When you look at your marketing options, Groupon should be the first off the list. This is a fact I will outline for you in detail. I have linked you to some of the most poignant and well written articles I could find to back my claims up, so on with it:
Why Groupon will Fail.
Groupon represents a trend sweeping the country, the group buying craze. Fueled by the recession, retailers, service providers, and most actively restaurants are allowing Groupon to sell certificates for a certain amount of buying power (say $50) most often for half price ($25). The consumer gets a whopping 50% discount, and as you might expect the certificates are selling like crazy.
Groupon then turns around and pockets at least half (sometimes all) of the sale price ($12.50), and forwards on the remaining $12.50 to the small business owner who is responsible for supplying the consumer with the $50 worth of product. The fact that merchants would be willing to make such a deal is indicative of the state of the economy. It just isn’t a good deal for them, and already some are publicly complaining that their ‘promotion’ has led to huge losses, and they must tough it out while the thousands of certificates that Groupon sells come in.
Outside of profit and loss, what are some of the symptoms of this Groupon fatigue? Among the worst:
1) Customers who are ‘deal hawks’ that only visit for the deal, not to ‘discover’ new places, and become regular customers.
2) At restaurants groupon holders who only tip on the discounted total not the normal amount, leading to staff fatigue and resentment.
3) Overwhelmed merchants whose reputation is damaged with their full price paying customers because they are unable to provide the same level of service when all the Groupon wielding customers flood them after an offer.
These reasons compound the fact that it is a bad deal for business owners to sell their goods at 75% off. I mean is it that hard to figure out? I don’t care how flashy their marketing is; it’s bad business, period. Businesses have been struggling to make a profit for the past few years, and running 75% off specials is only going to make it harder.
So expect to see Groupon start making the deal better for merchants as more and more get burned, or just reject the Groupon come on in the first place. Groupon will have to lower its take in order to continue to sell. When you ask a Groupon merchant if they think it was valuable to them, you are likely to get the answer ‘Yes we feel that we got exposed to a whole new group of customers that we hope will become regulars’ the truth is that privately many of them would tell you that they are very glad the onslaught is over and they can get back to selling at a profit.
Groupon will fail because it is a short term fad marketing ploy, that will not inspire repeat enrollment among merchants, other than those who game offers to trick consumers into a deal that really isn’t. So Groupon will expand rapidly and then begin its inevitable transformation into a modern day direct mail marketer with a ‘pay ahead for a discount’ value to consumers. That transformation will not justify the lofty valuation placed on it by investors and will likely lead to its acquisition by a larger firm, and the end of Groupon as we know it today.
At GuestFeed I advise my clients to not get lured into a deal with Groupon, or any of the other copycat group buying firms cropping up everywhere. It seems all you need is a big email list and some true believer sales people to hit the streets these days. I urge my clients to do the math and to really break down the numbers to discover the real cost of such an offer. It is hard work running a restaurant and even harder when you are doing it to lose money.
For consumers a great deal, for merchants a big mistake. What do you think? Have you had any experience with Groupon you would like to share?
I am here to talk it over anytime, just hit me up. Twitter: @spirocks
****UPDATE****
I plan on updating this post as more stories surface regarding small businesses experience with Groupon.
Consider the Boston Herald piece in which Jeff Gates, one of Bostons most successful restaurant owners said:
“They (Groupon and clones) are deflationary weapons of mass destruction and are very, very dangerous for the restaurant industry to get involved in,” said Jeff Gates of Aquitaine Group. “I don’t think restaurants realize how challenging the bottom line is without giving half off to your customers. (They) lose track of what they’re giving away.”
None of Aquitaine Group’s six restaurants – including Aquitaine Bar a Vin Bistrot, Metropolis Cafe, Union Bar and Grill, and Gaslight Brasserie du Coin – offer the deals.
Here is the piece itself followed by several more stories below:
Recently Entrepreneur wrote: “A recent study by Rice University surveyed 150 small to midsize businesses that had used Groupon, asking about their social-coupon experience and whether they would use the service again. While 66 percent of the 150 respondents said that their Groupon deal was profitable, a significant 32 percent found it unprofitable. And 40 percent of the respondents said they would not use Groupon again — notable, considering Groupon claims that at least 95 percent of its sellers request to be featured again.
Before you jump on the social-coupon bandwagon, make sure your business can handle it. Here are five Groupon nightmares that could happen to you — and how to avoid them…”
Here is the article:
Then there are others who are writing about warning signs regarding Groupon’s future. The likelyhood of a fad type waning of interest and saturation of market with competitors is written about in this article which provides some interesting historical references:
Thanks for reading.