The Groupon filing for IPO has created lot of discussions about the future of that business. Not that many people care about it, but let me give you my opinion: I have no idea if they’re going to pull it off, but I hate it. I actually hate everything about it. Of course, I still use it, but deep inside me, I hate it.
Everybody now wants a discount on everything. I remember the time where discounts were unusual. You had to be very smart to get one. It made you feel good. There was this excitement about getting something for a discounted price and you usually didn’t feel bad for paying something full price, since you kind of knew when sales would happen. It was a trade off between getting the item now, or during a sales period. With the emergence of Groupon (and all the clones, including Gilt), it seems everything is now on sale at all times. And what used to be something limited to the traditional retail business has now reached any business. You go to the restaurant, you except a discount. You go to your coffee place, you expect a discount. It creates a very weird feeling: if you pay full price, you’re an idiot. Even worse, if you pay full price, you’re not having a good experience. It creates this tension from the beginning of the relationship between the business and the customer.
Since we’re not far away from being in a world where everything will be discounted, it’s easy to foresee an increase in the full prices and a constant discount policy. It’s the gamification of the retail business – good players will be able to get discounted items. Poor players will pay even more. To be a good player, you’ll have to like the business on facebook, subscribe to all the coupons site, refer your friends etc… Now, there is a big problem with giving money or discounts to good players (as opposed to status). The excellent Gabe Zichermann explains it very well with one example: Bed Bath and Beyond. How often do you go to Bed Bath and Beyond without a 20% coupon? The answer is probably “not often”. They created this “expectation” of a discount and suddenly there is a routine. Bad.
Even worse, that game is not about discovery. The numbers are still to be unveiled, but which coupons did you use in the last 6 months? I bet you most of them are from stores/restaurants/brand that you already knew and had a relationship with. If not that, because it’s all local, you probably had heard about the business and already thought about giving it a try. So basically, businesses give away discount prices to their most loyal customers. Those very ones who kept coming back and didn’t really mind about the price. That’s how I use Groupons and others: to get discount at my favorite stores/restaurants/bars.
I’m a huge believer that the best way to reward your best customers is status and not better prices. It’s a love story. They show you love, show them love back. And as everybody knows, love is not about the money, it’s about the attention :).
We’ll see how this trend will evolve. Maybe it will change the way we purchase anything in the future, but I think there must be a better way for businesses to attract new clients, and at the same time, reward their loyal customers without killing their margins.
UPDATE: I actually just saw what Loopt is launching, and it’s really interesting. It’s much closer to the usual behavior of group discount and I think it protects the business, and reward your loyal customers who will bring their friends.