Published: February 13, 2011
Andrew Mason, Groupon’s chief, in a video apology to Japanese customers after a botched deal.
Recently, a discount for eyelash extensions that a tiny beauty salon here offered through Groupon generated enough business to keep the salon’s staff booked through May.
Groupon, which has confidently spurned a $6 billion takeover offer from Google, is not just a phenomenon in America. The deal-sharing service has found fertile ground in Japan, catching on even in places like Niigata that typically go unexplored by foreign corporations.
But if Groupon’s rapid rise in this country indicates the universal appeal of a good deal — 5.6 million people in Japan used Groupon in November — the young company’s performance is also exposing the difficulties of its simultaneous expansion at home and overseas.
A restaurant based just south of Tokyo botched the execution of a nationwide deal for a New Year’s meal sold via Groupon, for example, which became a big media story — and turned the site’s social networking capabilities back on itself, as angry consumers posted pictures of underwhelming deliveries like limp fish in lieu of the advertised caviar.
The debacle prompted Groupon’s founder, Andrew Mason, to post a video apology on the Japanese version of the site, acknowledging that “we really messed up.”
By many measures, the two-year-old company’s international introduction has been a resounding success.
Groupon, based in Chicago, now pulls in more than $1 billion in annual revenue in the United States and overseas, and has about 50 million subscribers in 35 countries.
But the controversy stirred by a Super Bowl ad that many found oddly insensitive to hunger in Tibet — the company has since withdrawn it — suggested that Groupon still had much to learn about international diplomacy.
And Groupon’s experience in Japan highlights another obstacle to its rapid international growth. The company’s success in the United States quickly inspired a crowd of copycat sites in many of the foreign markets it had hoped to enter. So Groupon scrambled to snap up overseas upstarts, helping it build an impressive global network in record time, but also giving it only limited quality control over the discount deals being struck with local businesses.
The company entered the Japanese market last summer by buying a start-up, Q:Pod, for an estimated $10 million.
While there have been complaints about Groupon deals in the United States, most recently over an FTD florist deal that customers said overstated the discounts, some of the biggest complaints have been overseas, analysts say.
“Many local competitors were springing up, so Groupon felt the need to set up shop here and dominate very quickly,” said Keiichi Yoneshima, an Internet analyst in Tokyo at Barclays Capital. “But rapid growth might have meant it didn’t pay enough attention to the details.”
Takuya Watanabe, operating officer at Groupon Japan, said that some merchants’ deals were bound to fall through by no fault of Groupon’s and that the company was prepared to offer full refunds when necessary.
And he defended Groupon’s fast growth. “Groupon is a global company, but it’s also one that’s all about small, local communities,” Mr. Watanabe said. “That means we don’t just stay in the big cities. We get out there.”
Of course, Groupon would not be growing so fast if it were not offering something consumers find appealing: steep discounts, as much as 90 percent, on goods and services.
Promotions become valid only after a certain number of people sign up, with a running tally displayed beside each coupon, lending a social media energy to the deals. The businesses that advertise with Groupon bear no costs if coupons do not sell. When the deals succeed, Groupon takes a share of the coupon proceeds.
It is a particularly alluring business model for Japan. Though relatively rich, Japanese consumers have recently become stingier, bruised by a long-stagnant domestic economy.
Japanese consumers are also accustomed to using coupons, popularized here by Recruit, an advertising and media giant that publishes magazines packed with conventional coupons for restaurants and beauty salons.
Groupon, which has confidently spurned a $6 billion takeover offer from Google, is not just a phenomenon in America. The deal-sharing service has found fertile ground in Japan, catching on even in places like Niigata that typically go unexplored by foreign corporations.
But if Groupon’s rapid rise in this country indicates the universal appeal of a good deal — 5.6 million people in Japan used Groupon in November — the young company’s performance is also exposing the difficulties of its simultaneous expansion at home and overseas.
A restaurant based just south of Tokyo botched the execution of a nationwide deal for a New Year’s meal sold via Groupon, for example, which became a big media story — and turned the site’s social networking capabilities back on itself, as angry consumers posted pictures of underwhelming deliveries like limp fish in lieu of the advertised caviar.
The debacle prompted Groupon’s founder, Andrew Mason, to post a video apology on the Japanese version of the site, acknowledging that “we really messed up.”
By many measures, the two-year-old company’s international introduction has been a resounding success.
Groupon, based in Chicago, now pulls in more than $1 billion in annual revenue in the United States and overseas, and has about 50 million subscribers in 35 countries.
But the controversy stirred by a Super Bowl ad that many found oddly insensitive to hunger in Tibet — the company has since withdrawn it — suggested that Groupon still had much to learn about international diplomacy.
And Groupon’s experience in Japan highlights another obstacle to its rapid international growth. The company’s success in the United States quickly inspired a crowd of copycat sites in many of the foreign markets it had hoped to enter. So Groupon scrambled to snap up overseas upstarts, helping it build an impressive global network in record time, but also giving it only limited quality control over the discount deals being struck with local businesses.
The company entered the Japanese market last summer by buying a start-up, Q:Pod, for an estimated $10 million.
While there have been complaints about Groupon deals in the United States, most recently over an FTD florist deal that customers said overstated the discounts, some of the biggest complaints have been overseas, analysts say.
“Many local competitors were springing up, so Groupon felt the need to set up shop here and dominate very quickly,” said Keiichi Yoneshima, an Internet analyst in Tokyo at Barclays Capital. “But rapid growth might have meant it didn’t pay enough attention to the details.”
Takuya Watanabe, operating officer at Groupon Japan, said that some merchants’ deals were bound to fall through by no fault of Groupon’s and that the company was prepared to offer full refunds when necessary.
And he defended Groupon’s fast growth. “Groupon is a global company, but it’s also one that’s all about small, local communities,” Mr. Watanabe said. “That means we don’t just stay in the big cities. We get out there.”
Of course, Groupon would not be growing so fast if it were not offering something consumers find appealing: steep discounts, as much as 90 percent, on goods and services.
Promotions become valid only after a certain number of people sign up, with a running tally displayed beside each coupon, lending a social media energy to the deals. The businesses that advertise with Groupon bear no costs if coupons do not sell. When the deals succeed, Groupon takes a share of the coupon proceeds.
It is a particularly alluring business model for Japan. Though relatively rich, Japanese consumers have recently become stingier, bruised by a long-stagnant domestic economy.
Japanese consumers are also accustomed to using coupons, popularized here by Recruit, an advertising and media giant that publishes magazines packed with conventional coupons for restaurants and beauty salons.
“Everything depends on getting noticed, about whether people are talking about you,” said Yoshitaka Nomoto of Recruit, who leads marketing for Ponpare, its own Groupon-like service. “Also, Japanese shoppers love being able to see how many other people have bought the same thing.”
It is little wonder, then, that Groupon’s success in the United States spurred a flurry of similar upstarts in Japan, led by Piku, which opened for business in late April, and Recruit, which scrambled to open Ponpare in late July. By the end of the year, there were at least 147 similar Web sites in Japan, according to Sheep.jp, a Web services company.
But one of those sites, Q:Pod, which opened in late June, stood out. It not only had a reported 200 million yen ($2.4 million) in financing from the local venture capital firm Infinity Venture Partners, but also logistical support from PakuReserve, a mobile content and broadband company.
From the start, Q:Pod employed a team of 20, and was able to draw on a nationwide sales force of more than 200 at PakuReserve, which helped find companies to offer deals on the site. Q:Pod quickly extended its reach beyond Tokyo to do business in virtually untapped small markets across Japan. It also introduced versions of the site compatible with Japan’s advanced cellphones.
Less than two months after its introduction, Q:Pod was snapped up by Groupon, and the growth continued. Flush with cash, it overwhelmed rivals in advertising exposure. It added staff and scoured Japan far and wide for new deals: 80 percent off facials in Hokkaido, 54 percent off horse-riding lessons in Kyoto.
In December, Groupon sold about 1.14 billion yen’s worth in coupons, almost twice the amount sold by the Ponpare site. That included the eyelash promotion offered by the tiny Queen’s beauty salon here in provincial Niigata.
Wooed by a Groupon salesman, the salon’s 36-year-old owner, Yuri Umemoto, offered a 71 percent discount on its eyelash extensions. The promotional price was 1,890 yen ($22.66) for 60 silky synthetic eyelashes, which are painstakingly applied by one of the salon’s technicians in a procedure that takes about an hour.
The response was spectacular, Ms. Umemoto said. Queen’s sold 123 coupons, enough, combined with existing clients, to keep her five-person staff busy for the next four months. And the deal has helped spread word of her salon’s services in a city where many women have been too shy to wear much mascara, let alone lash extensions.
“In Niigata, people are so averse to showing off, so they need a big push,” Ms. Umemoto said. “They tend to be obsessed with what other people are doing. And what they saw is lots of people buying our coupons.”
Despite such success stories, Groupon has continued to have well-publicized stumbles in Japan, even since Mr. Mason’s apology video.
In January, the Hitoyoshi bistro in Nagoya offered 68 percent off horsemeat dinners. The response, 1,356 coupons sold, was far more than the restaurant could handle. The bistro ultimately canceled the deal.
Despite Groupon’s reassurances that it will offer refunds when deals fall through, rivals now worry that Groupon’s blunders are starting to make Japanese customers skeptical of the entire deal-sharing business model. According to Sheep.jp, total coupon sales at the 147 Japanese sites it tracks fell 16 percent in January from the previous month, to 1.87 billion yen, while Groupon’s coupon sales were down 14 percent, to 983 million yen.
“This is making everybody think that the business model is dodgy,” said C. Jeffrey Char, who runs Piku, a rival that focuses on fewer quality deals.
“You can show a big discount, but if the customer isn’t fully satisfied,” he said, “you’d just be paying to lose money.”
It is little wonder, then, that Groupon’s success in the United States spurred a flurry of similar upstarts in Japan, led by Piku, which opened for business in late April, and Recruit, which scrambled to open Ponpare in late July. By the end of the year, there were at least 147 similar Web sites in Japan, according to Sheep.jp, a Web services company.
But one of those sites, Q:Pod, which opened in late June, stood out. It not only had a reported 200 million yen ($2.4 million) in financing from the local venture capital firm Infinity Venture Partners, but also logistical support from PakuReserve, a mobile content and broadband company.
From the start, Q:Pod employed a team of 20, and was able to draw on a nationwide sales force of more than 200 at PakuReserve, which helped find companies to offer deals on the site. Q:Pod quickly extended its reach beyond Tokyo to do business in virtually untapped small markets across Japan. It also introduced versions of the site compatible with Japan’s advanced cellphones.
Less than two months after its introduction, Q:Pod was snapped up by Groupon, and the growth continued. Flush with cash, it overwhelmed rivals in advertising exposure. It added staff and scoured Japan far and wide for new deals: 80 percent off facials in Hokkaido, 54 percent off horse-riding lessons in Kyoto.
In December, Groupon sold about 1.14 billion yen’s worth in coupons, almost twice the amount sold by the Ponpare site. That included the eyelash promotion offered by the tiny Queen’s beauty salon here in provincial Niigata.
Wooed by a Groupon salesman, the salon’s 36-year-old owner, Yuri Umemoto, offered a 71 percent discount on its eyelash extensions. The promotional price was 1,890 yen ($22.66) for 60 silky synthetic eyelashes, which are painstakingly applied by one of the salon’s technicians in a procedure that takes about an hour.
The response was spectacular, Ms. Umemoto said. Queen’s sold 123 coupons, enough, combined with existing clients, to keep her five-person staff busy for the next four months. And the deal has helped spread word of her salon’s services in a city where many women have been too shy to wear much mascara, let alone lash extensions.
“In Niigata, people are so averse to showing off, so they need a big push,” Ms. Umemoto said. “They tend to be obsessed with what other people are doing. And what they saw is lots of people buying our coupons.”
Despite such success stories, Groupon has continued to have well-publicized stumbles in Japan, even since Mr. Mason’s apology video.
In January, the Hitoyoshi bistro in Nagoya offered 68 percent off horsemeat dinners. The response, 1,356 coupons sold, was far more than the restaurant could handle. The bistro ultimately canceled the deal.
Despite Groupon’s reassurances that it will offer refunds when deals fall through, rivals now worry that Groupon’s blunders are starting to make Japanese customers skeptical of the entire deal-sharing business model. According to Sheep.jp, total coupon sales at the 147 Japanese sites it tracks fell 16 percent in January from the previous month, to 1.87 billion yen, while Groupon’s coupon sales were down 14 percent, to 983 million yen.
“This is making everybody think that the business model is dodgy,” said C. Jeffrey Char, who runs Piku, a rival that focuses on fewer quality deals.
“You can show a big discount, but if the customer isn’t fully satisfied,” he said, “you’d just be paying to lose money.”
No comments:
Post a Comment