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I get to peruse through a lot of articles every day and one that stood out today was one that was titled "Merchants Split on Groupon Satisfaction" (seems I cannot put a link here, but you can search and find it on eMarketer.com)  The stat they report is that over 80% of merchants who use GroupOn are unhappy with the results - 17% said they were happy.  How can you build a business with customer sat stats like that?!


To be fair and provide a contrast, the other day I visited with a local restaurant marketer for 4 locations who said he was very happy with GroupOn, but only after they learned how to use it properly. In his first campaign, he ran a $40 offer at 1/2 off. Consumers who bought the deal came in, drank water and left without a tip - he knew he lost out on that one. The next time he lowered the dollar amount of the offer to $20 for 1/2 off (covers a bit more than one entree) and consumers readily spent more than the $20 coupon - he was VERY pleased with his result, so much so that he is planning more GroupOn's, which he credits with helping them maintain business during the slower summer months (for him)

Moral of the story - a discounting strategy is not bad, but not as the only tactic to build interest. Used with thought and an eye on what your really trying to accomplish (profitable business), sometimes less is more.

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Comments

  • Kash & Nathan, Thanks for the comments guys.  I learned froma good friend a long time ago that the only stable relationship in business, be it B2B or B2C, is win-win.  If either party feel taken advantage of, the relationship will crumble in a lose-lose.  From that perspective I wonder if GroupOn can actually participate in a win-win without helping merchants find the tipping point where the deal is good for consumers and the offering business.  Interestingly, almost 40% of the merchants said they would try the service again; hope they do the math first.

  • This is a great topic, Steve. A few months ago I purchased a GroupOn for a service at a newly opened, small (5 person staff) business. They were excited to have new clients but admitted that they felt pressured into a discount amount that they weren't sure they could afford. The business owner expressed concern that the missed profit and chance that new clients wouldn't return was enough to make her nervous about her decision to participate.

     

    I think sites like Groupon and LivingSocial are great opportunities but, like you said, these opportunities can be missed if businesses aren't careful with their offer. Particularly in the food service industry where people are constantly looking for bargain businesses need to be sure their participation will profit their business in the long run. Along the same lines, if 80% of participants are dissatisfied with their GroupOn experience, there should be some responsibility taken by the sites offering the service to ensure both business and discount buyers get a good end of the deal. 

  • The group-buy concept is fantastic for consumers as I'm sure you know (I mean, who wouldn't turn down a great deal, right?).  However, for businesses whose aim is to acquire customers at some measurable (and often steep) cost, Groupon is a great one-stop shop.  That said, I don't think it works well for a lot of cost-sensitive businesses like restaurants.  In a lot of other service oriented businesses where the cost is "time" Groupon can work especially well (i.e. Yoga studios, where the cost of the Yoga instructor for the hour is the same no matter if there are 2 students versus 30 students) Groupon is a way to fill fixed capacity.

     

    And then of course, there's the long debate of whether or not deep discounts adversely affect your brand and your ability to recoup the average-selling-price when the Groupon's over.

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