Groupon recently rejected Google’s $6 billion acquisition offer. Hell hath no fury like a woman scorned.

I read that Google are trying to set up their own Groupon killer. According to the Wall Street Journal, Google has apparently hired several hundred sales representatives to call local businesses.

One person who has experienced the results is Debbie Codino, a manager at Bob Brown Tire Center Inc. in Portland, Ore. She received a call from a Google salesman and agreed to pay $25 a month to highlight her store and show a 10%-off coupon when people search using terms like “Portland tires” in Google.

I think Google is missing the boat completely! Yes, that’s right – you heard me.

Google are trying to copy Groupon by hiring a bunch of tele-sales people to contact local businesses. That is wrong! And charging merchants a monthly fee is also wrong!

Google at its heart is a technology company. They do everything with computers. So hiring tele-sales people to call up local businesses doesn’t quite fit into their core competency. It doesn’t scale as easily as if it were built using technology.

I think Google’s Groupon Killer should be a self-service coupon advertising program, similar to AdWords. And I think it should take the best features of Groupon Deal of the Day, Groupon Stores, AdWords, and Yelp (which also spurned Google). Hmm… they could kill two birds with one stone!

Here are my ideas on what features Google’s Groupon Killer should have:

• Target every internet user: Groupon and other deal of the day sites currently target major cities, which means unless you live or work within one of those cities, you’re out of luck. Google’s targeting abilities would allow it to target offers based on a user’s location, or desired location. Consumers are much more likely to purchase a coupon that’s within driving distance of their home or desired location.
• Millions of offers: Deal of the day sites have a few daily offers for each market they cover, which adds up to a few hundred to a thousand deals a day at any one time. Google could easily build up a searchable database of millions of offers targeted to within 15-25 miles of a user’s location or desired location. It could present these offers on its search results, advertising network, Google Shopping, Google Maps, Google Mobile, and maybe a Google Coupons site.
• Live within minutes: Like AdWords, Google could make offers live within minutes of approval.
• Self service: Deal of the day sites like Groupon require large numbers of expensive local telesales people to contact local businesses and sign them up. Google’s Groupon Killer should be like AdWords, a self service program, which would require less expensive advertiser support staff to maintain. It could easily draw from its existing AdWords support staff.
• Centralized system: Merchants can promote coupons, manage sales, and communicate with their customers via a centralized user interface, online or on any mobile device. Using the same centralized system, consumers can manage all their coupon purchases and redeem coupons electronically via mobile devices or print coupons. This way all the processes are handled on one centralized system.
• Cheaper to expand: Groupon requires huge capital to expand into other countries, which is one of the reasons why it has raised so much money – $1.12 billion so far. They have to set up offices and hire local telesales and admin staff. Google’s Groupon Killer wouldn’t require as much capital to expand. It could expand in the same way it expanded AdWords, only needing to translate its web site into different languages, and hiring less expensive advertiser support staff fluent in the local language.
• Costs: With much lower start-up and running costs, Google could take as little as 5% to 30% of the coupon sold. Most deal of the day sites, like Groupon, currently take 50% of the sale.
• Google’s existing customer base: Google can leverage on its existing customer base of over 1 million AdWords advertisers.
• Gift marketplace: With millions of offers, available 24×7, Google’s Groupon Killer would allow consumers to purchase coupons as gifts. This would open up a whole new market for Google.
• Unwanted coupon marketplace: Have you purchased a coupon only later on to regret buying it? Well, sites have sprung up that allow consumers to buy and sell coupons. Google would be foolish not to build it’s own unwanted coupon marketplace. Alternatively, it could offer a refund policy. Customers can ask for a refund, minus a ‘processing fee’. This way, it would make money on a coupon twice. Refunds don’t cost merchants anything, aside from lost sales.
• Protecting consumers: Merchants are only paid when customers redeem coupons. This protects consumers, and Google, from losing money if a merchant goes out of business. Of course, this means Google gets a lot of cash upfront to make money from. Sweet!
• Merchants can set limits: Merchants can set limits on the total number of coupons sold, restrict it to new customers only, and on how customers use the deal. For example, one coupon per table or per order.
• Limit to genuine customers: One of the complaints from merchants is that they have noticed customers who they have never seen before, and don’t appear to be from the local area, visit their business specifically to use a coupon they have purchased. If a customer doesn’t live or work near a business, the chances of them returning are minimal at best. Coupons are loss leaders – merchants use them in the hope of attracting repeat business. Merchants would save money if Google Coupons allow them to limit sales to customers who live or work within a certain distance from the business as indicated in their customer details.
• Constant stream of customers: Google Coupons would deliver customers on a regular basis – as opposed to the flash floods of customers which can overwhelm and damage small businesses. Merchants could pause promotions if business becomes more than they can handle.
• Merchants can run multiple test campaigns: Merchants could do limited test campaigns and tweak them to their hearts content to see which offers work best. Google will remember every coupon so that customers get exactly what they paid for.
• Merchants can limit offers: Merchants could set offers to only be available on certain days, or certain times of the day.
• The coupon you want, when you want it: Have you wanted a coupon immediately but had to wait days for one to appear? If Google offered a searchable database of millions of offers, it would fix this problem. Groupon is trying to fix this problem with its Groupon Stores.
• Customers can use coupons right away: If you buy a coupon from any of the deal of the day sites, there is a long delay between making the purchase and being able to make use of the coupon. First you have to wait for enough customers to jump on the deal. Then you have to wait for the offer to close, which can take up to 24 hours, or longer. Then you have to wait for the email confirmation of your purchase. Then you can use the coupon. Google could allow consumers to find, purchase and use (print/digital) coupons in minutes.
• Social feedback: Have you ever seen a deal and thought wow, but hold on… I have never heard of that business – I wonder if it’s any good. Deal of the day sites don’t typically provide customer reviews. You have to leave the site to search elsewhere for information on the merchant. Google’s Groupon Killer should allow customers to rate and comment on merchants and individual offers. It should also allow users to share/recommend offers to other Google users, via Twitter, Facebook, etc. This could be help them build a Yelp Killer and maybe also add the social layer that’s missing from Google.
• More individual user data: Google currently has limited individual user data. By offering a personalization option to its Groupon Killer service, it would encourage users to provide more personal demographic/psychographic information to help it personalize offers to users’ interests.
• Personalized e-mailings: Google could promote the best coupons to users who sign up to email promotions. They could use an algorithm to select the most popular coupons based on size and percentage of savings, number of purchases, customer ratings and reviews, customer’s purchase history, search history, user entered data, interests, etc. The mailings won’t go out everyday and annoy users. Consumers would only receive the best offers that are of interest to them.
• Email marketing: Google could easily sell ad space in the personalized emails to major companies, like American Express, Ford, etc. Imagine the mailing list Google could build up and the targeting ability they could offer.
• More sales data: Groupon provides limited aggregate customer data to its merchants. I’m sure Google could provide much more useful customer and promotional advertising data to help merchants optimize return on investment on offers.
• Distribution partners: With millions of offers, Google could partner with mobile and in-car GPS distribution partners, so that users can access these offers on the go.
• Would it cannibalize AdWords?: I don’t think so. I think the Groupon Killer’s CPA coupons could sit nicely together with AdWords’ cost-per-click ads. I think it would encourage a lot of small businesses who don’t understand or are afraid of AdWords to give Google Coupons a try. After all, it won’t cost them a dime, unless Google delivers real paying customers.

So, what do you think of my Google Groupon Killer ideas. Have I missed anything?

Yes, I know some of it sounds a lot like Groupon Stores. But as far as I know Groupon hasn’t gotten very far with that so far. And I haven’t read about any of the other deal of the day sites come up with anything similar.

Google with its massive customer base of AdWords advertisers and millions of users could easily catch up and overtake Groupon Stores in no time.

Revenge is sweet, and it is there for the taking if Google plays its cards right.

Posies Café owner Jessie Burke wrote a blog post about losing $8,000 on a Groupon campaign, after the Portland, OR-based eatery offered $13 worth of food for $6 on March 9, 2010.

“It has been the single worst decision I have ever made as a business owner thus far,” she wrote in her blog.

Here are some of the takeaways from her blog post:

• Over the six months that the Groupon coupon was valid, Jessie met many, many wonderful new customers;
• Jessie also met many terrible Groupon customers that didn’t follow the Groupon rules: they used multiple Groupons for a single transaction, and argued with her about it with disgusted looks on their faces;
• Some Groupon coupon customers tipped based on what they owed – 10% of $0 is zero dollars, so tossing in a dime was them being generous;
• The interactions with the few bad Groupon customers jaded her staff; and
• Jessie believes that service industry businesses, such as hairdressers and beauty clinics, do quite well with Groupon coupons because it is just the cost of time – they are not paying for a product for resale.

I think Jessie’s blog post offers some valuable lessons for all small businesses who are considering a Groupon-like promotion.

These lessons include:

• Groupon-like promotions can deliver a rush of new customers;
• Some coupon-buying consumers will try to take advantage of the rules and use multiple coupons for a single transaction;
• Coupon-buying consumers may not tip as well as regular customers;
• You must inform your employees of what to expect from coupon-customers: If your employees have a better expectation of what to expect from coupon-customers (such as less tips), then your promotion is more likely to be a success; and
• Seriously consider whether a Groupon-like campaign is right for your business? Would the flood of bargain-hunting coupon-consumers use up resources which would otherwise be used to service your regular customers?

Has Jessie’s story made you reconsider whether you should run a Groupon-like promotion?

Full story at the Posies Cafe blog »

According to a study by Rice University’s Jesse H. Jones Graduate School of Business, Groupon promotions were unprofitable for 32 percent surveyed for the study, but they were profitable for 66 percent of the businesses.

More than 40 percent of the respondents indicated they would not run such a promotion again.

Utpal Dholakia, author of the study and associate professor of marketing at the Jones School, conducted surveys with 150 businesses spanning 19 U.S. cities and 13 product categories that ran and completed Groupon promotions between June 2009 and August 2010.

Other findings include:

• The study provides evidence that “satisfied employees” is the most important factor for the Groupon promotion to work successfully for a business. If employees remain satisfied through the promotion, the likelihood of its profitability is significantly higher.
• The percentage of discount offered and the number of Groupons sold did not predict the deal’s profitability, nor did the percentage of Groupon users who purchased beyond the Groupon’s value or purchased again at full price.
• Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal, so employees need to be prepared for this type of customer and the sheer volume of customers that might come through.
• Groupon promotions offer the most benefit for businesses in which the promotion does not cannibalize sales to existing customers.
• Among the service businesses (restaurants, educational services, tourism and salon and spa), restaurants fared the worst and salons and spas were the most successful.
• Businesses with unprofitable promotions reported low rates of spending by Groupon users beyond the Groupon’s face value and low rates of return to the business again at full price.

Dholakia outlined some strategies for success:

• Use promotions for building relationships instead of creating one-time transactions. Instead of offering $60 worth of food for $30, parcel it out to offer $20 worth of food for $10 over the customer’s next three visits.
• Don’t offer discounts on a total bill; rather, offer a specified discount for various products or services.
• Choose items judiciously to sell unpopular items or use unutilized services through the promotion.

Is your business right for a Groupon-like daily deals marketing campaign?

Download the complete study at the Social Science Research Network »

Groupon has launched Groupon Stores, a self-service platform that businesses can use to set up virtual store fronts to promote and run their own deals.

Groupon Store highlights include:

• Run deals within a few days. Groupon have to verify your business, which usually takes one business day, and review your deal (if it’s a promoted deal), then it can run.
• You can run as many deals as you like.
• Email/Twitter/Facebook promotion integration.
• Online Groupon redemption system.
• There’s no upfront cost. For promoted deals you get 70% of each Groupon sold. For non-promoted deals you get 90% of each Groupon.

Compare that to Groupon Deal of the Day deals which typically take about a month to set up, and cost 50% of each coupon sold.

Oddly enough, I was brainstorming this idea this morning just before I came across Groupon Stores. My idea had a couple of additional features:

1. A location-based Digg style page where users can vote for deals.
2. An e-gifting feature that allows consumers to send coupons as gifts, via email, Twitter, post on recipient’s Facebook Wall, and even send a real gift card.

According to Shop.org, one-third of consumers spent between $50 and $200 total on gift cards purchased online, while almost two-thirds of gift cards purchased online averaged between $10 and $50 each.

That suggests that it makes sense to price coupons under $50. A gifting feature would allow convenience-seeking consumers to send gifts that cost as much as $100 for under $50.

Visit the Groupon Store to claim your store »