Groupon Primes Itself to Become Next Zappos

Ad Age Visits to See How This Smart Startup Aims to Keep 60 Million Global Consumers Feeling the Love

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Two years ago, Joe Harrow's most impressive management experience was a job as camp director for two summers. Today, he leads Groupon's 300-person customer-service department and is responsible for disseminating the Groupon gospel to 700 additional customer-service employees across the world.

"My closest thing to customer-service experience was working at a coffee shop in college," he told me. But 29-year-old Mr. Harrow has been with Groupon from the beginning. He knew the product well and when customers started calling, he picked up the phone. When there were too many calls for him to answer alone, he started hiring.

Mr. Harrow's now-massive team is testament to Groupon's decidedly old-fashioned approach to business. While other internet sensations such as Google and Facebook have developed self-service technology to get at the small business long-tail, the latest digital darling is focusing on service with a smile, phone calls and manpower.

Joe Harrow
Joe Harrow
"How many people like a robot?" said Mr. Harrow. "Everyone wants to speak to a human. We'll try to add [technology] and make self-service more available, but it shouldn't be the only approach."

During a visit to the startup's Chicago headquarters in February, the office had transformed into a mini United Nations; about 30 managers from across the globe, including Malaysia, Russia and Poland, had been flown in and took over a new section of the ever-expanding office to learn the company's characteristic service, new tools and processes.

In just one year, the company has expanded its services from one country to 42, largely by acquiring group-buying sites in local markets. This summit, which brought many of the managers to the U.S. for the first time, was designed to teach them the company's U.S. practices -- people such as Patrick Carmody, who in late 2010 joined the Durbin, South Africa site Twangoo, which was acquired by Groupon six weeks later.

Now, the 34-year-old former Grey Worldwide account planner sat alongside 20-something managers from Japan, Germany and the Philippines, listening to sneakered U.S. execs with PowerPoints.

The explosive growth has meant annual sales estimated as high as $1 billion. But to keep that up, Groupon has had to grow much faster than its predecessors. At age two, Groupon customer-service accounts for about 20% of its more than 5,000-member global workforce. Hiring continues at a rapid pace -- in fact, the company added 100 customer-service reps the month before its Super Bowl ad to prepare for the national attention. To compare, Facebook had fewer than 100 employees at its two-year mark, and today still has only 2,000. Even Zappos, the e-retailer known for service, is far smaller than Groupon after more than 10 years. But it takes lots of people to keep 60 million customers in love with Groupon.

Managers from around the world get trained at Groupon's Chicago headquarters.
Managers from around the world get trained at Groupon's Chicago headquarters.
It remains to be seen if customers are feeling Groupon's growing pains. At the Chicago center, one caller was mad. "Connect me with a supervisor, please," she said, after hearing the Groupon rep's chirpy greeting. It was her fourth call for the same issue; she needed money back. "I've liked your company, you're usually right on top of things," she said later. "You must be going through transition."

Costs for retaining Groupon's tranche of young, urban talent will soon become a factor if the company keeps up its hiring pace. Just in the U.S. and Canada, 300 company reps in downtown Chicago answer 9,000 to 12,000 emails and 3,000 phone calls per day amidst mild flirting and jokes in long banks of desks with arty postcards pinned to their walls. They make salaries in and often near the top of the job's $26,000 to $34,000 range. Add in the cost of free Gatorade and open vacation policies, plus more headcount in sales and merchant management, and it's not a cheap endeavor.

"Maybe having a 1,000-person call center in downtown Chicago is not smart," said Mr. Harrow. "We haven't done the math yet. When we do, we'll ask how we can make this economical without costing us our culture." But he's going to avoid moving the call center abroad or to a third-party, he said.

In many ways, Groupon is following Zappos' lead. Mr. Harrow took a field trip to Las Vegas to see how Zappos has managed to scale and took home a few lessons on management and training. After a few years of growth, Zappos moved headquarters from San Francisco to Las Vegas. While CEO Tony Hsieh has said the move was to find more service hires, the lower rents in Vegas couldn't have hurt.

Unlike Zappos, however, Groupon's service is two-pronged. Beyond solving everyday coupon buyers' problems, it also must keep the small businesses that provide the cut- rate deals coming back. As part of the effort, the international managers have learned how to use SalesForce software to track merchant calls and to stay on a frequent follow-up schedule after the deal.

Retaining merchants is a major focus for the company, especially after early reports that small businesses weren't going back to Groupon after the first deal. The model, where small businesses offer cut-rate deals and then split revenue with Groupon, was unprofitable for one-third of businesses in a Rice University study. Nearly half said they wouldn't run Groupon deals again, the study found.

To combat the issue, Groupon hired customer-relationship management agency Euro RSCG, which has designed online surveys to track merchant satisfaction. Groupon says early surveys have shown 95% of businesses say they want to work with the company again.

Merchants were having trouble seeing the return on investment for what Mr. Harrow calls this "new kind of advertising," so Groupon has built tools to help gather data. One of the things it's developed is a smartphone app for merchants to scan the coupons as they're redeemed. That feeds into a web-based merchant center that graphically shows how deals perform, demographic breakdowns and purchase locations. So far 500 merchants have the app on iPod Touches or Android phones on loan for a $200 deposit, but more are on the way.

En route to Groupon's office in the converted, century-old Montgomery Ward warehouse, I spoke to one in a long line of potential customers, my dad. He told me he'd called Groupon to set up a deal for his Chicago-area dental office but had no luck. He wanted to offer $500 implants for free but, since Groupon needs to collect on deals, his inquiry stopped there. "Why didn't you consider $25 for $500 worth of implants?" I asked. "I would have," he said. "But no one told me that over the phone."

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