Will Groupon Survive Its Tibetan Ad Crisis?

Groupon's Tibet Ad falls Flat with Super Bowl ViewersAfter watching Timothy Hutton describe the desperate situation in Tibet, and then comparing it to saving money at a Tibetan restaurant with Groupon, do you want to unsubscribe from Groupon's daily emails offering prepaid coupons for local merchants? If so, you're in good company.

A lot of people are doing so after watching the Tibetan spot and Groupon's other two Super Bowl commercials, that the unsubscription page was temporarily down Sunday evening. Several influential people, including the New Yorker's Tad Friend (calling it "appalling") and a surprising number of my Twitter friends, unsubscribed. One PR executive joked, "Groupon (clap, clap) Groupoff."Groupon is a for-profit site, managed and run by salespeople and backed by venture capitalists, that began as a site to help non-profit campaigns succeed. Called The Point, it's built on the concept of a tipping point; that if you get enough people to sign up for something, you legitimize it. This tipping point works for Groupon deals, too. If enough people sign up for a coupon, the deal will exist; if not, the deal evaporates at midnight. The idea is that you'll so badly want to save money on something that you'll nudge your friends to buy the Groupon, too.

The commercials were offensive to thousands of Twitter users, media pundits, and commenters on YouTube, as well as major and minor news sites and blogs, because they each brought up a real and awful issue and then compared it to saving money on something frivolous. The company even telegraphed its intention to poke fun at the seriousness of the charitable causes in a blog post written before the Super Bowl, writing "we loved the idea of poking fun at ourselves by talking about discounts as a noble cause," and describing Timothy Hutton, Cuba Gooding Jr., and Elizabeth Hurley "celebrity faux-philanthropists." We contacted the company for a response after 16 hours of silence following the Super Bowl; they responded that CEO Andrew Mason is preparing a blog post. At press time, the post had not been published. (Our sister site DailyFinance, however, was recently given plenty of access to Groupon CFO Jason Child. Read the interview).

While I understand that humor usually works well in Super Bowl ads, never before has a corporation described a spokesperson as a "faux-philanthropist" and then used that spokesperson to detail a decades-old cultural and human rights crisis (but, buy the Tibetan fish curry). As Marshall Kirkpatrick at Read Write Web described it, "one of the world's most revered cultures and religious histories has been threatened with death and extinction in Tibet for decades at the hands of the authoritarian Chinese government."

The other two ads were equally designed but, for many viewers, less offensive; Gooding relieves his guilt over the plight of whales by going whale-watching with a bunch of goofy-grin-faced tourists; Elizabeth Hurley will think about the vanishing Brazilian rainforests another day, because she's getting a Brazilian wax for a bargain. It should be noted that Groupon plans to match donations to these three causes, up to $100,000, on its Save the Money web site. It should be noted, too, that the cost of the Super Bowl ads was more than $4 million.

I've long felt, like Tad Friend, a "vague dislike" for Groupon. Having worked in management in a few sales-driven organizations, I have a distinct suspicion of businesses whose CEOs come from sales backgrounds. I believe that a great salesman eventually sells himself, and that's what Andrew Mason has done. In a well-publicized case in September, a merchant who owns a coffee shop here in Portland -- a favorite of many of my closest friends -- wrote about her disappointing experience with Groupon. The company's marketers had hurried her into a decision, and she didn't understand the ramifications fully. She ended up nearly bankrupt, having to put payroll on her credit card, nearly losing loyal customers when she refused to honor the coupons after their expiration date. Mason's response was, while nominally apologetic, mostly defensive and refuting; he got other merchants to say how happy they had been and used it as an opportunity to state why Groupon was so great (not a single, "oh, we probably should have explained that differently...").

Groupon's mechanics are this: a business agrees on a coupon, say, $20 worth of product or service for $10. Groupon discourages any discounts that aren't at least 40% or 50%, and sets a threshold for sales; say, 200 coupons by midnight or the deal is off, and often a cap, or a maximum number of coupons. If the business sells 300 coupons, the $3,000 is split between Groupon and the business; usually a 50/50 split. So, your local coffee shop can sell what would have been $12,000 in revenue for $3,000 upfront.

If it is usually quite expensive to market to customers for their first visit -- say, you're an upscale spa or a whale-watching excursion operator -- and your incremental costs are low, Groupons could be great for your business. Many new customers come in, and come back later, or buy additional products and services beyond the coupon's value. But let's say your business is a small local coffee shop, and you're not Goldman Sachs-good at managing your cash. Most people who buy the Groupon will either be existing customers who would have happily paid full price; or new customers from outside the neighborhood who will use the coupon and not return.

This is the reason I don't buy Groupons: if I want to frequent a small business, I would rather give my money to that business and not to a large company of sales people who optimistically turn down offers for a $6 billion purchase by Google. And after tonight, I would rather give my money to a good cause -- say, to help the people of Tibet protect their culture and their lives from a punishing regime -- than to Groupon's Super Bowl ad slush fund. I unsubscribed.

Will Groupon survive this embarrassment? It's more pervasive and less baldly exploitative than the famously thoughtless move by Kenneth Cole to take advantage of the #Cairo hashtag last week. I don't imagine that the deals will all be failing to "tip" tomorrow. But I do believe that many more customers will start questioning where their money is going.
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