September 20, 2014

What’s Wrong With Groupon (and How to Succeed Anyway)

The first wave of reaction from retailers to Groupon was overwhelmingly positive. Where else could you get hundreds of people to buy from your business so easily?  The second wave wasn’t so positive. Businesses were losing money on the deals, and didn’t have the staff to accommodate the customers.

So where do we fall now? Is Groupon inherently evil, or is it a fantastic marketing tool? The answer, I’m afraid, is up to you.

Groupon

The Problem

In looking at the businesses that suffered from their Groupon (and similar deal sites) offers, the connection seems to be a lack of preparation and unrealistic expectations. Restaurants simply didn’t have the staff to take care of the steady flow of traffic they’re likely to see after a deal.

Then there’s the revenue (or lack thereof) generated from the deal. Word has it that Groupon takes 100 percent of any deal under $10 (the assumption is that once customers visit your business for the deal, they’ll spend more than the $10). Many smaller coffee shops suffer because the average bill is $10 or less. It turns out that Groupon fans are cheap, and don’t really like spending more than the value of the deal.

And there’s the matter of Groupon users who never comie back as repeat customers. If you lose money on the first visit, your hope is that people will come back for more and bring their friends. That’s not happening.

The Solution

Groupon’s not for everyone–and if you don’t execute a unique strategy for how you’ll handle the deals, it won’t work for you. Try these tips to get more out of Groupon:

1. Plan for the surge. You can put stipulations on days people can use the Groupon and give it an expiration date. Then plan to have extra staff on hand based on the number of deals sold.

2. Capture the customers. Sure, you can give them their “free” muffin and bid them adieu–or you can encourage them to connect with you via social media and Foursquare for more good deals, as well as ask for their email addresses when they check out. Give them as many ways to connect as possible (with a benefit to them, of course) to keep the relationship sticky.

3. Calculate your costs. If your average bill is under $10, you might not want to do a deal with Groupon. But if your average sale is more, then shaving off $10 shouldn’t put you in the red. Know how much your costs are, and base your deal on what you can afford to lose.

4. Look beyond Groupon. Local and specialized deal sites like Spaphile and Juice in the City are sprouting up everywhere, and they may offer you a better cut of the profits than Groupon does.

20 Comments ▼

Susan Payton - Awards Communication Mgr.


Susan Payton Susan Payton is the Communications Manager for the Small Business Trends Awards programs. She is the President of Egg Marketing & Communications, an Internet marketing firm specializing in content marketing, social media management and press releases. She is also the Founder of How to Create a Press Release, a free resource for business owners who want to generate their own PR.

20 Reactions

  1. Great article. A tire and lube in my area that offered a groupon for cheap oil changes is now out of business. I wonder if Groupon is to blame.

  2. Just yesterday I wanted to buy a headset from Amazon. It cost about $18. Therefore, shipping would have been about $5 for a total of $23. However, if I added another item to get the order over $25 I could get free shipping. You know what I did don’t you. I added another item, my total cart was about $26 and I got free shipping. So how does this apply to Groupon?

    If you know your average order is about $7 you should offer a Groupon for $10. That way they’ll likely have to add on to utilize the full value of the coupon. Say you sell ties that are around $35. Offer a Groupon for $50. You’ll almost guarantee that someone orders two ties to get the value of the Groupon. You need to anticipate user behavior.

  3. @Robert–Good point. Never do a Groupon for close to the value; make ‘em buy 2!

  4. Nice article Susan. I see a lot of our local businesses jump on Groupon once, only to find that the customer that they get is looking (always) for discount. So the business gets 25% of their normal revenue to create a customer who sees the product/service as fair at that price. Not too smart. The businesses need to create and work their own email list.

  5. Robert has made a sensible suggestion that can work if you are selling ties or headsets. My observation is that the restaurant coupons are not the way to gain repeat customers. The coupon follower often disappears when the coupon is no longer the incentive. Quality product and service develops faithful customers.

  6. It’s true that there are Groupon users just looking for deals, but there are also some who never come back because they weren’t impressed on the first visit.

  7. @Joe–Exactly. They’ve got to give customers a reason to come back!

    @Buck–Restaurants are in fierce competition, what with Groupon, Restaurant.com and local coupons. But if the food and service are good, I always go back!

    @Alex–That’s an issue of customer service, and one any business should be working on!

  8. Robert, you are a genius! Truly. Way to share a tip that rocks.

    Susan, I just read this great post by John Jantsch on Group Coupons on OPEN Forum… Worth reading: http://bit.ly/i2Uk6U

  9. Susan, great advice here!.
    I’ve elaborated on the group buying website from a small business perspective not too long ago – http://www.razchorev.com/2011/02/26/why-should-i-use-group-buying-websites/.
    I gave some examples of businesses that would greatly benefit from these GBWs, and some tips on how best to approach these newly acquired customers.
    Hope this is helpful…

  10. I’m not a groupon provider but I am a regular customer. I always wondered if it’s worth it for small business to get involved. I have used many services from housecleaning to spa services and I can’t say I have gone back to any of them on a regular basis yet. As a customer it’s a great resource for me but an interesting topic to discuss from the other side of the coin.

  11. Good article, Susan. I’ve helped several clients offer Groupons, here’s what I’ve found works best:

    1. Like Robert said, overshoot your average transaction size to create upsell opportunities.
    2. Groupons work really well for ticketed events where things inside cost money. Discount on the ticket, food and souvenir purchases inside go up.
    3. If you’re a restaurant, be ready for the rush and kill em with customer service. The biggest problem with Groupons is that, like you said, they are unprepared for the rush, then they blame Groupon when the traffic doesn’t come back. Why didn’t they come back? Because your staff was overworked and gave them poor customer service. I’ve never met a customer who won’t come back to a place that gave them superior personal service. It’s something businesses should always be mindful of, but with Groupons it’s essential.

    And perhaps taking 100% was something Groupon used to do, but they now take half of what the Groupon sells for. A $20 gift card for $10, and you as the retailer get $5 minus the credit card transaction fee, but if you make friends with your Groupon rep, they’ll split the credit card fees with you.

    Best,
    Kyle
    kylejbritt.com

  12. @TJ and @Raz–Thanks for the related links! I’ll check them out.

    @Jacqueline–I’m the same. Not always loyal, but now I’m starting to feel bad about jumping from deal to deal without loyalty!

    @Kyle–Thanks for the info. I don’t really work with Groupon for clients, so this is useful!

  13. Susan’s timely post and the string of comments has gotten me away from the keyboard, out on the street, to interview several(4) small restaurant owners who have participated with Groupon and Living Social. I’m still looking for one who is enthusiastic about the experience. They all suspect that the Groupons mostly fit the Jacqueline category and the experience is looking like a very expensive lesson with less than profitable results in the offing.

  14. @Buck–Wow, that’s motivation! But interesting results. Let me know if you write on it.

  15. Susan,
    Thanks for your interest. I did a post on some of my restaurant investigation experience that you might find interesting. Check out BuckSays.com/living-social-groupon-and-their-ilk/

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