Groupon Korea scrambles for niche market

Targeting tech-savvy local consumers with deep pockets

By Kang Ye-won

When it launched a business here this March, Groupon Korea has targeted sales of 200 billion won or $176 million this year and to catch up with two leading local competitors, Coupang and Ticket Monster. After eight months now, it still stays at a distant third in the ever-intensifying social commerce market.

Groupon Korea chief executive Hwang Hee-seung said his strategy is to continuously pursue Groupon’s core business model, which is providing a hyper-localized deal, and to focus on social media marketing plans for tech-savvy Korean Internet users, during an interview with Business Focus on Nov. 14.

The daily deal industry leader Coupang has more than 29 percent of local market share and Groupon follows behind with 15 percent share after Ticket Monster, according to Rankey.com, a research company that tracks the country’s e-commerce markets. More than 400 daily sites have sprung up in Korea over the last year.

Hwang declined to share the company’s financial details due to the headquarters’ policy in a quiet period ever since it went public early this month.

“Some say Korea has a developed Internet industry, but I think it rather has a different, unique ecosystem,” Hwang said in a Nonhyeon-dong office, one of five Seoul branches. The company now has 15 locations across the country.

The 28-year-old in a shortly grown beard wearing a tweed jacket and jeans resembled an aura of playfulness and casual manner that the Groupon Founder Andrew Mason is known for.

As the Chicago-based daily deal site grabbed the consumers’ attention with its punchy texts that some say are “deliciously written,” the Korean branch attempted to appeal to its local consumers with flashy graphics and aggregated feature deals on a front page.

The image-heavy local website caters to Korean online users who prefer to see all options upfront rather than navigating themselves to find the customized choices.

“If you look at it carefully, it’s very simple and easy to use,” he said.

Distinguished from its local competitors like Ticket Monster, now owned by LivingSocial, the second largest American coupon site, Groupon has attracted more people in their 30s than the 20s, by offering relatively pricy items, Hwang said. They have welcomed the older crowd, because they tend to purchase bigger deals and spend more beyond what the coupons offer, which makes merchants happy as well.

Most recently, a bundle for trip to Jeju island under $200, which covered a flight, hotel and rental car, has been a hit item. A strong demand for designer handbags like Gucci and Prada with a price tag over $2,000 has “exponentially” surged, too.

The online coupon maker known for hiring young employees, almost all under age 30, has been a nimble user of social network sites including Facebook, Twitter and Foursquare as a platform for customers to form communities, create buzz and refer to one another.

Especially a Facebook application enables users to track deals nearby their current locations and download them for use right away. Although the idea first started in the U.S., it gained momentum in the local market as it serves Korean consumers’ penchant for speedy transaction in addition to the nation’s widely available Internet access. Out of three daily deal industry leaders, Groupon Korea has drawn the most Facebook users to buy its coupons from the networking page directly, Hwang claimed.

The so-called “ppali, ppali” manner, which means “hurry, hurry,” that is ingrained in Korean culture, played the part, too, in making such customized deals, Hwang said.

“If you don’t get that, you have no chance in penetrating the Korean market.”

Hwang learned this the hard way.

Back in 2008, Hwang took a break from school, Emory University in Atlanta, to launch a start-up, with three other friends, that was based on reverse auction, a system which the lowest bidder wins. It was an abject failure due to a lack of understanding on Korean markets, he said.

“Korean people cannot wait for auction bids unlike the Westerners who would enjoy the process. That’s why Gmarket works in Korea but eBay doesn’t.”

After launching two more social commerce businesses, Hwang said he learned the importance of funding and what he calls, scalability, a potential in business for growth.

Still the Korean executive learned that marketing cannot trump quality. That’s why Hwang affirmed to stick to Groupon Promise, which is a seven-day refund policy, no matter what. Of course, there have been some customers to take advantage of the offer.

“It can be a minus for the company for now, but we try to look at long-term benefits.” Hwang said. The firm will focus on improving its customer service rather than aggressively expanding the deals, he added.

It has faced harsh criticism from consumers over some of what they call “megadeals” that fell through at the last minute. This May, Groupon announced to offer a 3,000 won valued coupon for a local bakery chain, Paris Baguette for anyone who refers the deal to three other people, but the deal was canceled abruptly, catching flak from vocal consumers on blogs and online cafes from portals sites such as Naver and Daum.

“Koreans are very passionate people and stubbornly demanding at the same time.”

Because he grew up partly in Germany and the U.S., he learned to form an objective view on Korean culture and consumer behavior. Germans are clear with their likes and dislikes. Americans take the customer’s right seriously . Koreans have both characteristics, with persistence.

“We’re constantly testing the market and vice versa.”