What Groupon’s Shortcoming Means to Small Business Owners

The beauty of social media is that digital users are curious and willing to try new things.  Groupon was one of those tools that looked enticing for both consumers and businesses.  It’s early success seemed to come from customers wanting the most bang for their buck but at the cost of the business owners!

According to an article on Business Insider,  Groupon is deemed as a disaster and criticized for it’s stocks dropping in value due to questionable accounting practices.  To take it a step further, Sequence Inc, a forensic accounting firm, took a scrutinizing look at Groupon’s restated Profit and Loss sheet and shows the dip in Groupon’s revenue in 2010.

A Closer Look at the Groupon Business Model

What exactly is Groupon and what was its value to business owners?  Well, on the surface, Groupon allowed business owners to offer sales to groups of customers.  Groupon leverage the idea of collective buying, where one or two customers wouldn’t be able to nab such a great deal, but 25 or 30 customers have a lot more power and could leverage such a deal. Often times, Groupon deals need a minimum number of purchases before the deal is live and valid. The customers would get a good deal and the businesses would get new customers.  The assumption was that if business owners offered groupon deals once in a while, they could open up their business to new customers, who would then turn into repeat customers. 

Challenging the Groupon/Small Business Assumption

That was the problem!  No one sat down to think what Groupon was doing to the small business in the long run.  A few marketing campaigns later, so many business owners found themselves with their stores filled with customers who weren’t making them money.

Ultimately, Groupon became a prime example of a social media tool with no product, and a tool which devalues a business owners’ product via profits.  To the business owner, Groupon was selling a lot of distribution, but not an actual product-rather, at the cost of the product!

The Social Dot Com Business Bubble?

Fret not!  The “social dot com bubble” has not arrived.  This is why it is crucially important for business owners to have business advisers.  It is becoming increasingly important for business owners to invest in a social media consultant for their specific business.  Make sure your consultant has some background and understanding in the business you run.  You can avoid the “social dot com bubble” syndrome focusing on marketing your product instead of inflating its profits!

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About Sana Ahmed

Formerly at Mashable, Sana Ahmed is a Social Technology Consultant who streamlines technology strategies for business, learning, and personal productivity. She trains digital users on how to take back their technology and get down to business! Sana also contributes to AppAdvice.com, and works on her startups in her spare time.

  • Kathy Mims

    If business owners expected to turn a profit on Groupon deals, then clearly they did not understand the Groupon offer from a business perspective to begin with.  The whole point of these daily deals is to get clients in the door, even if they are paying a small percentage of your normal charge, and then it’s up to YOU, Mr. Business Owner, NOT Groupon, to convert those new clients to repeat buyers.  Speaking from the consumer side, I have tried many new businesses via Groupon that I have added to my regular buying repertoire …. and many I have not, mostly because of a lack of quality or service I encountered during my first buying trip.

    • http://sanaahmed.com/ Sana Ahmed

      Kathy, thanks for the response. I think you hit the nail on the head with Groupon.

      When approaching such social tools, business owners need to pay attention to the specific functions of that tool will help them with. In the case with Groupon, it became a great ‘hook’ to attract first time customers. But Groupon wasn’t meant to be become part of the service permanently-just a catchy networking mechanism.

  • Kathy Mims

    If business owners expected to turn a profit on Groupon deals, then clearly they did not understand the Groupon offer from a business perspective to begin with.  The whole point of these daily deals is to get clients in the door, even if they are paying a small percentage of your normal charge, and then it’s up to YOU, Mr. Business Owner, NOT Groupon, to convert those new clients to repeat buyers.  Speaking from the consumer side, I have tried many new businesses via Groupon that I have added to my regular buying repertoire …. and many I have not, mostly because of a lack of quality or service I encountered during my first buying trip.

    • http://Smallbiztechnology.com Ramon Ray

      Kathy – VERY insightful – Groupon is NOT to make a profit but to get clients in the door !

      • http://twitter.com/sanaahmed Sana Ahmed

        Ramon, our readers are indeed insightful and great!

    • http://sanaahmed.com/ Sana Ahmed

      Kathy, thanks for the response. I think you hit the nail on the head with Groupon.

      When approaching such social tools, business owners need to pay attention to the specific functions of that tool will help them with. In the case with Groupon, it became a great ‘hook’ to attract first time customers. But Groupon wasn’t meant to be become part of the service permanently-just a catchy networking mechanism.

    • http://twitter.com/sanaahmed Sana Ahmed

      Kathy, thanks for the response. I think you hit the nail on the head with Groupon.

      When approaching such social tools, business owners need to pay
      attention to the specific functions of that tool will help them with.
      In the case with Groupon, it became a great ‘hook’ to attract first time
      customers. But Groupon wasn’t meant to be become part of the service
      permanently-just a catchy networking mechanism.