Number crunching the Coupon Craze – Evil or benign?
From the outset I have always challenged the notion of the Groupon – aka Coupon Craze – model.
The current process of 50% off and sharing the residual revenue between establishment and coupon company doesn’t make sense to me.
However, there is some evidence to indicate that I am not entirely correct and that there may be some value to the Coupon Craze model.
eMarketer recently published an article comparing the different coupon sites and their effectiveness. The article looks at a number of the Coupon sites such as Travelzoo, Groupon, LivingSocial, OpenTable and Buywithme.
Reading the conclusions of a study by Brown University, it sounds positive.
But within the study there is inconsistency around the data. One big reason is that the methodology of the testing results from people’s perceptions of their behavior rather than their actual behavior.
Anecdotal evidence of companies going under is hard to prove, while the number of unhappy restaurants is legion.
If we run the back-of-the-envelope maths on the study, there is still not quite enough money to compensate the seller for the direct loss of revenue he may or may not get, as a direct result of the individual coupon. There is also the issue of wastage and how much of the customer’s cash ends up unused.
In the first study, the results would show the seller making a loss. The 38% existing customer using a coupon would not be compensated by the 31% new customers.
In the second study the residual return to the site would only be 20% on average (Brown University). However the amount of additional revenue from the consumer add spend would not cover the incremental cost of the services in my view.
Bottom line here folks is that some conclusions can now be drawn.
Coupon Craze sites do stimulate additional traffic. But there is not nearly enough empirical evidence of performance to draw the necessary conclusions that these sites are long term sustainable as value to a vendor.
I don’t think we can assume that this is sustainable for these sites, otherwise we would have heard plenty of successful and happy sellers’s stories and, as such, the local businesses clamouring for the new found revenue stream.
The reality is that there is a high possibility that the model will reach a point of diminishing marginal returns.
But worst of all, long term loyalty at full price is not going to sustain the vendor. Thus further eroding long term loyalty to a local brand.
Timothy O'Neil-Dunne is a contributing Node to Tnooz and managing partner at travel consultancy firm, T2Impact. He serves as the lead for the airline, aviation and airport practice. He is also a Co-founder of VaultPAD an accelerator devoted exclusively to travel and travel-related startup businesses.
Timothy was a founding management team member of the Expedia team where he headed the ground transportation and international portfolios, before founding T2Impact in 1998.
He has worked in aviation and travel distribution for more than 30 years, including time with Worldspan as head of technology where he managed international technology services from product to infrastructure.
He is also CTO and deputy CEO of Lute Technologies, a permanent advisor to the World Economic Forum and writes on the T2Impact Blog.