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Is Crowd Clout here to stay?
Engage Research | October 11, 2012
In the last few months I’ve joined the Groupon crowd. I used the discount voucher site to treat my wife and daughter to a pamper day and sent my son off drift racing at Brands Hatch and all, I’m told, at a fraction of the cost of booking it independently. They were happy and so was I, enjoying the benefits of crowd purchasing or ‘crowd clout’ which delivers compelling offers to consumers on a daily basis. And it’s big business as the rise of rivals Living Social and Wowcher has proven. Even Amazon has now launched its own daily deal website in the UK, beginning with London, where AmazonLocal will email geographically-relevant offers to users every morning, and offer reward points to those using an Amazon credit card. What’s more interesting, though, is whether this is a passing trend or one which will redefine the way we, as consumers, begin to purchase any number of items. In this, though, the signs are not positive. To do so, the benefit has to be as evident to the supplier as it is to the consumer and the intermediary and that is where the jury remains out. We know it’s big business – so far. Sales at Groupon exceeded $750 million in its first two and half years, whilst the company’s activities cross four continents and reach nearly 40 million subscribers. However, after the publication of worse than expected financials recently, an analyst at Citi Investment Research suggested “a rapidly deteriorating core business - ie the daily deals business - and Groupon needs to act fast to fill up this hole with new initiatives”. The company believes that growth may likely come from new services including an instant mobile deal feature; Groupon Goods, for deals with national retailers; and Groupon Getaways, for high-end travel deals, but only time will tell if the model will serve vendors as well as it serves consumers. The interesting thing about daily deal sites is also the extent to which they change not just the products that we buy, but the classic decision making processes we use - does the increase of impulse buying of things that we hadn't previously thought we needed, just because they are a bargain make us more rational and careful in our regular grocery shop, to balance our frivolity; or less so, because we have a taste of bargain spontaneity? What is sure is that now the initial excitement of daily deals has died down, they are going to have to be much smarter to survive. At the moment, they feel a bit like a particularly manic jumble sale, where you have to rummage endlessly though rubbish to come across the odd, only slightly soiled, bargain. And who wants to do that? Classic example of this is the juxtaposition of increasingly unlikely products - I saw cheap wills being offered just above bikini line lasering the other day - that is crazy. And some things should just not be offered on a special deal. Long-term it could impact on the service industries in particular. Services that pre-Groupon were too expensive for the majority have now decreased radically in price, because of the number of Groupon offers available. Daily deals could continue to stimulate consumer spending and help businesses - but they need to start working in a more sophisticated, thought-through way, if they are to do it. But, and it’s a big but, a study by Rice University in Houston, Texas, found that 40% of companies which had used Groupon to promote their goods or services said they would not consider using Groupon again. Presumably, although suppliers pay a significant premium for the service, they would be happy to do so if it were delivering sustainable custom. The findings from the study are interesting. Two thirds of customers won’t buy more goods and services than are offered in the deal; only one in five Groupon users becomes a repeat buyer, and 80% of Groupon users are using the site for the first time. Like me, they are often for sporadic, opportunistic purposes as treats or for gifts and I, like many I suspect, pay little attention to the name and nature of the business I am buying the services from. I pay even less attention to the torrent of emails that rain down on me and others and which actively turn me away from becoming more engaged with the site – more grouped-off than group-on! All this seems to suggest a pattern of short-term relationships between the vendor and the consumer and, consequently, short-term relationships between Groupon and the vendor. And, if the old adage is correct, that it costs five times as much to win a new customer than to retain an existing one, crowdpurchasing sites like Groupon are failing to secure long term relationships with vendors because they are not yet delivering enough sticky, repeat business for them. Increasing and broadening the opportunities for consumers, which would then in turn increase and broaden the benefits for suppliers would likely increase sales and embed crowdpurchasing as a way of moving forward, even for opportunists like me.
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