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Groupon's GAP in Judgment

Posted on 8.19.2010

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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