Groupon personalizes the daily deal

Groupon announced a shift from its approach of the same deal for all email subscribers in a market to personalized deals in select cities. CEO Andrew Mason says that there is a backlog of 35,000 businesses waiting to be featured on Groupon and that 7 businesses are turned away for each that is featured.

Offering more deals makes sense for Groupon, for consumers and for businesses. It will lead to higher engagement among consumers, more revenue for Groupon and better results for businesses:

  • Higher engagement. As the novelty of the daily deal wears off, email open rates will decline. In my own usage, I’ve found that many businesses featured are outside the area that I’m willing to travel. If I know that deals are more local and more relevant, I’ll be more likely to open the email.
  • More revenue. Having multiple deals allows Groupon to capture revenue from more people because deals will be more relevant. The user data collected will also help with getting businesses on board — sales people will be able to say we have X thousand customers within a few miles of your business.
  • Better results for businesses. One of the concerns that small businesses have with offering big deals is attracting only deal chasers. The ideal customer is someone who will convert into a regular and pay full price. Someone who is willing to drive 30 miles to save $10 will likely have a low or negative lifetime value.

Mason says the first cut of personalization will be dumb, using limited data such as ZIP code, gender and age. While location is important, it does come with a couple of caveats:

  • Location is often directional. People living in Manhattan are much less likely to go to New Jersey for a deal than the reverse.
  • Its importance varies by business. People will travel farther to go skydiving than for a restaurant or bakery.

I’m not as convinced on using gender, age or other factors to target deals. Many of the deals have wide appeal and part of the value of products like Groupon is their serendipity.

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About Rakesh Agrawal

Rakesh Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.
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