Groupon: Is It Too Much Of A Good Thing?

Groupon is the leader of the “group buying” services wherein you list a VERY cheap price for a product/service and those participating in the “group by” get to take advantage of the deal.
You set the discount and you set the number of people who need to take advantage of the deal for it to kick in and when the deal stops.
Many companies clearly like Groupon and Groupon says over 90% of it’s customers are repeat and/or are satisfied.
However, there’s been some reports that Groupon has been a money losing venture for them.
One company and I guess to be a flower shop, Posies, wrote about their experience in this Facebook post.
While Groupon says that almost 100% of its customers are satisfied, a study by Rice University shows that:
Groupon promotions were profitable for 66 percent of the businesses surveyed for the study, but they were unprofitable for 32 percent. More than 40 percent of the respondents indicated they would not run such a promotion again. Read the full press release here.
As with the issues that some customers had with Yelp, I think using any group buying service takes clearly understanding how it works.
Two things you must understand to use a group buying services:

  • A full understanding of your products profit margins.
  • A full understanding of the rules of engagement of how the group buying service works.

Overall, if you’re offering a big deal to get lots of customers and find out too late that the deal was “too successful” and you’ll be losing money with every deal, you are GOING to be disappointed.
On the other hand, if you bring in lots of additional customers and can at least break even you’re ahead as these might be customers who otherwise would not have come to your store and purchased anything from you.
Check out the Rice University study and learn as much as you can about Groupon and overall Groupbuying services. Then, with all this information, you can better determine if Groupbuying is for you.
Some suggestions the study offers are:

  • Use promotions for building relationships instead of creating one-time transactions. Instead of offering $60 worth of food for $30, parcel it out to offer $20 worth of food for $10 over the customer’s next three visits.
  • Don’t offer discounts on a total bill; rather, offer a specified discount for various products or services.
  • Choose items judiciously to sell unpopular items or use unutilized services through the promotion.