Why Groupon Could Own Your Brand's Future

Beware the Tyranny of Price

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Jonathan Salem Baskin
Jonathan Salem Baskin
With rumors that Groupon recently denied selling its retailer discounting service to Google (worth something estimated north of $5 billion), I think it's high time to riff on its impact on business overall. My conclusion is that it disintermediates value out of the relationship between brands and consumers, and threatens to elevate price as the primary brand attribute your customers may ever care about.

Don't get me wrong: Groupon wouldn't have 35 million subscribers unless it provided them with repeat benefits. I love the concept because it unifies people into communities with specific actions that have tangible returns vs. providing some supposed "enhanced experience" or the nonsense deliverables of branded entertainment. Saving money is damn entertaining, at least to me.

It's also eminently measurable, in keeping with the direct-marketing model perfected over a half-century ago. Sure, there are naggingly vague variables, like how many full-price sales a Groupon deal replaces, or the likelihood of subsequent purchases by customers whose decisions are wholly price-driven. Awareness is a gravy-level benefit that must be worth something, only who knows how much? When retailers are expected to link every dollar spent with a corresponding blip on their marketing dashboards, however, it's the cause/effect functionality that makes Groupon a useful tactic.

But strategically, Groupon feeds off brands like online affiliate marketing programs monetize the last click; the idea spells disaster for businesses. Groupon has simply extended to a larger community the discount-dependent, online affiliate marketing model delivered by companies like FatWallet and CouponCabin. Because of the reasons I noted above I think there's more to come, and here's my reasoning on why you're not going to like it:

Price has always been a somewhat artificial construct. Markets are imperfectly efficient, and inequality of information is more the norm than the exception, and this is no more true than for most consumer products.

Value -- the driver behind price -- is impossible to discuss objectively. There is no way to assign a single value to, say, good service across product categories, let alone assess the comparative values of a tasty bowl of cereal vs. a wrench that doesn't rust. This goes for discounts, too: 50% off a car wash may or may not be as valuable as a greater discount on a magazine subscription or tube of toothpaste.

Traditionally, great marketing and branding have contributed to -- and benefited from -- this complexity by creating emotional and other associative benefits for brands ... and thereby imposed some sense of order, if not rationally, to the marketplace. It's why there's a Coke and a Pepsi, and not a single offering called Bubbly Brown Liquid.

The primary reason some brands get a surcharge over others is that they possess subjectively better values. Some are premium while others aren't, based perhaps to some degree an operational reality but more dependent on the inequities of market performance and information availability. They're worth more because people think they are, rightly or otherwise.

Sales, discounts and promotions erase these beliefs, or premiums. And I suspect they make it harder to "raise" prices to their former levels once consumers have paid less. This has always been the problem with sale pricing (just ask Gap), and services like Groupon simply institutionalize the effect.

Therefore, Groupon isn't a distribution or sampling tactic, but rather a repricing strategy. It elevates price to become the driver of brand preference, and transfers some of that brand value it obliterates into cash in its corporate pocket.

Again, good for them, but Groupon's success should have every CMO pondering what a future tyranny of price could mean for sales and margins. Is it possible that all of your consumers will bond into communities that demand discounts before they buy? How will you communicate (and differentiate) value when they're empowered to compare and contrast offerings across product categories, not just within them? Will the various "wallets" in which brands want to command a share be revealed to be a single wallet that has only so much money in it? My fear is that it'll be an ugly, less profitable free-for-all competing for a slice of it.

Do you have an answer for this? I'm not sure that I do, but my gut tells me that the best way to beat 'em is to join 'em, only in ways that draw on values other than price:

While Groupon tries to reduce your profits to some lowest common denominator, why not create (or contribute to) communities that buy based on philanthropy, supply-chain integrity or safety, or perhaps collaborative design and execution?

You could link the content you publish to different rationales for purchase behavior (i.e. "we'll do this -- build a school, use a higher grade of biodegradable paint, let you help design our new gizmo -- if you commit to buying").

This could rebuild non-price-based values for your brand while inventing new ones. It would find its basis in operational behavior, which could be more sustainable than basing your value on the traditional (and impermanent) inventions of marketing imagination.

I think it would make for some killer use of social networks, but it would require you to transform what you've envisioned as communities for brand engagement into communities for buying stuff.

I fear that if you don't do it, Groupon or one of its successors will do it for you, and end up being worth a helluva lot more than $5 billion.

Jonathan Salem Baskin is a global brand strategist, author and speaker. Read his blog at dimbulb.net and follow him on Twitter: @jonathansalem.
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