Groupon SA in for the long haul

Nov 12 2012 15:44

Groupon employees plan group buying deals in the Cape Town office. (Duncan Alfreds, News24)

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Cape Town - Groupon SA said on Monday the key to its success in South Africa is that it offers customers a safe platform, greater choice and attractive deals in a growing e-commerce market.

"We are building a company for the long term and are confident in our strategy," said Groupon SA in reaction to reports out of the US that Groupon and its US peers in the much-hyped daily deals business are racing to change as evidence mounts that their business model is fundamentally flawed.

The reports followed Groupon Inc's dismal earnings report last week, which showed its core business was stagnating.

"It's clear that they need to have other models besides the email daily deals business," Aaron Kessler, an analyst at Raymond James, told Reuters.

Groupon SA said it was not at liberty to comment on any local numbers or figures according to the rules and regulations of the Nasdaq stock exchange, where Groupon is listed.

"All financial information is public record and can be found by following the below link: Groupon, Inc CIK#," said Groupon SA.

On how popular Groupon.co.za is among SA online shoppers, the group said it is encouraged by the rise of online shopping in South Africa.

"It is important that we ensure customer satisfaction to maintain this continued rapid growth of online.

"It’s about owning the trust, from the start to finish of the deal. We believe the key to our success is because we offer our customers a safe platform, greater choice and attractive deals in a growing market like South Africa," said Groupon SA.

The group said it would soon release some statistics on where the spikes are, what consumers are looking for this holiday season and what the various trends are.

On its future strategy for South Africa, the group said it would grow and build its travel category, with a strong focus on product categories while at the same time expanding and growing its existing categories.

"In South Africa the beauty and wellness sector of Groupon continues to be our most popular category."

Groupon Inc went public at $20 a share just a year ago.

Critics say the torrid growth was fuelled by merchants buying into a new type of marketing that they didn't fully understand. The discounts offered through the Groupon coupons have turned out to be costly, and the repeat business they generate uncertain.

Reuters quoted Utpal Dholakia, Professor of Management in Rice University's Jones Graduate School of Business, as saying: "A lot of people made the mistake of overlooking the price-promotion part of this model.

"Normal advertising, yellow pages advertising, it really doesn't have a price promotion, it doesn't have a discounting component. That's what makes this difficult to do again and again."

According to Reuters, a Raymond James survey of roughly 115 merchants that used daily deals services during the fall found that 39% of merchants said they were not likely to run another Groupon promotion over the next couple of years. The top reasons cited were high commission rate and low rate of repeat customers gained through offering a promotion.

The survey also found that 32% of the merchants reported losing money on the promotions, and nearly 40% said the Groupon offer was less effective than other types of marketing.

The number of existing customers interested in signing up for daily deals has waned - Groupon reported last week that the average revenue per active customer (defined as an account that has purchased a deal from the site in the previous 12 months) fell to $63.96 in the 12 months to September 30 from $76.49 a year earlier.

The company has also suffered a string of high-level executive departures as its market value has shrivelled to just $1.8bn, down from nearly $13bn when it went public.

Groupon has also been dogged by controversy over its accounting methods, though it said last week that it had $1.2bn in cash and cash-equivalents with no long-term debt.   

- Fin24

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