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Will Groupon go big or stay local?

The Groupon website.

TEXT OF STORY

Kai Ryssdal:The bargain oriented among you have probably heard of the online coupon site Groupon. It normally offers discounts at small, local businesses tailored to users in their particular city. Yesterday, though, the deal was a $50 coupon at the Gap for 25 bucks. That is 50 percent off. Demand was so high -- we're talking $11 million in coupon sales high -- that the site's servers had a temporary meltdown. Hard to argue with that kind of success, but a mass market move like that isn't without its risks.

Marketplace's Stacey Vanek Smith reports.


Stacey Vanek Smith: Every day, Groupon members get a coupon in their e-mail. The offers are usually local, from a nearby pub or pilates studio. Yesterday's Gap coupon went national.

Groupon spokesperson Julie Mossler.

Julie Mossler: The deal with the Gap was the largest scale deal we'd ever done.

Groupon isn't even two years old, but it has 13 million members and it's valued at more than a billion dollars. So offering coupons from big name retailers like the Gap might seem like a logical next step.

But Matt Britton, CEO of social marketing firm Mr. Youth, says Groupon should remember, it got big by staying small.

Matt Britton: Groupon really took off by targeting small businesses, which propelled consumers to tell stories -- "Oh my God, I got this offer on Groupon and I found this really crazy massage therapist." If it's an offer from the Gap, all the sudden, it can really lose its edge.

Discovering local businesses is why Los Angeles member Elizabeth Terrian likes Groupon.

Elizabeth Terrian: I hadn't considered going to the wax museum, I hadn't considered going whale watching.

Terrian wasn't a fan of the Gap coupon.

Terrian: I open the offer for the explicit purpose of finding something new. To provide me with something from Gap? I can get that a million other places and it's just now become another piece of spam.

Marketing expert Britton says Groupon is probably under pressure from investors to do larger-scale deals. They bring in more money and don't require the legwork and vetting hyper-local offers do.

Britton: It'll be interesting to see how they balance being edgy while really capturing the larger revenues from larger companies.

Groupon's Julie Mossler says Groupon will still focus on local businesses, but may start peppering in more national offers.

I'm Stacey Vanek Smith for Marketplace.

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Its likely that they started looking at sites like Gilt Group and though they could chip away at the marketshare, but the reality is Gap should be selling on Gilt before there on Groupon. I think the move is interesting and welcoming to change perception of Groupon as a site for bargain hunters where the quality suffers based on the heavy discounting. BUT this actually validates Groupon. The reality is Luxury brands discount there pricey wares at 75% mark down. Groupon at 50% still shaves off a premium of that 75% and actually validates a lot of its smaller retailer partners. In short, Groupon should remain highly local, highly relevant (think Zagat vs. Yelp)

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