We Use Less than 1% of This Company's Product
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In 2011, U.S. consumers used coupons to save $4.6 billion on their purchases of consumer packaged goods. This was up from $3.7 billion in 2010 according to NCH Annual Coupon Facts Report 2012. Sounds great right? Well let’s look at the statistics in another way. According to Coupon Fast Facts, coupon distribution, in terms of just number of coupons, has remained somewhat level from 331 billion in 1999 to 317 billion in 2008. Coupon redemption, again in terms of just number of coupons, was 4.6 billion in 1999 and just 2.6 billion in 2008. The average coupon value in 2008 was $1.44 per distributed coupon and $1.09 per redeemed coupon. Calculating everything up, in 2008 Americans used only $2.8 billion worth of coupons out of the $456.5 billion worth of coupons available.
What does this say? It says that even during the recent recession, even with all the unemployment and economic uncertainty, and the growing inflationary environment, Americans still don’t use coupons! Even with the recent growing trends of coupon redemption in dollars ($2.8 billion in 2008, $3.7 billion in 2009, $4.6 billion in 2011), Americans aren’t even close to using a significant portion of available coupons. 0.62% is the percentage in dollar terms using 2008 values!
Is it any surprise that Groupon (NASDAQ: GRPN) is not doing as well after going public as people imagined it would? How many people do you know actively use Groupon coupons? How about using coupons at all? TLC even has a show called Extreme Couponing that illustrates to the fact that the entire idea of being a hardcore saver and user of coupons is something freakish and entertaining in nature in this country.
Groupon has the habit of offering coupons for things most consumers do not even want or things that are so far out of the way. Looking at the first page for my home city, I am introduced to health and beauty companies I have no interest in, restaurants that not only have I never heard of, but are miles away, and an ‘other’ category that is just a mixed bag of random companies providing services I didn’t even know were available for purchase. I have no interest in driving 30 miles into the city to order a pizza from a family owned restaurant I never heard of when I can call up the local Dominos (NYSE: DPZ) and get something cheaper and more familiar. This isn’t about bad pizza. This is about how for every deal that is on Groupon, there is a better deal that is closer, cheaper, more familiar, and includes far more options.
They will pester you with emails until you modify your contact settings and some of the decent coupons require certain usage restrictions like specific times or dates. Groupon also has a dozen other companies competing with them using the same exact model. This isn’t to say that Groupon is a bad company with no future. Instead it is to say that the business model is trying to fix something that is broadly habit-based in American society.
So what does work with consumers and coupons? Cash back credit cards, company driven discount or membership cards, loyalty cards, and traditional sales. As far as online shopping goes, companies like Fatwallet and eBates offer a wide range of stores from A to Z with significant discounts. Credit card companies have turned to similar discounts programs if you buy through their site before getting redirected to the merchant’s site.
Even if the current business model of Groupon does work and they do produce a positive earnings-per-share, how much can they really make? Can the 50% discount deals really be sustainable, give Groupon a decent commission and help it grow as a company? For Groupon to work, it will have to either modify the current business model or drastically expand the one they currently have. They will need to offer a lot more than the couple dozen of deals I currently see for my city. They will need to find some method of partnering with the everyday popular places people go to like a McDonald’s (NYSE: MCD) or a Wal-Mart (NYSE: WMT).
Realistically, how many times during a week can someone afford to purchase a ‘$25 for $50’ deal at a restaurant several miles away that they never have been to? Who is buying these dental deals that are in the thousands of dollars? Are the best dental locations even partnered with Groupon? More importantly, would you want a discount on your teeth, your eyes, your skin, or anything related to your health? For my city, I see that just 1 purchase has been made for the ‘Complete Invisalign Treatment’. For $2999 you can have a $6000 smile. However, there are over 400 billion reasons that say ‘extreme couponing’ for the majority of Americans won’t happen for at least awhile.
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