Is Groupon a Fair Deal for Business Owners?

Groupon took a simple idea – deal coupons – and turned it into a social media phenomenon. For those of you not already familiar with the what Groupon does, they sell discounted products or services for clients. Once a certain agreed sale threshold is reached then Groupon splits the revenue from the deal with the client. On the surface it’s a win – win scenario: Groupon earns money for being the middle man, their clients get a whole string of new customers that they wouldn’t have been able to attract normally, and the people buying the offers get a great discount on the product or service they all buy.

But who really benefits from Groupon? The consumer, the business owner or Groupon?

Let’s take a look at all three.

The Consumer.

From the consumers point of view, they get a great deal. They are lured into buying something that they didn’t necessarily want or need, but saw an offer that was so good they had to have it. The pleasure they get from getting a deal means they are more than likely to tell their friends and family, but the pleasure is all in the deal, not the experience that the business owner has given them. Their friends and family are more than likely going to go rushing to Groupon to get the same discounted deal, or to see where else they can find an offer.

The downside of this for the business owner is that if the customer has come for the cheap deal, they are unlikely to want to pay for the same service at full price.

Groupon.

Groupon launched in November 2008 and went public after three years. In December 2010 Groupon reportedly turned down a Google buyout offer of $5.3 Billion¹, before working the Google numbers into a $12.3 Billion IPO a year later. ²

Groupon has 83 million subscribers, with 16 million of those having bought a deal³

On the surface, Groupon is doing very well, however there are rumours flying around that Grupon is going to collapse due to over saturated local marketplaces, high competition from the likes of LivingSocial and reports of poor accounting ⁴ . Whether or not it is here to stay, it’s here now and has access to an eye watering amount of customer data and payment details, all of which could be put to use for other purposes if they find a suitable niche to leverage.

The Business Owner.

Groupon encourages businesses to offer highly discounted rates. This is to entice would be buyers in; after all, everyone loves a bargain! Businesses who get involved with these offers need to make sure that the numbers stack up, otherwise they could be looking at a loss leader, or even worse committing to provide services that they really can’t afford.

Let’s look at this example: You offer your business services through Groupon for a 70% discount. This leaves 30% which has to be split between you and Groupon. If Groupon takes half of this, it means that you’re only getting 15% instead of 100% from the customer. The equivalent of £15 for a £100 service. Remember that this 15% needs to cover your own costs as well, so unless you have very generous margins you may struggle to break even, let alone make a profit. Now imagine that you sell this offer 200 times! Could you afford to do this and break even? Could you afford to make a loss?

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Is the deal on?

Every business is different, and there will be businesses who want new clients whatever the cost. If that’s you, great. Otherwise, if the Groupon model appeals to you, you need to find a way to make it work for you without it breaking the bank.

One way to do this could be to put certain caveats in the offer, for instance you will only accept the discount bookings out of peak hours, or between certain dates of the year. You might want to only accept a certain number of bookings, or maybe only bookings that come online.

To combat the customers who only come for the offer, try cross selling alternative offers to attract them back as repeat business. Try and get them to sign up to your own mailing list, not just Groupon’s, or offer further incentives so that they remember your business, not just the Groupn deal.

If you want a high number of incoming leads and great exposure for your business then Groupon could be exactly what you’re looking for. Groupon is a super affiliate, offering their marketing clout of millions of subscribers to businesses who want paying customer leads without an initial outlay.

The most important thing as far as you the business owner should be concerned though is using the Groupon system to your own advantage and making sure that you’re not just getting a fair deal, you’re getting a great deal!

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Sources:

1 Read Write Web, 2 Read Write Web, 3 Business Insider, 4 The Guardian