How The Hell Can Groupon LOSE Money?

**John Jupp** · 09-02-12

BBC News - Groupon reports unexpected loss

Seriously weird figures reported from Groupon so what's going on over in Groupon land? Has someone been overindulgent on the executive expenses?

Daily voucher company Groupon has reported an unexpected loss.

In its first set of results since listing on Nasdaq stock exchange in November, Groupon reported a net loss of $42.7m (£27.0m), when a small profit had been expected.

I mean now come on! They get up to HALF the price from a retailer on the offer and that's a massive chunk so how on earth can they have lost money?

They go on to explain ""The number of active customers came in short. That means not enough people are buying groupons," said Sameet Sinha at B. Riley and Company."

So that begs another question. Are some of the Groupon offers complete rubbish with no intrinsic customer value? Don't get me wrong. I like Groupon and the other companies in this sector and some clients of mine use them for daily deals as well as their own daily offers, but if the average offer is seriously that bad that the group buying power doesn't kick in, is this an indication that in their drive to gain a dominant position in the group buying market, Groupon has forgotten the absolute golden rule and that's customer satisfaction? Rubbish offers mean failed group buying bids so is this an indication that Groupon has just got poor offers generally or is it a case other group buying platforms have eaten into the Groupon monopoly?

**John Jupp** · 09-02-12

It looks like I in part answered my own question so are their shares worth it?

Groupon Reveals 4Q Earnings Dud; Revenue Rips 194% Higher | Fox Business

.....However, the daily deals site faces fierce competition from the likes of LivingSocial, Gilt and other clones that attempt to replicate Groupon’s business model.

**John Jupp** · 09-02-12

That's what is hard to understand. They zoom their activity nearly 200% and still make a loss.

**KimCullum** · 09-02-12

Emails cost a lot of money, so if they are spamming their database through not segmenting properly then they that presents an inefficient use of money.

Also if they keep sending people deals that aren't of interest to them, people will unsubscribe or just pay less attention to the subject line.

Lastly, Groupon have had a lot of bad press for their offers being difficult to redeem - ie you may have to wait months for your spa package - when really you wanted to get it to share with someone for a birthda or something. If someone has a bad experience, they will be more cautious about working with the complany again - so maybe they are not getting the amount of repeat custom from their users as they imagined...

Plus, if merchants go through a difficult experience, they may not work with Groupon again, meaning the quality of deals could start to become compromised as less businesses agree to provide deals.

**dc000000** · 09-02-12

Groupon has to spend a fortune on advertising and they have to buy it from a company who are now competing with them, who don't need to pay for any advertising and already have a very large number of registered users.
Ask who not for whom the bells toll - they toll for thee Mr Groupon.

**scriptmonkey** · 09-02-12

Do successful businesses use Groupon?

Isn't the Groupon model based on enrolling businesses that aren't doing very well with the promise of an upsurge in their business? (which probably won't happen beyond the offer period, because, once you've discounted by 50% or 75%, how can you get the same customer to pay full price, particularly when your competitor down the road now has Groupon offers.)

**nicksthename** · 09-02-12

I've been saying this for a while, it'll be interesting to see how Groupon tries to turn it around.

IMHO it's a combination of:

a) The deal structure that Groupon demands not delivering enough value for the retailer / service business.
b) Poor marketing to the end user - not enough relevant & compelling deals for each segment.

They are in a catch22 position. They need to offer businesses a better return, but if they do this then the deals they offer to the public aren't as attractive.

**scriptmonkey** · 09-02-12

Originally Posted by John Jupp

.....However, the daily deals site faces fierce competition from the likes of LivingSocial, Gilt and other clones that attempt to replicate Groupon’s business model.

Well, LivingSocial made a 550 million dollar loss on 250 million revenue last year, so, they're not doing so well themselves

**John Jupp** · 09-02-12

Perhaps if they improved their segmentation and didn't hit small business for half the offer price as commission, they'd perform better. The customer would still have a great offer, the target audience would be better and the business will consider doing more business with them. Plus the bad press like the small cake business (which shouldn't have done the offer anyhow), won't get hammered so badly and report it to the press.

**John Jupp** · 09-02-12

Originally Posted by scriptmonkey

Well, LivingSocial made a 550 million dollar loss on 250 million revenue last year, so, they're not doing so well themselves

Ouch! Is it only the US group buying power sites that are suffering? Doug how's your site doing? Mark how's your site doing?

**scriptmonkey** · 09-02-12

THE BAD DEAL - eight bad deal rules - eight bad deal rules

3. If you’re using deal websites to dictate your culinary life and nightlife, you probably don’t have a great culinary life or nightlife.
This isn’t the cream of the crop. It’s often the cream of the crap.

**scriptmonkey** · 09-02-12

Groupola started showing Groupon deals shortly after the iPhone débâcle.

**John Jupp** · 09-02-12

Even more ouch! OK that just leaves you Doug to save the day!

**scriptmonkey** · 09-02-12

Originally Posted by John Jupp

Perhaps if they improved their segmentation and didn't hit small business for half the offer price as commission, they'd perform better. The customer would still have a great offer, the target audience would be better and the business will consider doing more business with them. Plus the bad press like the small cake business (which shouldn't have done the offer anyhow), won't get hammered so badly and report it to the press.

Greed is usually the destroyer of a good idea. As you say, if they made it fair for everyone, then the business would flourish.

**John Jupp** · 09-02-12

I am still serious about attending Agenda | DD Summit Europe 2012 if I can allocate the time. I think given the propensity for so many loss making group buying sites (some may be attending) it could make this industry event day a very interesting one to follow.