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Groupon’s biggest challenge ahead: customer retention

June 6, 2011

Groupon is a leader in the daily deals space

Daily deals leader Groupon has filed for an initial public offering and set its potential value at $750 million. Does that take into account the customer retention challenges down the road?

Groupon is highly valued because it is growing quickly as new consumers catch on to the idea of receiving daily local deals on their computer or via a mobile device. With growth also coming via acquisition such as its recent deal for the maker of the socially-driven location-based check-in application Whrrl, an IPO has seemed likely.

“This is not really a surprise given the massive size and rapid growth of Groupon,” said Lara Albert, senior director of global marketing at Globys. “However, there are still a lot of questions to be answered about where it goes from here.”

Ms. Albert is not associated with Groupon and commented as a third-party familiar with mobile.

Spot on?
Mobile applications, in general, have been on a rapid growth curve which benefits Groupon.

There is also a golden halo around the company because of the interest in location-based advertising right now.

However, apps and location-based targeting are both still new enough that the long-term role of either is not yet clear.

For example, research has shown the average person downloads around 30 apps and that use of them declines dramatically a month after being downloaded.

“There have been a zillion companies that have launched mobile apps, but to be really successful you have to understand the challenges,” Ms. Albert said. “It’s not just about having an app but how are you going to engage users on a regular basis.

“Just because you have this huge customer base and you have people interested in the moment in deals, it doesn’t mean that in 12 months they will be accessing this app over the 20 other on their phone,” she said.

Chicago-based Groupon declined to comment for this story.

Groupon iPhone app

Because Groupon has grown so rapidly through the acquisition of new customers, the question is how is it going to derive value from its existing customer base once new customers stop signing up.

“The big question is, when everybody who has signed up who is interested in signing up, how well can Groupon shift its focus to maximize the customer base to benefit its business,” Ms. Albert said.

“We don’t know because they haven’t had to do that yet,” she said.

Diss location
Location-based targeting is a big focus for Groupon, but it is just one of a variety of targeting methods.

“Location gets so much press and there is so much promise associated with it, but it is really just one of several targeting attributes,” Ms. Albert said. “Others include behavior, usage and interaction.

“Groupon is so focused on absolute location, but just because someone is standing on [New York’s] Third Avenue, it doesn’t mean they are in their neighborhood,” she said.

“So, the question becomes, will this be enough to drive the whole promise of personalized offers that over the long-term are accepted and used by a large subscriber base?”

Final Take
Chantal Tode, Mobile Commerce Daily

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