Groupon Teaches You Why Coupons Are Better Than Checkins For Deals

By now we all know that the new valley darling is Foursquare. Will Foursquare be the next breakout startup? Only time (and lots of pumping blog posts from a few new reporters) will tell. Before I continue let me state that I very much believe in location-based services. I wrote the business documentation and code for a location-based concept during my MBA studies in 2004. And I think there is an amazing future for services that are based around location — especially as mobile devices become smarter.

Last week, the Gap ran a promotion where users who “check-in” at a Gap store received a 25% discount on their purchases. All of the foursquare bloggers ran posts explaining how this demonstrates the power of Foursquare. Of course the discount was also available to basically anyone using a code.

One of the interesting elements to online couponing that many seem to miss in every post is that the deal sites are the ones who pump the coupons and make them a success. For example, a deal on Twitter’s earlybird deal account, will be pumped through sites like Fatwallet and Slickdeals and users of both of these sites will never see or use the earlybird account. The same goes for “Twitter-only” deals from Dell Outlet and Virgin America.

Today Groupon is running the first (I believe) nationwide deal. They are offering a Gap gift card at 50% off – buy a $50 giftcard for $25. This will be their best deal ever revenue-wise and demonstrates the power of couponing.  The very interesting part about the Gap offer is that you can only redeem the offer in-store. The Gap will see a large increase in foot traffic and while many will do everything they can to spend exactly $50, most will spend more – and that’s what the Gap is banking on. Larger purchases and increased awareness of the product line.

Sites like SlickDeals and Fatwallet have already made the Groupon Gap deal a frontpage story.

So why do coupons work better for Groupon than they ever will for Foursquare? Several reasons:

• the deals and coupons can be used by anyone
• there is no requirement to load software
• no privacy concerns <– this might be the biggest hurdle
• merchants see NEW foot-traffic into their stores
• deal and coupon sites can help make the coupon a success while pushing a local-checkin promo is a much harder sell to deal hunters

I understand that Foursquare can promote deals based on location — for example, you are walking near 1st and Main and a coffee shop on 2nd and main sends a coupon to your device. This could work well for Foursquare but the barriers to entry are much higher than the Gap deal above.

Foursquare needs to stick to rewarding loyalty — this is their niche and they need to own it (and it’s potentially a very lucrative segment). If Foursquare wants to offer couponing, they will need to partner with deal sites and services like Groupon and others like it (e.g. LivingSocial, etc.).