The trouble with Groupon–it’s all push and no pull

grouponGroupon, briefly the darling of Wall Street, is in trouble. After IPO’ing in November 2011 at $20 a share, the stock briefly rocketed to $31, before beginning its depressing descent back to a bubble-bursting $11. Yesterday’s trading saw the price close at $11.85 after a 6.5% day rally.

Groupon stock chart

So what’s the problem with Groupon?

Like many rapidly-adopted online services it’s built on a solid premiss (people like bargains) but has struggled to consistently and repeatedly deliver this promise over time. The web is filled with horror stories of failed Groupon offers, sellers overtrading and losing their livelihoods, and substandard service delivery. In March, Groupon was given three months to improve its UK operation by the UK’s Office of Fair Trading after committing numerous breaches of consumer protection rules.

But, despite all the challenges, the biggest issue for Groupon and the many other similar discount and cashback sites across the web is that they haven’t yet delivered a user-loved “pull” mechanism to create a self-sustaining revenue stream. Its marketing plan appears fatally flawed.

Groupon generates the vast majority of its sales from email-initiated offers. The customer receives a daily email, spots a deal they like, and visits Groupon to buy. This transaction can only happen if the customer agrees to receive pushed messages from Groupon. This is a classic form of “push” marketing.

Groupon also has a “pull” mechanism in the USA called Groupon Now which promises to draw users to its offers based on their day-to-day activities, for example by letting them see the nearest offers based on their current location. But Groupon Now has failed to take off. It seems that people really can’t be bothered to be bothered with seeing discounts all of the time. We want value, but we want it on our terms, and few people are prepared to trawl through pages of irrelevance to find the one deal that might appeal.

And, therein lies the root of the problem. If all you have are “push” mechanisms, you know your business is unlikely to be sustainable in the long term. With every push, you know you risk losing some of your users, and it’s never possible to continually enhance the appeal of your offers or the depth of your discount.

The lesson: Until you can find an effective, self-sustaining way to “pull” your users to your offering, your company value may continue to slide inexorably towards its true value. And even one of those  mega-Groupon discount offers may fail to attract investors to your stock when this shortcoming becomes apparent.

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