Groupon's GAP in Judgment

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Yesterday, Groupon launched its first national deal, teaming up with clothing retailer the Gap and spawning hundreds of thousands of sales.

Early reports showed that Groupon, the crowd-sourced coupon dealer, was selling 534 Gap coupons per minute in Chicago, where Groupon was founded and is based. By early afternoon, more than 300,000 total coupons were sold and today Groupon reported a total of 445,000 sold for a hefty sum of $11 million. By the numbers, the campaign was a huge success. But did Groupon sell its virtual soul in the process?

Alienating the Consumer

Groupon's wild success started at home -- with small businesses offering deals to lure local customers. These mom-and-pop companies found an entirely new way to bring in business. And consumers were feeling special -- insiders, so to speak, to a special deal with like-minded individuals. It worked.

Then, the Gap.

What I find most disturbing about Groupon's unholy alliance with the most vanilla clothing retailer in the country is its lack of personalization. Before, I felt part of a cool club. Buying a Groupon made me a trend-setter. Now, I feel like sheep dressed in khaki and cotton. On any given day, there might be a dozen styles from which to choose on any one clothing item at the Gap. As this coupon is set to expire this fall, and hundreds of thousands of coupons are out there, you can expect to see plenty of men and women looking like clones roaming the streets very soon. That's not "cool" at all.

Alienating the Retailer

Let's not forget ol' mom and pop. It's safe to say that local businesses are not too thrilled with being placed on the back burner. If consumers become trained to expect deals from big retailers with arguably lower prices for similar goods (think McDonald's over the local burger joint), will they save their money for those deals and pass on the local retailer? After all, we are in a money-saving mentality here.

What's more, this nationalization of coupon dealing raises some interesting questions about consumers' expectations of retail goods, in general. Groupon's flashy deal has already made the rounds on Internet and even national television. If I'm not a Groupon user but see that other people are getting this great deal, do I feel cheated? In the larger picture, are we training consumers to never expect to pay retail prices again?

For local retailers there are plenty of alternatives, too. Consider the rise of location-aware applications and their potential for increased brand awareness and revenue generation. Services like Foursquare and Gowalla reward local consumers with deals when they visit a location -- be it a free appetizer at a restaurant or a percentage off of a purchase. Where Groupon pushes its deals on consumers, these alternatives reward participation in the "club." And, retailers can avoid Groupon's hefty cut of each deal -- as much as 50 percent.

Groupon had its most successful day ever, in terms of sales. But at what cost? Did they deep-six the model that made them a cultural shopping phenomenon in the first place? Time will tell. But one thing is certain: If a competitor comes along -- and several are already on the way -- I'll be open to their offers if it means I don't have to feel like a notch in the corporate belt.

 
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16 comments

EdwardS 08-20-2010 2:56 PM

Groupon might have just lost some very important local market customers due to the Gap deal. I personally could care less what Gap has to offer especially sense I get a gap coupon for something in my mail box at least once a week.

I think the smaller online social buying websites like OrlandoHookups.com is doing it right buy getting local business to offer deals for local customers in turn helping the mom and pop store generate revenues otherwise lost.

Anthony 08-20-2010 2:57 PM

I've been using Groupon for over a year now, and I have to say, my opinion on what happened yesterday is quite the opposite.

I don't feel like they're selling out; not anymore than my town is selling out for putting a "community-driven" Applebees on the corner of my street. This is 2010. The reality is that big business *is* a part of the community - it helps drive local economies just as much as the mom & pop shops out there.

I'd be disappointed if Groupon ran chain-store deals every single day. But as long as they continue to represent *every* business in the community (from the corporate mongers to mom-and-pops and everything in between), then they're staying true to their brand, and keeping inline with what a community *actually* looks like - an assortment of small and large businesses alike.

And besides, large corporations have a lot to offer the Groupon community. If this deal brought in $11m, it's hard to believe Groupon will be so greedy as to pocket all of that. No. Deals like this will help build a bigger, better community - perhaps one where there are multiple deals per day, from a big vendor, and *multiple* small vendors... All speculation here, but the point is - when a company like the Gap enters the fray, it's not necessarily bad news. That type of growth will help the Groupon community become stronger, not weaker.

jah 08-20-2010 3:13 PM

We're being indoctrinated to join or otherwise pay for everyone else's discounts, but on products that are crap and have no value (Gap, Made in China).

Groupon roots were club members getting real value because it was discounted products from mom and pops (NOT chinese crap). At least these products/services had value and came from skillful entrepreneurs.

They did sell their soul to the same people who've indoctrinated us to believe our standard of living increases if we surround ourselves with Made in China crap.

HarryL 08-20-2010 3:13 PM

I disagree completely. As a regular Groupon user, I viewed yesterdays deal as one more great Groupon offer -- an offer I took advantage of. Yes, I enjoy seeing independent restaurants and stores in my area on Groupon, but I appreciate the occasional national deal mixed in. The fact is, I don't do 100% of my shopping at mom and pop stores. Call me a sheep if you must, but sometimes I shop at -gasp- a chain store.

AnthonyP 08-20-2010 3:47 PM

As a follow-up to my last comment, consider this: The Gap recently sent 30% off coupons to all local Big Brothers Big Sisters members. When we use the coupons, Gap is giving back 5% to the local BBBS. Now, say all you want about big business and Groupon's affiliation, but things like that prove that big business is just as relevant to the community as small business. In fact, I'd venture to say the Gap will be giving more to my local BBBS this year than hundreds of mom-and-pops combined.

This is no knock on small businesses. I own one. But I'm just trying to make a point that big businsesses are just as worth of the "community" designation as smaller ones. Just because they're nationwide doesn't mean they don't care about the communities they serve. Without community support, they couldn't survive in the first place.

KarenEman 08-20-2010 3:53 PM

As a consultant, I work with small business owners who appreciate the opportunities available through Groupon.

Perhaps the Gap deal will offer a quick infusion of cash that will allow Groupon to reduce the percentage they charge my small business clients. On the flip side, the backlog of independent companies waiting to be featured on Groupon may now grow even longer if Groupon begins to court the big money makers on a regular basis.

I see an opportunity for Groupon's competition to re-evaluate the playing field and adjust their game plans.

PatrickP 08-20-2010 4:15 PM

I was puzzled that anyone would be surprised by a company (such as a coupon service, or magazine publisher) seeking a wider, more profitable distribution model. Anything less should be frowned upon.

Let's keep this in perspective --  coupons are coupons, they are not "cool" in any format, they are delivered dozens of different ways, they grease customer transactions, they deliver value, and both sides, customer and retailer, benefit.

The market will adjust. Small businesses will adjust. Competitors will adjust.

Relax.

HalS 08-20-2010 4:23 PM

I basically agree with AnthonyP. In order to keep that local feel, perhaps Groupon only offers one national chain deal per month, or 6 weeks, or every other month. That would leave the vast majorty of spots open to their core local markets and staying true to their roots. It's just one option.

GunillaE 08-20-2010 4:34 PM

As a small business owner I agree that the bottom line goal is to get bigger, right? (not all, i know) The tricky part is to keep hidden or rose colored the details of that growth. I noticed right away that the GAP's Groupon expired in three months whereas all of the other one's I have seen expire in one year. This made me feel that GAP had strong armed Groupon and wrote their own rules.  

HalS 08-20-2010 5:16 PM

@GunillaE: Actually, the majority of Groupon's I've seen, including some that I've purchased, expire in 6 months or less. Only of the the first 3 I bought expire within a year. And today's deal in my market expires on 12/20/10; barely 4 months! So the GAP strong arming Groupon? Possible, but tough to say based on this.

AngP 08-21-2010 1:13 AM

I've seen Groupon deals advertised on coupon blogs for a few months now.  Some sounded interesting, but I was skeptical about joining a shopping-group to purchase something unusual.  Yesterday's Gap Groupon tipped the scales for me.  I bought one, expecting to find a reasonable deal on girls' jeans for my school-aged daughters.  

The experience was positive, so now I'm a member.  With the initial will-it-work-smoothly concern out of the way, I will be more likely to buy a classic "cool" Groupon in the future.  

As for the Made In China situation, I check labels.  I am not a regular Gap customer, and  I hope I can find something to buy that was manufactured on this side of the planet.  

BeverlyK 08-21-2010 7:08 AM

Servers crashed in the Nashville, TN area and we were unable to participate in the Gap Groupon.

RalphB 08-21-2010 5:58 PM

My wife loves Groupon as most of her friends. She has used it several times including not just in our city, but several cities where we will be in the next few months.

Why would Groupon not do national advertising. Should they refuse and let another company take the chance to sell on a national basis.

I thoguth that was what the internet was about. The ability to communicate with any and all. That does not exclude the opportunity to find special offerings from local merchants. My wife has already purchased coupons from merchants we would not know about in three cities. We also plan to dine at two resturants that we would never have tried except for Groupon.

CandeeW 08-22-2010 7:14 PM

I have been a Groupon user for only a short while since it just came to my area. I fully appreciate all the offers that I receive.  As a frugal shopper, I appreciate the savings that large chains have to offer. Any further savings at these chains would be welcome as well.  When  I see a great deal on Groupon for a local business, I am quick to snap it up. If they happen to offer a great deal for a large chain, more than likely I will snap it up as well, although I'm not that enthralled with the Gap, so I probably would have passed on that offer if I had seen it. I believe they are rendering a great service in these economic hard times for both the merchant (large and small) and the consumer.

MitchT 08-23-2010 9:29 AM

Having recently used Groupon for a client I have several reactions.

1. There is a tremendous danger in using Groupon. Profits get cut drastically and you are training the public not to buy retail

2. The idea to use Groupon as a marketing tool, for us, was to attract new customers from a younger segment - the jury is still out

3. Groupon's non-regional approach might cut into the local retailers pockets but I think not. Large national retailers may now jump into the fray which will change the nature of Groupon

4. I also wonder about the potential erosion of a brand using this vehicle. The discount is drastic and creates an emotional response that might degrade all of the efforts to build a brand.

Jill 08-27-2010 3:33 PM

What's funny here is I recommended to some friends they submit their business to Groupon b/c in LA (NYC, Chicago),  Groupon reaches a lot of performers and my friends have hands down the best product for performers. Groupon turned down their company with no reason why! Yet they promote classes and photographers that performers use all the time. This caused me to second guess their "Mom and Pop" stance and I rarely buy from them now. They would have made a great cut and help save performers from a lot of the problems they face. Oh the company? PerformerTrack and HoldonLog. So if you know any actors, singers, etc. send them to them.

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