Groupon CEO Andrew D. Mason has outlined intentions to cut the company’s significant marketing spend on new subscribers as the firm will “eventually run out of new subscribers to acquire”.
According to the Wall Street Journal (WSJ), an internal Groupon email to employees which was leaked to the press said marketing spend for the company would be cut down as fast as it was ramped up and that it would spend less of its marketing budget on customer acquisition.
Groupon spent US$345.1 million on online marketing to attract new subscribers in the first half of this year, which is close to a third of its total operating expenses- a huge rise in spending as compared to the US$241.5 million it spent in 2010, WSJ said.
The report goes on to say that despite the firm’s accelerating revenues, its net losses have also been rising.
Mason in his email reportedly said: “We are spending a ton now because we’re acquiring as many subscribers as we can as quickly as we can. We aren’t paying attention to marketing budget (just marketing ROI) in the way a normal company would, because we know that even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire. So our customer acquisition spend drops severely to reflect the fact that eventually we’ll run out of people we can add to our email list.”
“We view this internally as a very large one-time expense and then our job forever after will be to continually convert these subscribers into customers and to make sure our customers keep buying from us,” It was not mentioned when spending is expected to drop.”
Groupon also added a caveat to prospective investors not to rely on the email as it could not assure them that the marketing cuts would not have a negative impact on its revenues or if its other marketing expenses would offset the reductions.