How Groupon Plans To Improve Customer Retention

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Retaining customers and giving them a reason to come back to Groupon (NASDAQ:GRPN) time and again has been one of the main challenges for the company. Its traditional model of daily deals has relied heavily on upfront sales, emails bombarding customers’ email accounts and the assumption that heavy discounts will lead to a loyal customer base. The business model did not turn out to be a sound strategy. While the revenues surged initially, they faltered in the subsequent years ,which forced Groupon to reconsider. The company is now focusing on promoting its online market place, reducing reliance on emails and improving their relevance, expanding on mobile and creating a common operating system for merchants. The launch of Gnome, a tablet based platform for local merchants, is an important step in terms of improving customer retention and making the business more sustainable. Promotion of marketplaces is another. Let’s take a look at these initiatives.

Our price estimate for Groupon stands at $6.38, implying a premium of less than 10% to the market price.

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How Gnome Will help Groupon?

Broadly speaking, Gnome will enable Groupon’s merchants to better manage their transactions, keep track of customers to launch specific marketing campaigns and simplify the whole process of Groupon redemption. Integration of CRM (customer relationship management) modules will be a significant jump over how the system worked before. Customers will not need to carry printed copy of their voucher or show it to the merchant on their mobile device, as they’ll be able to redeem it using Bluetooth. With Gnome hardware, Groupon is hoping to change its brand perception and improve customer retention. Analysis of purchase history will help the company and its merchants gain marketing insights, which in turn will help them create specific advertisements and improve email relevance.

Stepping Up Marketplaces Efforts

Groupon continues to ramp up its efforts of encouraging its subscribers to search for deals and explore its marketplace (‘pull’ strategy) instead of relying on emails (‘push’ strategy). It needs an image makeover, and accelerating such subscriber shift will smoothen out its top line growth and help reign in expenses. In March 2014, about 9% of Groupon’s traffic in North America is comprised of searches on its online marketplace. This implies that email related traffic still accounts for more than 90% of the company’s traffic. Given that Groupon has touted its ‘pull’ strategy for the last few quarters, its progress so far appears to be a little disappointing. Customers who consciously search for deals tend to spend more and have shorter redemption cycles, which suggests that the company’s operations can get a significant boost if it accelerates customer shift from emails to marketplace.

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