Why Groupon is Failing in China

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Image by Getty Images via @daylife

Understanding who your customers are is the key to success.

How can a company that has achieved such a high degree of success in a short time end up failing miserably in their next venture?

It seems impossible that a company as cutting edge and innovative as Groupon could be completely oblivious to the importance of building brand equity in the sales industry. To succeed you have to show that you understand what your customers need, what they want and who they are.

Still, it happened, and in the process, Groupon displayed a complete lack of maturity and thinking ahead. Their mistakes were so blatant, in fact, that it almost looks as though they trying to fail.

I don't think that they set themselves up for failure on purpose, but I suspect that somewhere along the way, they forgot that in order to sell a service, you have to really know who your target market is and what they want.

Groupon is extremely successful here in the United States. They are the undisputed leader in social discounts and the company everyone is gunning for. There are new social deal sites popping up all the time, and every one of them aspires to be the next Groupon.

The target Groupon user is 18-40 years old, they are active on social networking sites, have disposable income and own a smartphone. Each day, Groupon delivers a fresh deal straight to their customers' inboxes offering deep discounts on products and services in their local area.

Their brand is easily recognized and their logo and website design looks young and fresh. To give the offers a more hip and irreverent feel, their product descriptions are written by freelance copywriters and designed to give the reader a laugh more than give any real information.

Groupon's rise to success happened quickly and was due in part to how well they understand their customers, both the local business owner and the Groupon buyer.
They are able to reach out to small businesses that are in need of some effective marketing but may not be able to afford to hire an advertising agency or a marketing director. Then, they help the business owner come up with the featured offer and for a slice of the sales, they deliver an audience of people who are already interested in trying new places and getting deals. If that's not enough, Groupon also encourages the customers to share the promotion with their friends on social networking sites. To top it all off, Groupon even gets them to pay for the service in advance.
Even if there aren't many people who choose to buy a particular deal, each subscriber will at least be aware of the company and the name, just because they viewed the offer. In the local business world, name recognition is huge and having been seen on Groupon gives the business a degree of credibility.

It seems like a win-win proposition, right?

It really is, but only in America.

When Groupon decided to take their company global and open offices in China, they made a huge mistake by assuming that what works well here would work well anywhere. It seemed reasonable enough, and besides there were already other social deal companies that were achieving massive amounts of success using Groupon business model.

So, why are they failing so miserably?

They are failing because they have forgotten that the crucial element to selling social discount is the social part. In order to connect with their Chinese customers, they first need to figure out how to be social and make the customer feel like they are part of the corporate culture and taking part in the brand lifestyle.

Their first mistake was that they staffed their offices in China with mostly American employees who don't speak much Chinese. Because their business model relies on selling local deals to local people, they need to be local in order to appeal to customers. Because of this error, they have established themselves as another American company, and one that doesn't even try to appear to be part of the Chinese culture.

It would be the same thing as a grocery store opening up near your home that says that it is the best local supermarket around and wants to be an asset to the neighbourhood. Only,when you stop by to pick up a few groceries and check them out, you find that all of the employees are French and don't speak English at all. All of the products in the store have French names and unfamiliar packaging. What would you do?

Well, if you were French, you'd probably feel right at home. Otherwise, many people would just assume that the grocery store is for French people and would try to go to a different store in order to buy the things that are familiar.

The next mistake Groupon made was assuming that Chinese people would be attracted to discounted offers that are being touted as money saving or a bargain. It is a good strategy here in America where people really love to save money on stuff they don't need.
I am guilty of it too, and I am not ashamed to admit it. Places like Dollar Tree, Wal-Mart and Five Below have made fortunes off of our love of finding plastic junk on the cheap.

In China, however, the middle class has only risen to prosperity over the past few decades, and the country is still developing. For the new generation of Chinese adults, looking for ways to save money and bragging about a cheap deal doesn't have as much allure. These customers are maybe only a generation out of poverty and they are more attracted to buying things that offer some sort of luxury or that could be viewed as a status symbol. Trying to get a meal at a local restaurant for half price and saving money on routine services gives the impression of not being able to afford small luxuries.

Perhaps the people at Groupon China should have paid more attention to the news reports of people in China who were eager to sell their kidneys in order to own an iPad.
If they had, they might have found ways to sell status items for low prices, and made a fortune in the process.

The other big mistake that the company made was showing how completely clueless they are about Chinese culture. Their Super Bowl ad that mentioned Tibet as a "culture in jeopardy" and touted the Tibetan's impressive ability to "Whip up an amazing fish curry".

In the space of a 30 second commercial that cost them millions, Groupon managed to alienate and insult every person who has ever been involved with Tibet and their struggle. I am not sure what they were thinking when they approved the commercial. Even someone who isn't familiar with Chinese culture and is even passingly familiar with world events should know that when you are trying to make friends in China, just don't talk about Tibet. "Free Tibet" jokes are just plain tacky.

Groupon recently announced that they are closing 10 of their Chinese offices and have fired several hundred employees. Although the company's offical statement is that it was all part of a "strategy change" and it is not indicative of any failure on their part.

If their "strategy change" doesn't involves completely reassessing their business plan or packing up and leaving China, there will be more closings and firings on the way.

Have you ever bought a Groupon? What did you think about your experience? Do you think it's possible for Groupon to thrive in China? Let me know in the comments.

By Melissa Kennedy- Melissa is a 9 year blog veteran and a freelance writer for SalesHeadsBlog, along with helping others find the job of their dreams, she enjoys computer geekery, raising a teenager, supporting her local library, writing about herself in the third person and working on her next novel.


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