Saturday, December 31, 2011

Groupon: Cheap is Not a Brand


OK, Groupon finally got the fancy IPO that has long been waited for. Groupon got the place of big winner in the year-end special edition of Canadian Business. Yet, the name of Groupon do not sound as appealing as Twitter or LinkedIn, not to mention Facebook or Apple.

Some while ago, I read a very persuasive writing by Bruce Philip, a.k.a. Brand Cowboy, a blogger and consultant, who talked about Groupon, in Canadian Business. (This article was published before the IPO.)

Groupon has been a beloved icon of social commerce. When Groupon rejected Google’s billion-dollar buyout offer, the majority opinion was that Groupon was wise to pursue its own way in its golden path, and I was not the exception. But these days, I hear things I’ve been hearing about Reach In Motion, on Groupon. Still, I thought those statements about Groupon was on comparative basis. When I heard that Groupon is running low on cash, I thought that their cash reserve came down to several billions from tens of billions. But Brand Cowboy’s posting corrected my stance about Groupon for good.

In Korea, actually, the business model of social commerce is making a lot of nasty noises. Social credibility, I believe, is one of the society’s maturity indices. In this regard, South Korea is still in par with those countries with lower scores. Consequently, businesses often come up with less than what is promised on the coupons when people come to redeem them. This has been broadcast several times in the mass media, but is not corrected. Nowadays, people seem to think of social commerce as semi-scam, or at best, a raffle of a sort. In short, the business model of social commerce is on the downward path, experts say.

Then what about Groupon? Brand Cowboy says being cheap is not a brand. What Groupon does is not differentiated from myriads of its competitions. Groupon’s argument is you must buy because you don’t want to miss a bargain. I have hoards of things (mostly electronics and boardgames) that sit in the attic of my mom’s house, most of which I spent less than a few days playing with. Sometimes I bought them out of curiosity, but quite often, I bought them because they were on sale. As Brand Cowboy puts it, this is surely a less desirable aspect of human nature. And Groupon’s business model is based on that aspect.

Cheap is not enough. Groupon has first-mover advantages, most notably, larger subscription base than any other followers. But this is not a sustainable strength, because there is no distinct network externality in social commerce. Groupon must find a way to make it to the future, and one way of doing it might lie in building a sustainable brand.

No comments:

Post a Comment