Groupon's Roy Blanga: 'We haven't been as good as we should have been'

Feature

Groupon's Roy Blanga: 'We haven't been as good as we should have been'

The daily deals site's managing director has had to deal with questionable results and an OFT investigation. Now, the brand faces increased competition.

Sarah Shearman

September 13, 2012

How long?

5-7 minutes

After a tough year for Groupon, it seems reasonable to assume that the daily deals site would be on a major charm offensive.

The campaign: 'Live your city for less'

Personal file and CV

That's not the case, however, when Marketing meets UK managing director Roy Blanga, who appears to find the interview process a tad irritating. Perhaps this is because his grilling takes place on the day after Groupon reported its second-quarter results; its stock took a hammering, dropping almost 80% since its IPO last November. Or maybe Blanga is feeling frazzled from having to constantly defend the UK business this year after the Office of Fair Trading (OFT) found 'widespread' breaches of consumer protection laws, following a long investigation.

Whatever the reason, Blanga is not in the mood for pleasantries, answering some questions curtly. It's a shame, because the story of Groupon, which was founded in Chicago four years ago by its chief executive Andrew Mason, is one worth telling with enthusiasm. The business, which sells coupons for a merchant's product, service or experience at a steep discount, is one of the pioneers of a rapidly-growing sector.

Bargain desire

Groupon is, arguably, the brand that brought daily deals commerce - not to mention fish pedicures - into the mainstream, tapping into cash-strapped consumers' desire to dig out a bargain. For a while, it seemed it could do no wrong; the business grew rapidly and expanded into international markets, garnering praise from Forbes as the world's 'fastest-growing company' along the way.

In the UK, however, its growth spurt led to many merchants being unable to cope with the extra business, claims of unfair pricing, and complaints about misleading terms and advertising.

Things came to a head when the OFT launched an investigation into the company in July 2011, while last December, the Advertising Standards Authority (ASA) referred Groupon to the OFT over 'serious concerns' after it broke UK advertising regulations almost 50 times in less than a year. This March, the OFT forced Groupon to change its trading practices and it fell to Blanga to publicly admit to customers who had 'experienced the negative side effects of our growth' that 'we've messed up'.

Frank admission

Blanga, an Italian with a sales and consultancy background, is equally frank when discussing the subject five months on. 'At the beginning of last year, the company had evolved so rapidly, in an industry that didn't exist before. We had to anticipate all the challenges it would face and in some instances, we haven't been as good as we should have been,' he says.

In the early days of the business, adds Blanga, when a merchant would sell an average of 10 to 20 coupons per deal, capacity was not a problem. When the brand grew to having hundreds of thousands of deals going through its site every month, however, it faced an entirely different situation.

'But we've learned from our mistakes and put things right,' he says, claiming the company now has a 'strong compliance culture' and an enhanced vetting process for deals.

Blanga, who has worked at Groupon since its UK office opened in June 2010, after the company's acquisition of German rival CityDeal, is keen to stress that operational changes were under way before the OFT ruling. 'The ruling pushed us to accelerate the level of change we had planned,' he says.

To hammer this home, he takes Marketing on a tour of the UK headquarters, which houses more than 800 staff. Based in the City of London, it is just far enough from the capital's burgeoning Tech City to feel disconnected from the digital scene. The majority of the workers here are sales people; with three other sales offices in London and a network of regional offices across the UK, they form the engine of the business.

Handling complaints

As Blanga walks past the various teams he explains that every merchant goes through a series of checks before a deal is arranged. Once approved, it undergoes a quality assurance and commercial check before it is posted on the site. Nonetheless, the ASA is still receiving complaints about Groupon. These are passed on to the OFT under its agreement with the brand, although the volume is decreasing month on month.

Groupon is not the only daily deals site coming under scrutiny. The ASA has also received complaints about KGB Deals, Living Social and Wowcher, while the OFT has written to more than 30 sites warning them to adhere to the same guidelines issued to Groupon earlier this year.

Blanga contends that complaints are 'inevitable' due to the number of deals Groupon processes per day. However, he insists that the system now in place puts the company in better shape than its competitors and will help to build consumer trust.

'Setting up a promotion and putting it on a site is easy, but it is hard to do it consistently and ensure your customers and merchants are satisfied. That takes time, effort and operational excellence, and that is how we want to differentiate ourselves,' he says.

Blanga also argues that sticking to a brand strategy of creating 'great experiences', rather than merely offering the biggest discount, will restore trust.

Groupon reports only its global figures, and while he concedes that the UK is one of its biggest and most important markets, Blanga declines to answer questions that seek specifics about the marketing department, the number of users, or how many deals have been sold by Groupon in the UK.

Facing competition

It is safe to say, however, that it is one of the UK's most-visited sites. ComScore data reveals that Groupon attracts the most traffic of all UK daily deals sites, with 3.2m unique visitors in July 2012, who each visited the site an average of three times that month.

This is almost three times as many as Wowcher, which had 1.3m unique visitors for the same month; LivingSocial had 1.2m. While Groupon dwarfs its rivals, it still faces tough competition from brands that come armed with an established database.

These include Trinity Mirror's Happli, MoneySupermarket.com and Nectar; the latter says it plans to play on its 'brand love' to gain an advantage. Last month, Amazon, too, entered the fray with Amazon Local.

Blanga bats off the suggestion that Google Offers, which is yet to launch in the UK, poses another threat to his business. He admits that Groupon - which famously snubbed the search engine company's $6bn (£3.8bn) acquisition offer in 2010 - cannot compete with Google on the technology front, but contends that its well-established UK sales network gives it the edge. 'Personal interaction cannot be replaced by technology,' he adds.

Tech battleground

However, technology is the next big battleground for Groupon, particularly in mobile. A third of the brand's US customers now access it via mobile devices, but penetration in Europe lags behind. In response, the brand plans to launch its Groupon Now mobile app, which offers users deals based on their location in the UK, 'soon', according to Blanga.

Groupon also intends to send more-personalised emails to its users, based on their location, gender and previous purchases. This has been jokingly referred to by chief executive Mason as a feature to stop it sending offers for pole-dancing lessons to men.

Greater personalisation extends to the marketing strategy itself, which has shifted from above-the-line advertising (see box, page 29) to data-driven marketing, run by its centralised marketing team in Germany. Blanga says the results of Groupon's one and only TV brand campaign were 'satisfactory', but that it is 'unlikely' to run another.

Other developments on the horizon include a plan to experiment with ticketing deals for events, having recently expanded into the holiday and retail - covering everything from cupcakes to suits - sectors.

While it is clear Groupon is looking to the future and ways of expanding the business, it continues to be dogged by criticism over the sustainability of its business model. In particular, commentators question the actual value of its user base, which, in essence, is an email list of consumers who want to buy bargains and one-offs.

Analysts' expectations

These issues were thrown into sharp focus by those second-quarter results. While they marked Groupon's first profit, and a revenue increase of 45% to $568.3m (£359.2m), compared with $392.6m in the second quarter of 2011, the brand grew just 2% quarter on quarter - below analysts' expectations.

Mason has blamed the performance on its European business, saying the economic climate meant it was selling fewer high-ticket deals, such as laser hair removal.

What particularly concerned investors and caused the stock to plummet was that when revenues from its Groupon Goods business, which sells discounted products, were stripped out, revenue fell 7% quarter on quarter, indicating its core coupon business is shrinking.

'Investors have the right to scrutinise how the company is performing, and it is our responsibility to grow the company and win their trust,' says Blanga.

Like fellow newly public tech peers Facebook and Zynga, Groupon is facing the added pressure of having to answer to its shareholders as well as merchants and consumers. Unfortunately for Blanga, Groupon's turbulent times seem far from over.

STAT ATTACK

$88.4m - Global marketing expenditure for the three months to 30 June 2012

$20 - share price when Groupon listed as a public company

Source: Groupon

THE CAMPAIGN: 'LIVE YOUR CITY FOR LESS'

Groupon's UK TV ad debut came last October, with its first brand campaign. The execution featured a woman shooting a video diary of her week, which was full of activities she had purchased on Groupon. These included a spa day and cupcake-making class. It introduced the strapline 'Live your city for less'. The ad, created by Space City, ran until the end of November. However, it looks unlikely that it will be repeated or followed up as Blanga described the results as merely 'satisfactory'.