Groupon

Andrew Mason’s Next Act: Groupon’s ex-CEO Releases a Music Album

Phillip Nones Advertising, Business, Social Commentary, Uncategorized , , , , , , , , , , ,
Andrew Mason - Hardly Workin' music album
Groupon’s ex-CEO Andrew Mason is releasing a music album titled — appropriately enough — “Hardly Workin’.”

I’ve blogged before about the tribulations of Groupon and its “daily deal” couponing business.

The company has found it incredibly difficult to develop a sustaining business model, what with increased competition and the propensity for vendors to cease their participation after one or two deals due to disappointing program results.

With Groupon taking 50% of every deal plus a credit-card handling fee, far too many vendors found that they couldn’t make money on “daily deal” promotions, and often, “repeat business” from the ultra-price-savvy consumers who tend to participate in such schemes never materialized

Groupon founder and former CEO Andrew Mason was hardly the typical head of a dotcom business.  His business background was rather thin, despite having started a Saturday morning bagel delivery service in suburban Pittsburgh when he was just 15 years old.

Instead, Mason graduated from Northwestern University in 2003 with a degree in music, signaling where his interests truly lie.  After having worked at several Chicago-area tech companies, Mason managed to snag some seed money from Chicago entrepreneur Eric Lefkofsky, and Groupon was born in 2008.

By 2010, Groupon was the latest star in the constellation of online businesses, with annual revenues of ~$800 million.  In December of that year, Groupon was offered $6 billion to sell to Google, but Mason and his company board foolishly declined the offer.

But within two years, Groupon’s fortunes had turned dramatically for the worse.  Herb Greenberg of CNBC named Mason the “Worst CEO of the Year” in 2012, writing:

“Mason’s goofball antics, which can come off more like a big kid than company leader, almost make a mockery of corporate leadership – especially for a company with a market value of more than $3 billion.  It would be excusable, even endearing, if the company were doing well … but it’s not.”

After one too many missed quarterly goals, Groupon’s board of directors ousted Mason on February 28, 2013.  On the day of his dismissal, Mason wrote to his employees:

“After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family.  Just kidding – I was fired today.  If you’re wondering why … you haven’t been paying attention.”

But now Mason is back – just not in the same way.  This time, it’s as a musician.  The former punk band keyboardist (and also husband of pop singer Jenny Gillespie) is releasing an album titled “Hardly Workin’” that contains seven songs.  It was produced by Don Gehman, who has also worked with R.E.M. and John Mellencamp, among others.

Here’s what Mason has to say about his latest project:

“I managed over 12,000 people at Groupon, most under the age of 25.  One thing that surprised me was that many would arrive at orientation with minimal understanding of basic business wisdom.”

This album pulls some of the most important learnings from my years at the helm of one of the fastest-growing businesses in history, and packages them as music.  Executives, mid-level management and front-line employees are all sure to find valuable takeaways.”

*  *  *  *  *

“If you’re seeking business wisdom, you don’t need no MBA — look no further than the beauty that surrounds us every day …”

*  *  *  *  *

With lyrics like these, one wonders if Andrew Mason isn’t talking so much about 12,000 employees, but instead about himself!

Taking Stock of America’s “Most Damaged Brands”

Phillip Nones Branding, Business, Uncategorized , , , , , , , , , , , , ,

Damaged BrandsIf you were to ask people to identify the brands that they view in negative terms, chances each one would readily name at least one.

The reasons why a brand loses its reputation can be varied: a botched product introduction … bad corporate leadership … a poor response to a crisis.

But the net effect is usually the same: The damage takes only a short time to occur, and it can take years for the brand to recover (if ever).

Which brands are viewed as the “most damaged” in the United States right now? Recently, the staff at equity analysis firm 24/7 Wall Street put their collective heads together and came up with a group of nine brands that they feel qualify for the dubious “top honors.” They are:

  • Apple
  • Best Buy
  • Blackberry/Research in Motion
  • Boeing
  • Groupon
  • Hyundai
  • JCPenney
  • J.P. Morgan Chase
  • Martha Stewart

I find this list pretty much spot on. Most of them would probably be on anyone’s list:

Best Buy logoBest Buy – Its big box stores function well as a place to “showroom” appliances and electronics for consumers … who then head home to purchase the same products online at lower prices.

Blackberry / Research in Motion logoBlackberry – Speaking personally as an owner of a Blackberry smartphone, is there any brand whose products have been more disappointing to its loyal users than this one? I doubt it.

Boeing logoBoeing – The highly touted Dreamliner 787 passenger jet has been delayed for years. Many consumers appear to be nervous about the model’s design, and recent developments portend … more delays.

Groupon logoGroupon – Groupon’s place in business history may be as the ultimate example of a dotcom-era “glorious failure.” Its business model, wherein merchants sign up for a scheme that’s guaranteed to lose them money, had to be “too bad to be true.”

JCPenney logoJCPenney – I’ve blogged before about the predicament of this department store brand. In a stunning series of missteps, attempting to attract a completely different demographic of shopper while simultaneously dissing its loyal customer base turned out to be a sure recipe for damaging the Penneys brand – possibly irreparably. The odds are better than 50/50 that this store chain will now follow Montgomery Wards into retail oblivion.

Martha Stewart logoMartha Stewart – Take an iconic business celebrity and send her to prison for insider trading. Meanwhile, her lifestyle media company is hammered by social media (Pinterest and all the rest), while television programming is splintering into more and more micro-segments thanks to the Internet and an explosion of new programming options for viewers. Is this brand even relevant anymore?

The remaining brands – Apple, Hyundai, J.P. Morgan – are ones that I feel have more inherent strengths and should be able to bounce back from recent setbacks.  Provided, of course, that they make all the right moves and avoid any new pitfalls.

What are your thoughts? Would you nominate any other “damaged” brands for inclusion on the 24/7 Wall Street list? (I thought of Sears for one …)  Feel free to share your thoughts here.

Groupon’s Slow-Motion Train Wreck

Phillip Nones Uncategorized , , , , , , , ,

Groupon failure of business modelI’ve blogged before (several times, actually) about the problems with Groupon’s business model and the difficulties it’s encountered since going public.

It seems that the twin whammies of new competitors plus merchants’ increasing unwillingness to take a bath on offering deep-discounted products and services to ultra price-sensitive consumers have been enough to send Groupon’s business into a financial tailspin.

One key takeaway from the Groupon couponing experience: Consumers who are attracted to bottom-of-the-barrel pricing have absolutely no brand loyalty thereafter – unless they’re offered a similarly extreme price discount the next time around.

Understandably, merchants aren’t much interested in marketing practices that boil down to being creative ways to divorce profits from sales.

And now, with yet another quarter of dismal financials just released, Groupon’s board of directors has done the inevitable: separating CEO and founder Andrew Mason from his company.

As the famously quirky Mason, who was once a student of music at Northwestern University, put it in a letter to Groupon employees (which he also released publicly “since it will leak anyway”):

“After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why … you haven’t been paying attention.”

And then Mason goes on to summarize the ugly facts: two quarters of missing the company’s own financial expectations, along with a stock price that’s baely one-fifth of Groupon’s listing price when the company went public ~18 months ago.

Business observer and talk-show personality Jeff Macke has been merciless in his condemnation of Groupon’s recent business performance. He writes:

“In its short, ignominious history as a public company, Groupon crushed the hopes of more true believes than Santa Claus and Jim Jones combined. From its closing level on the day of its IPO in November 2011, GRPN shares have lost more than 80%, driven by accounting scandals, an ill-conceived international expansion and generally poor execution of a not-very-smart business model … What is fresh information is the company’s hideous earnings miss … when it reported a 12-cent loss versus expectations of a 2-cent gain.”

Late moves by the company to staunch the bleeding – such as taking a smaller cut of revenue on daily deals during the latest holiday season in an attempt to attract and keep merchants – haven’t been very successful and haven’t reassured investors.

In late 2012, Andrew Mason was dubbed “Worst CEO of the Year” by CNBC’s Herb Greenberg.  But not every business journalist and analyst has been completely critical of CEO Mason. In an interview with the New York Times, Stifel Nicolaus’ Jordan Rohan remarked: “I view Mason as a visionary idea generator. Few would argue with how impressive the Groupon organization was as it grew.”

But Mr. Rohan went on to report, “However, at some point it became the overgrown toddler of the Internet – operationally clumsy [and] not quite ready to make adult decisions.”

For many of us in the marketing field, peering at Groupon from the outside was like seeing a slow-moving train wreck in the making, so the latest news is pretty much what we expected.

But perhaps the biggest surprise is how similar it all looks to the ill-starred Internet pure-plays of the dotcom bubble a decade ago.

No big deal after all: High-flying “Daily Deal” companies crash to earth.

Phillip Nones Uncategorized , , , , , , , , , , , ,

Groupon hits the skidsI’ve blogged before about the rapid rise of so-called “daily deal” online coupon companies. But from the get-go, there were nagging questions about the long-term viability of these social couponing programs. One particularly foreboding indication was how few vendors return after trying their first campaign.

… Something about making money (or not) on these deals and whether (or not) couponers would become repeat customers.

A bit more time has gone by since that blog post, and today the news about daily deal sites looks pretty grim. In fact, Groupon, the market leader, has just reported another quarter of poor earnings due to the stagnation of its core business activities.

Groupon also reported that the average revenue per “active” customer (one who has purchased a deal from Groupon within the past 12 months), declined more than 15% … to ~$64 from ~$76.50 a year earlier.

Groupon’s stock price is also way down; it’s now ~$2.75, nearly 90% below its share price when the company went public barely one year ago. Consequently, the company’s market value has shrunk to ~$1.8 billion, compared to ~$13 billion when it went public.

The situation is much the same over at Living Social, Groupon’s most significant competitor. Its part owner, Amazon, just reported a quarterly loss for the previous quarter after it wrote down its investment in Living Social.

What’s the reason for the dismal turn of events? Maybe it’s that the business model for these daily deal programs is … fundamentally flawed?

While at first blush, daily deals seem like a great way for smaller businesses to generate awareness, marketing buzz and attract new customers, it comes at a price: sacrificing the profit margin.

Indeed, the price promotion aspects of the business model are pretty problematic. In the “bad old days,” local and regional merchants used Yellow Pages advertising, perhaps supplemented by the occasional Valpak® coupon mailer.

But typically, Yellow Pages advertising doesn’t have a discounting component. Groupon and other daily deals do … in spades.

Because a daily deal doesn’t “take” until a sufficient number of people avail themselves of the offer, the deal needs to be lucrative enough to attract consumer volume … which is what makes this type of program a challenge for businesses to do over and over again.

And now, new research published by Raymond James & Associates proves the point. This consulting firm surveyed ~115 merchants that had participated in at least one daily deal promotion during fall 2012. It found that ~40% of the merchants would “not likely” run another such promotion over the next 2-3 years.

Why is this? The commission rates on these deals are high, for one thing. But also, merchants found a low incidence of return or repeat customers gained through the promotion. Conclusion: Daily deal customers come for the discount … and leave thereafter.

Other survey findings? How about these:

  • ~32% of the merchants lost money on their daily deal promotion.
  • ~40% feel that daily deal promotions are “less effective” than other forms of marketing.

Rakesh ‘Rocky’ Agrawal, a social media specialist and consultant, is blunt in his assessment of the situation: “I’ve always maintained that this is a hype-driven business built on an unsustainable business model – both for the merchants and for Groupon.”

So what’s the solution for Groupon and other social coupon programs? After all, it now seems clear that many merchants won’t be returning for new campaigns anytime soon. We can see the potential pie shriveling up before our very eyes.

In response, Groupon has begun expanding into a more traditional discount online retail operation (Groupon Goods). In fact, this endeavor now accounts for the bulk of the company’s recent revenue growth.

But there’s absolutely nothing new or extraordinary about this venture, as it just mirrors dozens of other sites that do the same thing.

One thing that does differentiate Groupon from other online merchant sites is its hefty sales force of “live people” interfacing with merchants and businesses – something only social networking and user review website Yelp! comes close to matching. For smaller businesses, the human touch is important when dealing with newfangled marketing concepts.

On the other hand, it’s also a costly differentiation that doesn’t tend to scale well – except with more human bodies. So there’s a palpable concern that Groupon will be unable to deliver these other services profitably compared to more technology-oriented competitors.

Returning to the daily deals component, Groupon and others are also facing the reality that they need to offer merchants a bigger cut of the promotion dollars. They’re also finding it more lucrative to push “perishable inventory” deals (e.g., at restaurants and hotels) where big discounts might make more sense for merchants compared to those for durable products.

All in all, Utpal Dholakia, a professor of management at Rice University’s Jones Graduate School of Business and a close observer of the segment, sees no easy answers. “The heyday for daily deals are behind us,” he concludes.

When Friends become Foes: City of Portland vs. the Citizens

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City of Portland propping up taxi industry at the expense of consumers.Pick up most any civics textbook, and it’ll contend that one of the purposes of government is to protect the common interests of the citizenry against the forces of corruption and special interests.

The idea is that government regulations can help curb the excesses of unfettered capitalism and help keep the playing field fair for everyone.

Unfortunately, we know from experience that things rarely turn out this way in practice. We have ample proof in the scads of lobbyists and special interest groups that swarm Washington, DC and the state capitals, holding sway over many politicians and the laws they enact.

Public opinion polls by Gallup and others show that the U.S. public sees the federal government as more culpable than state or local governments when it comes to special interests having undue influence over legislation.

But does the reality comport with the perception that “local” is less of a problem?

The latest example showing that this perception may be wrong comes from Portland, Oregon. The city council there has put in place regulations that require limousine and sedan services to charge a $50 minimum for transporting people to and from Portland International Airport … and to charge at least 35% more than taxis for trips to any other destination in the city.

In addition, sedan and limo services cannot pick up customers until at least one hour has elapsed after the customer has called for transportation.

Does anyone seriously believe that these regulations were put in place to benefit the citizenry of Portland … or to foster healthy competition for transportation services? If you believe so, you’re pretty naïve.

In actuality, the Portland city council is just doing the bidding of a small but politically powerful interest group in the city: the taxi industry. Frank Dufray, the administrator for Portland’s Private-for-Hire Transportation Program, says as much:

“The main thing is that you don’t want the Town Cars to take all of the best fares, which are to the airport, and not leave any for the taxi industry. That’s why there’s a minimum fare and a one-hour wait requirement.”

Basically, this is tantamount to stifling fair competition and protecting market share for the taxi industry by government fiat.

It gets worse: “Daily deal” companies like Group and LivingSocial have become a very popular way for local business to gain new customers by offering limited-time special offers that allow consumers to purchase goods and services at a discounted price. But when two Portland-area companies offered their chauffeur services at a discounted rate through Groupon last year, the city of Portland responded by assessing fines on every Groupon deal sold by these firms.

And these weren’t just “nuisance” fines. They totaled $259,500 for Fiesta Limousine and a whopping $635,500 for Towncar.com!

Rather than risk going bankrupt, these two companies did the only thing they could from a practical standpoint; they refunded all of the proceeds back to their would-be customers.

So, thanks to the city of Portland, we have customers who are unable to take advantage of special pricing for limousine services, plus we have two companies who lost both time and opportunity – not to mention the administrative hassle of refunding customers their money while also dealing with the potential legal fallout.

But there’s a winner, of course. It’s the local taxi industry, sitting pretty while being validated in the idea that political pressure placed on local politicians works.

But in an interesting twist, this may not be the end of the story. The Institute for Justice, a public interest law firm, has now filed suit in U.S. District Court against the city of Portland. Here’s how the group summarizes the legal question:

“Can the government bar entrepreneurs from offering competitive prices, online discounts and prompt service merely to protect politically powerful insiders from competition?”

The Institute for Justice’s complaint was filed on April 26, 2012, citing the U.S. Constitution’s 14th Amendment plus the Equal Protection and Due Process Clauses.

Expect this one to make its way all the way to the Supreme Court.

Online coupon deals: Take those “whopping” discounts with a grain of salt.

Phillip Nones Uncategorized , , , , , , , , ,

Online daily deals save you less than you might think.
That "big discount" you think you're getting? Chances are, it's based on inflating the regular price.
In the world of retail, while the way people buy goods and services may be evolving at a rapid clip, it turns out that some aspects have changed nary a bit.

Take online couponing. Groupon and LivingSocial are the two big players in this segment, which enables consumers to take advantage of deep discounts on products or services providing enough people sign up for the offer. They’ve been proliferating in retail markets all over the country.

But think back to the “bad old days” of brick-and-mortar retail. Often, you might encounter a “deep discount” at a grocery store or big box store, only to realize later that the discount was calculated off of an unrealistically high list price for the item.

While not illegal, such practices are certainly deceptive, in that the product was rarely if ever sold at the “standard” price.

Well, guess what? When looking at online coupon deals, we’re now finding the very same practices at work.

Recently, local local services online directory Thumbtack contacted vendors offering daily deals from Groupon or LivingSocial. Vendors were “shopped” in metro markets all across the country that included a variety of services ranging from home cleaning and maid services to interior painting, handyman services and studio photography.

In eight out of ten cases, Thumbtack found that it was quoted a price over the phone that was lower than the advertised “regular” price cited in the supposedly “great” deals being offered.

Two examples:

 On September 19, 2011, Groupon offered two hours of home cleaning services in Phoenix, AZ for $49 … an amount it claimed was 67% off of the “regular” price of $150. When contacted by phone, the non-discounted price for the exact same cleaning services was $80. So the consumer was still getting a discount … but hardly the 67% as breathlessly claimed.

 On August 24, 2011, Groupon offered carpet cleaning services for a 200 sq. ft. area in San Francisco, CA for $45 — purportedly a 78% discount from the regular price of $200. The price quoted over the phone for similar square footage? Just $106. No doubt, Groupon, LivingSocial and their participating vendors realize that one way to make an offer more attractive is to make sure the percentage discount is huge – and thus unlikely to be offered again.

It’s really no different from practices we’ve seen used in retail over many years. But as more consumers become more savvy to the ways of online deals, it’s quite likely that we’ll find fewer people choosing to participate in them based on the “whopping” discounts claimed.

Shopping in the Internet Age: Let’s Make a Deal

Phillip Nones Uncategorized , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Consumers love their online dealsI hear the complaint often that e-mail has become the preserve of “deal a day” promotions and communications from brands that have devolved into little more than breathless announcements about discounts that are “too good to pass up,” coupled with the obligatory “free shipping” pot-sweetener.

And then the next day, another deal shows up that’s practically the same as the last one …

But how surprising is this, really? Let’s not forget that daily newspaper advertising – the equivalent antecedent to e-mail marketing, has always had a similar focus on price, sales and deals.

It’s just that with e-mail, it seems more ubiquitous because they’re being pitched to us hourly on any number of digital platforms and mobile devices, rather than just once a day with the newspaper delivery.

And there’s no doubt that the sheer volume of deal activity is growing – the low cost of e-mail marketing makes sure of that. Not only is seemingly every consumer brand out there working the e-mail channel like they did catalogues and newspaper advertising in the past, there’s also the bevy of coupon marketers like LivingSocial, Groupon, Yipit and Gilt City, to name just the top few.

Some have discerned a decline in the “quality” of the information that is being provided; whereas there may have once been some educational, informative or “cool” content included along with the special deals, now it’s often devolved into nothing but “price, price, price” and “savings, savings, savings.”

The extent of consumer interaction with “deal-a-day” websites and e-mail offerings was quantified recently in consumer research conducted by Yahoo and Ipsos OTX MediaCT. The survey, fielded in February 2011, discovered that U.S. adults who are on the Internet subscribe to an average of three daily or weekly shopping e-mails or e-newsletters. (And more than half subscribe to two or more.)

How often are people reading these e-communiqués? With daily regularly, it turns out.

Nearly two-thirds of the respondents who subscribe to at least two of these “daily deal” e-mails or e-newsletters report that they read all of the messages that are sent. Here’s how reading frequency breaks out:

 Read several times per day: ~22% of respondents
 … Once per day: ~38%
 … A few times per week: ~23%

 Read once per week: ~7%
 … A few times per month: ~5%
 … Once per month or less: ~5%
The same Yahoo/Ipsos survey measured the degree of pass-along activity, which is one of the most potent aspects of e-mail marketing. Most recipients reported doing this – about 45% doing so on a weekly basis or more frequently:

 Forwarding deals to friends or family several times per week: ~17%
 … Several times per day: ~12%
 … Once per day: ~10%
 … Once per week: ~6%

 Forwarding once per month or less frequently: ~19%
 … Never doing so: ~22%

Despite the complaint commonly heard about groaning e-mail inboxes, the Yahoo/Ipsos survey gives little indication that consumers are in reality becoming all that tired of the onslaught of daily deal promos. In fact, over six in ten respondents in the survey reported that they subscribe to more of them today compared to last year.

Moreover, nearly half of the survey respondents reported that they’re excited to receive them … and that they “can’t wait” to see the latest deals being offered each time.

There’s another way we know that these deals are retaining their relevance: Three-fourths of the respondents reported that these types of e-mails come to their main inbox rather than to a separate account they’ve set up to receive such offers. So there’s little doubt that when people say that these deals are desirable, they actually mean it.

We consumers do like our deals, don’t we? And if you think that the popularity of deals and discounts is due to the recession, that’s belied by the fact that even America’s super-affluent are on the deal bandwagon. Unity Marketing’s recent survey of the wealthiest 2% of Americans — those earning $250,000+ per year — finds that value-priced Amazon is the top shopping destination for ~45% of them. Not only that, ~10% use Groupon for coupons and ~8% use Craigslist.

No, it seems bargain-hunting is the thing for practically everyone.

Social couponing: Big idea … but big profits?

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Groupon logoThe rise of the Internet has changed the way the couponing business operates. Not only are people logging online to find coupons rather than searching for them in the local paper, so-called “social couponing” has also entered the scene. This is where online coupon offers become active only after a minimum number of registered users sign on to them.

Groupon is probably the best-known of these couponing platforms, although there are others active in the field including MyCityDeal, Half Off Depot, BuyWithMe and LivingSocial. [Interestingly the idea of social couponing originated in the People’s Republic of China.]

The concept, as Groupon does it, is pretty simple. It offers one “Groupon” per day in distinct market segments. If a predetermined specified number of people sign up for the coupon offer, the deal then becomes available to all; otherwise, the offer doesn’t take effect.

Groupon makes its money by getting a percentage of the deal from the participating retailers.

In theory, social couponing reduces the risk for retailers, who can treat the coupons as brand promotion tools in addition to offering discounts or freebies. But research carried out recently by the Jones Graduate School of Business at Rice University throws a bit of cold water on this hot idea.

The Rice research, which included ~150 businesses, found that the Groupon campaigns were unprofitable ventures for one-third of them. Furthermore, ~40% of the companies studied stated that, based on their experience, they don’t plan to run another social coupon promotion.

The Rice study measured program success based on two criteria: what portion of customers spent more than the coupon amount … and to what degree did customers subsequently make follow-up purchases without the coupon offer. Those companies that reported their campaigns had not been profitable also reported that only ~25% of the coupon redeemers spent more than the face value of the coupon.

Beyond that, fewer than 15% made a subsequent purchase at full price.

In contrast, firms that reported having profitable promotions stated that about half of the coupon redeemers spent more than value of the coupon, and ~30% of them made follow-up purchases at regular prices.

But even some of these firms were wary about conducting another campaign, believing that the Groupon offer did not attract the “right” kind of customers.

What types of offers did well? The Rice study found that foodservice offers performed best in terms of the quantity of offers redeemed. Other categories that scored relatively well were tourism offers, educational services, salons and spas – but each of these drew less than half the response level that restaurants achieved.

Utpal Dholakia, an associate professor of marketing at Rice and leader of the research study, concluded, “There is disillusionment with the extreme price-sensitive nature and transactional orientation of these consumers.” Dr. Dholakia went on to point out that “they are not the relational customers that they had hoped for, or the ones … necessary for their businesses’ long-term success.”

What’s the caveat for businesses thinking about jumping into social couponing? Such a program may well contribute to a surge in business. But many of these new customers will be price-conscious in the extreme, holding a bargain-hunting agenda above everything else.

Hmmm. Just like the real world.