3 Reasons Groupon is a Bad Deal For Your Local Business

If I told you for every dollar you spend on customer acquisition, you could make $.40 (or LESS!) with me, how much would you spend? Hopefully NOTHING. But for small businesses using Groupon, it’s not as far-fetched as you may think.

Photo by wovox

Photo by wovox

 

In the excitement of making coupons cool again, Groupon and other group deal buying sites have wooed thousands of local businesses looking for a sure-fire way to attract new customers. Sadly a large number of those businesses barely break even or worse, lose money when they use a Groupon to attract customers. Here’s 3 reasons businesses should think twice before creating a Group buying deal.

  1. Groupon promotes Quantity not Quality traffic to businesses. When a business creates a deal with Groupon, there is absolutely no segmentation beyond geographic targeting. What you get is to tap into Groupon’s email list of deal hunters. Yes, the new customers are local but a business owner must take into account the other factors that the additional un-targeted traffic brings with it. The bargain buyers are not your customers, they’re Groupon’s customers. In a study conducted at Rice University, it was found that only 20% are returning for full price purchases at restaurants, bars and other retailers.
  2. Groupon positions their product as an all-in-one solution and doesn’t educate local businesses on how to integrate the Groupon process into their marketing plan to RETAIN customers. For example a business might include an opt-in to collect email addresses from new Groupon customers so they can add them to their email list. Or they might include an up-sell to the Groupon deal. But many businesses don’t even have an up-sell to offer their customers such as this small business offering discount helicopter lessons. They also don’t teach businesses how to accept the Groupon deals and it makes for a very poor experience. I had bought a Groupon for Dominoes a month back and when I tried to redeem it, not only did the Groupon not work but the employees weren’t even aware that there was a Groupon deal available to their customers.
  3. Deep Discounts and coupons hurt your brand. When a new Groupon customer redeems a Groupon at a store, the perception and value to them is tied into that discounted price. This makes it extremely difficult to get a return customer out of the deal. Secondly, It affects you current customer base who will also buy the Groupons (thought they would have happily paid full price.) If your staff isn’t prepared for the swarm of new traffic a Groupon can bring, your current customers may experience poor service and note return.

Yes, I do realize there are businesses that have greatly benefited from Groupon. But I also know there are a lot more who have almost been put out of business by the coupon giant. So if you are considering using a Groupon, I’d really encourage you to do your homework and figure out how you are going to make it work with every part of your business. Here’s a great resource to some best practices that may help: Best practices for Groupon, LivingSocial or Google Offers

If you’ve used a Groupon in the past, let us know your experience and what you learned from it in the comments!

 

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Comments

  1. Great points here, Joel. I wrote about this several months ago and #2 is the most important here. I think Groupon CAN be successful for some businesses if they learn how to A) set up the right deal, B) figure out how to handle the huge influx of calls and traffic C) delight the customers when they redeem the deal D) train employees to upsell and E) get their names on your email list. Without doing those things, Groupon is going to be a very costly waste of your time that might actually hurt your business. After all, when you get that huge rush of customers, you may very well alienate the regulars who are your core buyers.

    Great stuff, Joel!

    • Thanks for the insight Laura. I think #2 is the most important by far as well. ( I actually had that in the post but took it out at the last minute:) There are several success stories of businesses that have used Groupon “effectively” and are happy with it but it’s only because they knew what they were doing and covered the points you’ve outlined. But a lot of people drink the kool-aid and I’m not convinced even those people have taken a hard look at the numbers to see if it truly benefitted their long-term business.

  2. Right on man. Groupon is shooting themselves in the foot right now. It’s a terrible business model for them to continually need to find new customers since many businesses will not be repeat Grouponers after they have a horrible experience. Yes, the businesses should understand and do what Laura is saying, but they don’t. It’s still too new for most of these people and Groupon is selling itself as the silver bullet for success. Groupon better start putting some focus on the businesses or they are going to need to do a Groupon for themselves to get customers.

    • Ha! Loved your closing thought. It really does put them in a precarious position. It’ll be very interesting to see what happens to them in the next year or two once the “shiny object” syndrome has worn off and businesses take a critical look at their business model.

  3. I agree on all points, though I feel like the responsibility lies in the hands of the business owner to research a marketing opportunity and see if it works for them. I know that the owner of a Franklin boutique who tracks the numbers and marketing dollars very closely. Groupon worked well for her, but that is because she understands how it works, and that it is her responsibility to form relationships with the new customers. Too many business owners jump into all kinds of marketing opportunities without understanding them first.
    Is it really Groupon’s responsibility to educate business owners on the basics of sales and customer service? If a business owner doesn’t inform their employees that they are a Groupon customer, or train them on accepting said Groupons, that is their fault.

    • @Courtenay I was hoping someone would bring that up:) Your completely right. Ultimately it’s up to the business owner to decide if Groupon is right for their business. Where I have a problem is when I read about multiple account of Groupon misleading business owners that don’t have a clue. Maybe they had it coming but it seems like their terms should be more clear to support the problems that business owners run into.

  4. You could only come up with 3 reasons? :D

  5. I loved this article. Joel, you really made me think. Ok…what about this? Shouldn’t the B2C retailer who uses Groupon also count how many “customers for life” he’s creating. This could greatly change the value equation.

    • Definitely Kevin! Great call. But that B2C biz has to do something to create those loyal customers. It would be interesting to find a way to keep track of how many customers are still coming back a year later after using your Groupon for the first time.

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