small businesses that tend to use social couponing services the most, according to Goldberg. "Often smaller merchants such as nail salons will participate [in Groupon]," he says. "However, since they are small businesses, they are often overrun with responses. As a result, consumers become annoyed. This is not a positive way to build customer relations."
LivingSocial® is a registered trademark of LivingSocial Inc.
Groupon® is a registered trademark of ThePoint Inc.
Google® is a trademark of Google Inc.