Don’t delete those emails! Groupon needs you back.

Hyped as one of most anticipated IPOs of the year, Groupon has seen its stock price tumble since going public last month. Traffic to has also been on a steady decline over the past several months, largely as a result of Groupon dramatically slashing its online advertising spend.
This past June at seemingly the height of the Groupon frenzy (or fad) the site’s traffic peaked at 33.7 million unique visitors, nearly matching, and besting all but the largest online retailers.

That traffic came at a steep price for the company, namely hundreds of millions of dollars spent on online advertising to acquire new customers. The ubiquitous ads in addition to Groupon’s huge sales force led to the company reporting massive losses, and caused many people to be skeptical of the company’s business model and future prospects.
In and effort to plug the ever-growing hole on its balance sheet and pretty itself up ahead of its IPO, Groupon abruptly changed tactics in August and did basically a full-stop on its online advertising expenditures. What has been the result of this about-face, and what impact could this have on Groupon’s prospects going forward?

Since June, Groupon has lost over half of its traffic and has leveled off at 15 million unique visitors per month (on par with  In June, paid advertising (primarily pay-per-click) was responsible for over half (52%) of all visits to the site.  Said differently, Groupon shelled out cash in June to cover the cost of 44 million individual visits to its site.  Not only did this advertising drive immediate click-throughs, however, but it also aided in building Groupon brand awareness as evidenced by the fact that 27% of visits in July were driven by consumers navigating directly to the site.   Groupon’s daily emails only accounted for about 1 in 7 visits (15%).

Fast forward to October, and the picture is quite different.   Although Groupon is still paying for nearly 20% of its site traffic, given that the site is now half the size it was in June, the total number of paid advertising-driven visits has actually fallen 84% to roughly 6.5 million.  In connection with the decreased spend, Groupon has seen a drop in consumers navigating directly to the site which could signal trouble ahead as the site faces increased competition.

A bright spot for Groupon is the fact that the number of visitors who click though on at least one of its emails continues to rise.  6.8 million unique visitors arrived by email in October, an increase of 24% since June, just as total traffic to the site dropped 55%.   In addition, these consumers are clicking on the offers with greater frequency, now on average 2.3 times per month.

In October, email drove almost half of all visits to  I find this uber reliance on email to maintain traffic levels troublesome.  Groupon hopes to attract consumers with appealing offers, but it’s getting awfully crowded in consumers’ in-boxes with the onslaught of these and rival offers.

While the quantity of the deals might certainly be playing a role in growing consumer apathy, also problematic for the industry is the quality of the deals.  For all of Groupon and rivals’ efforts to stand out, the brands that really matter are the merchants actually featured in each offer.  Now with so many competitors vying for a finite number of quality deals with local merchants, the quality of all the deals seems bound to suffer.   Taking a different tact, rival LivingSocial focused its BlackFriday offers last weekend on name-brand national retailers rather than local merchants.

It seems that the industry is here to stay, at least in some shape or form.  What remains to be seen however is how competitive and profitable Groupon can remain by retrenching from its hyper growth model and focusing on driving engagement and activity among its existing customer base.

About Matt Pace:
As VP of Millward Brown Digital’s financial services, retail and consumer products practices, Matt is responsible for vertical growth and strategy and the delivery of digital insights and best practice marketing consulting to leading Fortune 500 advertisers. Follow Matt on Twitter @mattpace.