Groupon’s (NASDAQ:GRPN) latest move to launch a $29.99 a year VIP service has a marked resemblance with  the New York Times‘ (NYSE:NYT) paywall, a paid digital subscription service that was launched in early 2011. The most striking similarity is that both of the companies decided to launch their paid products when they realized that customer retention was getting difficult, which was taking a toll on their revenues. For Groupon, the main concern is a noticeable decline in sequential revenue growth over the last few quarters and a lower spend per customer.
See our full analysis for Groupon
But Will It Really Appeal to Deal Addicts?
While conceptually Groupon’s VIP feature resembles NYT’s paywall, the latter relies on its popularity and reputation as a journalistic source to ensure that users are willing to pay. So far, the paywall has performed decently with the digital subscriptions nearing 400,000.
However, with a $30-price tag, Groupon’s VIP service may not be able to appeal to a typical deal addict, who is actively looking for the best bargain. A typical deal seeker will probably be willing to scan other deal sites to find an even cheaper deal rather than paying a fixed price to an individual source. And an intermittent buyer would not be bothered much to sign up for a “VIP” status in the first place.
Having said that, Groupon is promising many goodies with this package, including the redemption of an expired Groupon as well as early access to deals. We expect the company to expand this pilot to more cities in the U.S. to truly gauge its impact on consumer loyalty and retention.
We have updated our analysis for Groupon with a $12.55 price estimate, which is well below the current market price.
Refer our note on why Groupon’s valuation has fluctuated significantly over the past two years.
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