Groupon Defends Branded Keyword Practice

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grouponA spokesperson for Groupon yesterday defended the company’s practice of buying branded keywords to promote discounts on behalf of clients, telling Street Fight that the tactic is meant to expand the reach of deals and that merchants can opt-out at any point. Some in the local marketing industry have criticized the practice recently, arguing that the deals company may be cannibalizing merchants’ potential sales by promoting discounts to users who were already looking for the business while diverting customers away from the merchant’s existing site.

Sean Barkulis, founder of local marketing startup UPlanMe, pointed out the tactic in column on Street Fight on Friday, calling it “unfair” and “deceptive” to local merchants. The post was published the same day as the company rolled out a newly redesign website and mobile app in a push to highlight its marketplace initiative, which aims to source deals that last for weeks or months on end rather than the flash-sale daily deal model, which the company pioneered in its first five years.

“The same thing can be said about any form of advertising,” Groupon PR manager Nicholas Halliwell said about the branded search practice. “It’s the same thing that can be said for a billboard or a television commercial. This is something that we pay out of our own pocket for our merchant partners, we promote their deals over a variety of mediums that are out there, and the merchant can opt out of it at any time.”

The company refused to disclose the percent of deals for which the company buys branded search terms, but it appears to be substantial. According to preliminary research by Street Fight, more than a quarter of the merchants which had deals featured on the New York site Monday morning were featured in paid search ads in Google that linked to the Groupon deal. The deals included a range of businesses, from spas and restaurants to tourism and tennis clubs.

By default, Groupon buys ads on behalf of clients, promoting their deals across search and social media sites as well as an affiliate network of paid bloggers. The search ads include a bit of creative referring to the specific deal as well as sub tabs with links to various sections of the Groupon site that are not related to the merchant. LivingSocial, the company’s largest competitor, did not respond to a request to comment on whether it also implements the practice.

Halliwell denied accusations that it formally blocked customers from stopping branded search campaigns, saying that merchants can opt out of the practice at any time. The company declined to disclosed the percentage of paid search traffic that comes from branded search ads, but Halliwell says it is a “small amount.”

At the center of the debate is a concern over false attribution. By placing ads in branded searches, Groupon is targeting customers who presumably were already searching for a given businesses. But when these high-intent customers buy a deal, the company does not discount the percentage of the sale it takes from merchants. And since these keywords are often undesired, and thus discounted by Google, the margin on converting a customer with existing intent is actually larger than converting a customer on a more general  search.

The counterpoint, made by Groupon and others, is that more is always better for very small businesses, whose digital marketing presence is often lackluster.

“In most cases the business behind the deal will benefit from the added exposure,” said Jeremy Kagan, the founder of PricingEngine, a tool that helps small business run digital marketing campaigns. “On the rare occasion that Groupon and the business appear for the same branded keywords, the downside is limited to a discount for an existing customer — hardly a nightmare scenario, and one only likely to affect the most digitally savvy clients.  For most Main Street businesses, this is what they’d want: Groupon putting its money where its mouth is and promoting the deal.”

Steven Jacobs is Street Fight’s deputy editor.