How Groupon is screwing up in Europe, and killing small business brands

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This is a guest post by Olga Slavkina, a digital brand consultant who lives in Brussels, Belgium where she works with innovative companies. She blogs at Schmoozyfox and Tweets as @FunkyBizBabe

Last November, Google was trying to buy Groupon for $5.3 billion, in what would have been its largest acquisition yet.

To everybody’s surprise, Groupon said No.

The deal-of-the-day site, which offers one deal per day in each of the markets it serves, was launched in 2008. By the time of Google’s attempts to buy it, it was operational in 150 markets in North America, and 100 markets in Europe. Its popularity and quick growth was mainly due to supposedly big rewards for the site users, who could get access to various services (such as massage, yoga courses, meals) and products at heavily discounted prices. It was said to be the result of “buyer power” but obviously had more to do with sales promotions for the brands in question.

I also tried out Groupon on two occasions.

Once, I bought a coupon for a massage at what was presented as a Brussels-based beauty salon. The price I paid was 19 Euros, “instead of the usual price of 70 Euros” charged by the said salon.

When I arrived, I found out that the beauty salon was anything but beautiful itself… Just by looking at the shabby interior, I thought that I would have never been tempted to step in, let alone pay 70 Euros for an hour of massage, which is considered a price above the market in Belgium. But given the context, I was curious.

During the massage, the masseuse spent a lot of time telling me how much work she had to do after her service had been promoted on Groupon.

“And I earn nothing for working non-stop,” she kept exclaiming (the chat itself distracted somewhat from the experience).

An immigrant from Congo, she has 4 children to feed, and is prepared for a lot of work, “as long as there is work.”

The massage was okay. That is, okay for the price of 19 Euros. Unfortunately it also fixed in my mind that the reference price was 70 Euros – so I’ve never been back and the investment that the beauty salon made in sales promotions through Groupon must have delivered minimal, if any, results.

My second (and perhaps last) experience with Groupon took place this very morning, when I tried (and failed) to use a coupon that I had bought during the Christmas rush last December.

Priced only at 8 Euros, it would give me a possibility of printing an attractive looking photo album for the value of 26 Euros with a service called www.albumdigital.com.

In fact, I did want to make an album of my family’s photos and have it ready as a Christmas present.

But when I tried to use my 8-Euro Groupon coupon last December, I had to abandon this idea right away, mainly because it turned out that www.albumdigital.com only made its service available to Windows users. Being a Mac and Linux user myself, I found this slightly annoying, especially since my coupon said nothing about that.

I do have Windows on one of my computers, but oh boy, do I do everything possible to avoid using it.

So I did. Until this morning. Just because I noted down in my agenda that my lovely coupon was expiring today.

In fact, it was not even clear whether it would expire today, or on March 3rd. Look at these different dates that are totally confusing (the coupon is in French):

groupon coupon_expiry_dates

The first date (underlined in red) says that the coupon is valid until 03.03.2011. Whereas the second mention of validity refers to February 28th. In any case, I thought, it should work, because today IS February 28th.

Well, it didn’t.

After a rather excruciating experience of downloading the required software using my Windows computer and waiting, waiting, waiting while different windows kept popping up.

Finally, the software seemed ready to receive the photos of my kids. Although the software promised to organize them by date, this did not happen. I also had to click and click away to see which of my selected albums corresponded to which price, as this info was not organized properly.

albumdigital_prices

And yes, this painful process took a long time. Which means, that the value of the voucher was negative, at least for me, as I LOST a whole lot of time.

albumdigital_long_upload

And finally, after having uploaded everything, filling out a tedious form with my personal information for http://www.albumdigital.com, AND submitting my promotional code, I saw THIS:

groupon_code_not_valid1

I’ve written emails to both Albumdigital and Groupon, but the point is: even if I am ever reimbursed the rather minuscule price of 8 Euros that I paid to Groupon, it’s highly unlikely anyone will reimburse the value of the time I spent fighting with this technology.

Although Groupon has skimmed a market opportunity with commercial aplomb, its longer-term future is, as far as I am concerned, anything but certain:

  • Those small-scale services and product providers who promote themselves through Groupon generally have very little understanding about brand-building themselves. They don’t understand why offering their often high-value services at low prices through Groupon positions them as “cheap” vis-a-vis their potential customers. Would I go back to the beauty salon and pay them 70 Euros for what cost me 19 Euros and was portrayed as a “fair price” (rather than a sales promotion gimmick)? Nope. And I can hardly imagine anyone doing it. At best I might move on to the next Groupon deep discounter. There might, of course, be some exceptions, such as discovering an amazing restaurant where a meal cost you next to nothing, and wanting to experience it again. But for services of average quality, repeat purchases with that provider are unlikely.
  • Associating itself with low-quality service providers, such as http://www.albumdigital.com, does nothing good to Groupon’s brand either. In my mind, I lost a lot of precious time on http://www.albumdigital.com which I discovered with Groupon’s help, and in my consumer mind, the brand of http://www.albumdigital.com is …. well, Groupon’s brand. Whether Groupon wants it or not.
  • What’s happening here in brand strategy terms is that Groupon constantly co-brands itself with each and every service provider that features in its daily deals. So, the aggregate consumer satisfaction with, and brand loyalty towards Groupon will be a sum of all experiences its customers have while they receive their massages and buy photo albums. Every real-world discounter which plans to stay in business over the long term, however, still offers some sort of quality guarantee – think Aldi in Germany and Colruyt in Belgium.

One of the reasons why Groupon has achieved such rapid market penetration is because the small businesses which promote themselves through it have very little knowledge of business development and brand strategy – especially online. Motivated by large-scale and quick exposure to potential customers, they sell their service often at a loss – remember that Groupon makes money by keeping half of the price advertised in daily deals. So, my masseuse actually sold her services at 8.5 Euros per hour!

They also position their fragile and often unknown brands in the consumer’s mind as worth much less than the price they usually charge – and possibly little more than a ripoff. Meanwhile Groupon is generating cash by cannibalizing its own brand - hardly a recipe for long-term value creation.