Groupon's Japan Disaster A Critical Social Lesson For Retail

Social site and Mobile efforts are wonderful things, but the enthusiasm surrounding them—which may indeed be temporary, until the newness factor fades—has the most potential to create surprise disasters. Disasters from, ironically, excessive success. Retailers are used to making controlled entries into well-studied markets, which allows them to have proper capacity planning mechanisms. But Social and Mobile are threatening to undermine those efforts. Just ask Groupon CEO Andrew Mason.

Groupon just launched a New Year's holiday food program in Japan. The launch went so poorly—and by that we mean that it sold so really well—that Mason had to lose face with a positively painful YouTube video for customers. He opened with an admission that "we featured a deal in Tokyo recently that we really messed up," because its supplier couldn't handle the volume of orders.

The candor continued: "We ended up delivering food late to many of our customers and in terrible condition to others" and "So what I really want to say is how terribly sorry I am and everyone at Groupon is about what happened. We know how important the New Year's holiday is in Japan. We created Groupon to help enrich people's lives by bringing new exciting experiences to them. So when we do the opposite, as we have in this case, it really hurts."

That's not quite the speech a CEO wants to make after a launch into as important a market as Japan. But it's hard to appreciate how much of a disaster this was. It truly alienated customers.

A U.S. equivalent might be an Australian company that was pushing a service for the delivery of a complete Thanksgiving dinner for 20 people. And the dinners either arrived at 1 AM Friday or they were the equivalent of really cheap turkey TV dinners that had been left out in the sun for a few weeks. It's not merely a lost meal. It could ruin a very special holiday and embarrass the host in the eyes of lots of friends and relatives (and, heaven forbid, in-laws). That's not the kind of problem that is easily forgiven.

Groupon tried, though. It refunded customers' money and then gave them gift vouchers for about 5,000 yen (about $61 U.S., at today's exchange rates). And lots of apologies.

The retail lesson here should simply be one of caution. Social media and Mobile programs need limits, such as the ever popular "for the first 500 customers." That's the only way to offer quality control until you have the experience to accurately gauge likely interest.

Another Groupon lesson is the enthusiasm (sometimes unwarranted) of your suppliers. It's not in the supplier nature to quickly shout, "I can't handle this many orders." Turning down money these days is a no-no, and suppliers will convince themselves they'll somehow make it work out. Retailers have to set their own limits, just as you routinely do with technology rollouts.

You're used to being in control. In the Social and Mobile worlds, at least for now, you're not.