Groupon: good for customers, bad for business

groupon_logo.png#asset:178Blog / January 27, 2015

We all love a to save some money and companies like Groupon and Living Social benefit us as consumers greatly. Let me explain why Groupon is not a good way to sell your product or service

If you're unfamiliar with how Groupon works, I'll explain. Businesses offer a discount on their product or service to customers. They set an amount of purchases that have to be made and if there are enough people to buy the offer then the "deal is on." The concept is that a large amount of purchases will make up for the discount they are giving.

The 'benefits' to the business

These businesses benefit from inflated sales for a period of time (or so you think). The true benefit they get is the amount of NEW customers to buy their product. When a Groupon representative talks with you this is one of their biggest selling points. They tell you about all of the new faces you'll see and after testing your AMAZING product they will keep coming back. It's true. You WILL see a lot of new people.

HOWEVER, the truth about all those new customers is that the majority of them will not come back without another discount. This is a proven fact and I invite you to even ask these businesses. There are a few reasons why they won't come back:

- They've come to expect a discount and they will wait for your next Groupon offer.

- They like to try new things, but your product just wasn't to their liking. (Surprise, not EVERYONE likes your product)

- They have always wanted to try your product, but the price without a discount is just way too high, so they won't be coming back.

Bad for business

So what's so bad about offering a discount on Groupon? It's a rip off! Most business owners are blinded by the large amount of new customers that they think they're getting a great deal. In reality, they are still not making full profit on all of those sales. Most offers are 40-60% off their regular price. If a business could live on selling their product all the time at that rate then they shouldn't be charging the original price to begin with.

The other thing most people don't think about with regards to Groupon is they have to be able to make money, too. The way Groupon makes their money is by taking a percentage (40-60%) of the money customers pay for YOUR offer. Let me repeat. They take a cut from your already discounted price!

Let's use one of my favorite offers for an example, 18 holes of Golf with cart rental at 50% off.

Each Offer:

Regular price of such offer is $50
Golf Course through Groupon offers $25
Groupon takes 50% of offer price = $12.50

$50 x 50% = $25
$25 x 50% = $12.50
$25 - $12.50 = $12.50

Total amount business receives = $12.50 or 25%

In the end, Golf Course gave their product away for 75% off!

As a consumer I'm going to keep buying Groupon offers every week because they save me a bunch of money and I get my fix of eating out and trying new things. It's awesome and you know it! But as a professional and someone who helps small businesses with their branding and growth I will absolutely never advise a business owner participate in Groupon. There are countless ways to get exposure and new customers through your doors without needing to discount your product and without giving money away to another company.

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