Should Groupon Worry About This UPS Move?

Groupon's (NASDAQ: GRPN) made headway with its strategic repositioning as a hub for local deals and it's going to need this stronger base as a new player has entered the discount-deals space. This competition is coming from an unexpected quarter: a shipping company.

UPS (NYSE: UPS) recently launched the My Choice Deals program, which offers retailers what the company touts as "an exclusive platform to reach more than 43 million UPS My Choice members with special deals and discounts." It's a clever setup because it allows UPS to target its customers with related deals while they're checking the delivery status of their orders. As Stu Marcus, UPS vice president of customer technology marketing, explained in an interview with Reuters: "If you are receiving something from Macy's, you'll have an additional deal from Macy's right there in your alert."

What's UPS doing?

This deals program won't be a primary source of revenue for UPS. Rather, it's a way to increase usage of its My Choice program, a two-tier loyalty program that lets participants monitor packages in transit and specify where they'd prefer to have a package delivered -- their home, their workplace, or one of UPS's 5,000 stores. My Choice members in the free tier get perks including delivery alerts and the ability to change delivery day and location for a fee. A $40 annual membership fee lets members reroute and change the date of deliveries without a fee, gives access to quicker shipping, and gives a limited number of two-hour confirmed delivery windows.

The perk for UPS is that increased My Choice participation helps it cut down on "last mile" delivery costs. If people are home when you deliver, you cut down on the time spent trying to make a delivery and customers are happier with you and the company they bought the product from. If deals help boost My Choice adoption, it's a win for whittling down delivery costs.

UPS has a My Choice Deals customer base that is almost as big as Groupon's entire user base. Launched in 2011, My Choice has 43 million members while as of the first quarter of 2018, Groupon reported 49.6 million "global active customers" -- meaning someone who made a purchase through the app in the last 12 months or directly with a merchant who paid Groupon a commission.

As a major player in delivery, UPS has existing relationships with national and international retailers. This makes it easier for the company to incorporate deals into their existing business relationships. That should give Groupon pause.

Then again, maybe Groupon should chill

On the other hand, Groupon doesn't have to run a global logistics company. That frees it up to concentrate on its stated strategy for 2018: using transactional data to target local vendors and emphasizing a mobile-first user experience.

More than 72% of Groupon's transactions now take place on the mobile platform, and it's beefed up its marketing spending ($99 million in Q1 2018 compared to $86 million the year before) as it pursues a strategy of habituating consumers to using the app to find and purchase local deals.

UPS has moved into the business of offering situational deals -- in this case, pushing related offers on a customer who's already got a track record of being engaged in e-commerce. It's also set up a website where members can search for deals.

Groupon's situational purchases are very different. Its ideal user experience has its customer accessing the app while she's out in the world, looking for a highly situational purchase in a very specific location. Groupon may thrive if it sticks to what it's already said it's doing and targets local businesses.

There's a difference between being one of UPS's deal-seekers sitting at your computer looking at what deals might tickle your fancy as you check on the purchases you already made and being a Groupon customer who's looking to stack one experience on top of the other -- drinks! tickets to a show! late-night food! -- when you're out and about. Bargain-hunting isn't a one-size-fits-all opportunity. It's highly situational, and so long as Groupon identifies the situations and pushes its product right into the middle of them, it should be fine.

10 stocks we like better than GrouponWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Groupon wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 8, 2018

Lisa Schmeiser has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.