Saturday, February 12, 2011

Are cracks starting to show at Groupon?

Last week wasn't a good one for Groupon. On February 6th, the company launched a series of television ads (its first) on the Super Bowl broadcast in the U.S. The ads started by describing some major problem (the situation in Tibet, deforestation in the Amazon, or threats to whales) and then turned into a pitch for a great deal at a restaurant, a salon or a boat trip. They were intended to be funny, but they ended up offending many viewers. Company CEO Andrew Mason defended the ads on a company blog, but said that their endings would be changed to put more emphasis on the problems that the ads were supposed to be about. However, rather than pulling the original ads until the revised versions were ready, Groupon continued to run the original ads, and the complaints continued. Last Thursday, Mason announced that the ads would be discontinued entirely.

The same day that Groupon called it quits on its television ads, it ran a deal with FTD, a flower distribution service in the U.S., offering $40 worth of flowers for $20. According to CNNMoney.com, almost 3,330 people took the deal, which required them to purchase the flowers through a special Groupon/FTD website. The problem was that some customers compared the prices found on the Groupon/FTD site with FTD's own website, and learned that the prices for the Groupon promotion were marked up anywhere from $10 to $20 more than they were on Groupon's own site, meaning that the Groupon deal offered little or no discount from the true prices.

In addition, some buyers found that the flowers wouldn't be delivered until February 15th, the day after Valentine's Day. Groupon and FTD were forced to rescind the deal, agreed to refund money to any customers who wanted it, and offered the discounts on the prices of flowers on the FTD.com site, not the Groupon/FTD site, for those customers who still wanted the deal.

Groupon's portrays itself as a fun company, but the "fun" might be disguising a level of immaturity on the part of the company's top managers. This is certainly not the first time that a startup has made highly public mistakes. Facebook is a prime example of repeatedly making gaffes (intentional or otherwise) when it comes to its users' privacy. A few years ago, Amazon was caught offering different prices on the same products to different customers, and was forced to both change its pricing policies and refund the difference to customers who purchased at higher prices.

However, while Amazon's Jeff Bezos was decisive in taking responsibility for the company's pricing gaffe, Groupon's Mason looks wishy-washy. Take the ads: First he denied that there was a problem, then said that the company would change the ads (without actually doing so), and then he withdrew the ads. Or consider the FTD situation: Did no one within Groupon take the time to compare the prices listed on the Groupon/FTD site with FTD's own site to make sure that customers would get the deal they were buying? Or did Groupon know that the prices on the Groupon/FTD site were marked up and figured that customers wouldn't know the difference?

Looking at Groupon's rapid growth, it's beginning to look like an engine that's revved up so high that parts are flying off. Problems like the ones that Groupon had last week are "red flags". The company should learn some lessons from its gaffes, and consider bringing in more experienced managers to prevent them from happening again.
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