The ailments faced by Groupon - where is it all going wrong for the discount deal giant?

Groupon has had its detractors and negative headlines in recent months, as consumers question its customer service policy and turn to rivals as a result. This seems to be a continuing trend as the shareprice of the Chicago discount deals company fell by 14% yesterday, despite its claims that it would grow by 5% during the first quarter of 2012. Andrew Girdwood, media innovations director for LBi bigmouthmedia takes a look at what it all means for Groupon in the longrun.

Groupon grew by word of mouth recommendations and it is now suffering because of word of mouth concerns. These concerns are on both sides of Groupon’s business equation; from the local businesses which provide the deals through to the customers which buy them.

Local businesses have asked their fellow traders “was it worth it?”; after they experimented with the group buying service before them. Worryingly for Groupon, the answer has been “no” often enough to take the shine off its promise. Groupon is partly at fault for this, often taking such a significant chunk of any revenue generated, that it obliterates any potential profit for the local business.

True enough; plenty of businesses have found success through Groupon but the failures, however many, have been enough to encourage businesses to be cautious and weigh-up the alternatives before committing. Nevertheless, there are alternatives to Groupon from companies like LivingSocial. Facebook is another such example, and although its coupon experiment has only had a luke warm reception, it is easy enough and free for local businesses to use the social network to promise or promote special deals.

Although Facebook’s Promotion Guidelines say businesses should not use the “Like” mechanism to open up special offers – many businesses are doing exactly that. In doing so these businesses can create a viral marketing effect, recruiting new Fans by promising special discount offers once a specific attendee number has been reached. With local business not incurring any extra costs, Facebook’s coupon product may well rise to the fore.

At the same time the concern among customers that Groupon offers might not be all that they seem is growing. In the UK the company has been reprimanded by the ASA time and time again for misleading adverts.

Customers wonder whether the service they get from businesses partaking in a Groupon offer is as good as it would usually be, while some deals frankly seem to be too good to be true.

Groupon also has a communication challenge. It relies on email to announce offers and therefore has to battle with spam filters and fight for attention inside busy inboxes. A number of @gmail email addresses on Groupon Edinburgh’s list have not had an email alert since March 2011. Conspiracy theories might suggest that Google is blocking a competitor. It is, however, more likely there is a technical issue at Groupon’s end to do with email throttling, list integrity or within its operations.