Groupon Revising Strategy in Middle East

08/15/2012 8:15 am EST

Focus: GLOBAL

The social media buying club is finding its model is a bit harder to pitch outside the US, and is now implementing changes to bring back business, reports Rory Jones of The National.

The chief executive of Groupon (GRPN) Middle East says the group-buying company is making a profit in the region, despite weak global results that wiped hundreds of millions of dollars from the market value of its parent.

Alexander Kappes, the chief executive, said he could not disclose figures, but the business was making money in the UAE and revenue grew in the first half of this year. "What I can say is we are profitable in the region," he said.

His claim comes after the group-buying giant late on Monday revealed global results below expectations that sent the share price tumbling 20%, erasing some $700 million of market capitalization. Yesterday, the shares fell another 1.7% to $5.85 in early trading in New York.

In its announcement on Monday, Groupon reported a 45% increase in global revenues to $568 million in the second quarter, but missed analyst expectations by $5 million.

It recorded income of $46.5 million for the quarter, compared with an operating loss of $101 million in the same period last year. The company's shares, which were priced at $20 in an initial public offering in November, fell 20% to a little over $6 after the announcement.

Questions were raised this week about the sustainability of the group-buying business model in the Middle East, after it emerged that rival Web site LivingSocial was considering pulling out of the UAE, Egypt, and Lebanon.

"Yes we can [be sustainable]," Kappes said. "You have very different dynamics in the region. But Groupon combines a lot of different things. It combines lifestyle and services and it has the e-commerce part of it and it has the travel getaways element. Those are all sectors that are underdeveloped in the region.

"Dubai is growing quickly," he added. "There's a business developing very quickly in this environment, because there's a lack of e-commerce Web sites. More people are using the Internet, and there's not enough supply for those people in the region."

Groupon Middle East currently operates only in the UAE, but has plans to expand into the rest of the region in coming months.

Groupon Middle East is set to launch a customer review system for its daily deals, rolling out first in the UAE before potentially taking it global. The company is searching for "groupies" who will test all of their deals in Abu Dhabi and Dubai before they go live, then write reviews of them for customers.

"What we want to do is have real-life reviews on deals to make the Web site more interactive and have customers in the process," said Kappes. "We are looking for people who are young and tech-savvy."

The Web site is looking for about 15 groupies who will try their deals for the next three months and write small reviews to accompany the deals when they go live. Groupon hopes the reviews will give more credibility to the products and services it offers.

The company received a deluge of complaints of poor customer service in the UAE this year, and changed its Middle East chief executive twice in a number of months. Groupon has since taken a number of steps to improve the buying experience on the Web site. This latest move is aimed at making it as transparent as possible.

"We are the first country to roll out this groupies test the way we are doing it now," said Kappes. "It's a UAE-born idea."

Services or products that receive a bad review from the independent groupies will be delayed and not launched until any problems are ironed out by the merchant. If the issues cannot be rectified, Groupon will not advertise the deal with that merchant.

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