Sunday, January 02, 2011

Is Groupon Too Good to Be True?

The amazing growth of Groupon is certainly one of the biggest business stories, and biggest social marketing stories of the year. But is being featured on Groupon necessarily good for a business? The answer seems to be, as it so often is, “It depends.”
But the inevitable backlash began this fall, with a blog post from the owner of Posie's CafĂ© in Portland detailing how its Groupon offering was a financial disaster for the company. In particular, the post took issue with Groupon for not capping how many coupons can be sold and taking too large a cut of sales. "There came a time when we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign," the owner wrote. 
Groupon responded that 97% of participating businesses want to be on Groupon again. But a study by Rice University finds that the truth may be somewhere in between.
Of the 150 businesses it surveyed in 19 cities, 66 percent said Groupon promotions were profitable, while 32 percent said they weren't. More than 40 percent of the companies wouldn't run a Groupon offer again.

Rice’s suggestions for retailers doing Groupon promotions seem sensible: “Use deals for building relationships rather than just creating one-time buys; don't offer discounts on a total bill but for specified products or services; and use Groupon to sell slower-moving items.” I would add that, given the discounts Groupon consumers expect, that the coupon better involve an extraordinarily high-margin item or service.

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