October 26, 2011 / 11:45 PM / in 8 years

Groupon CEO says replacing 10 percent of sales staff

BOSTON (Reuters) - Daily deals site Groupon is replacing the worst 10 percent of its sales staff as it pushes to win stronger deals from merchants and ensure it can keep growing, the company’s chief executive told potential IPO investors on Wednesday.

Andrew Mason told investors who had gathered in Boston that the action was designed to improve the quality of the deals being offered.

Groupon currently has a salesforce of over 4,800, according to its IPO prospectus.

As of September 30, Groupon had 143 million subscribers, but in the third quarter only 30 million of them bought Groupons.

Repeat customers increased from the second quarter but only numbered 16 million, according to a regulatory filing with the U.S. Securities and Exchange Commission.

Failing to win enough repeat customers may dampen the rapid growth that currently supports the company’s roughly $11 billion valuation.

Some merchants have complained that Groupon did not help them win permanent customers, and instead delivered bargain seekers taking advantage of price cuts. A portfolio manager at the roadshow said these complaints raised doubts about Groupon’s ability to keep growing.

“At the end of the day all they’re offering the merchant is the ability to cut price ... you can cut price any time you want. You don’t need Groupon to do it,” said a portfolio manager whose firm manages more than $20 billion and who attended the presentation in Boston.

But Mason does not see it that way. On Wednesday, he described Groupon’s approach as “risk-free performance marketing” for businesses.

“They pay for customers (coming through) the door,” Mason explained. “You’re not going to get this from the Yellow Pages.”

Mason also said that a steady stream of deals from new merchants makes for a better customer experience, and there is some bias toward signing up new merchants rather than keeping old ones.

A spokesman for Groupon declined to comment.

In the online version of Groupon’s roadshow, the company said that about half of the businesses offering Groupons in the third quarter had previously done so.

Groupon’s IPO is scheduled to price on November 3, and the shares are expected to begin trading on the Nasdaq on November 4 under the ticker “GRPN”.

Underwriters on the IPO are being led by Morgan Stanley, Goldman Sachs & Co and Credit Suisse.

Reporting by Tim McLaughlin in Boston; Additional reporting by Liana B. Baker in New York and Alistair Barr in San Francisco; Writing by Clare Baldwin in New York

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