The pitch to business owners from Groupon is a simple one and it’s a pitch that makes a lot of sense, in theory. Groupon offers businesses the opportunity to gain massive exposure on their website by posting a coupon that, more often than not, offers a deal that would never be available elsewhere. For example, a retail store might sell a Groupon for $20 that entitles the customer to $40 in merchandise, a savings of 50%. The $20 the customer pays for the Groupon goes directly to Groupon and they split the proceeds, upfront, with the business owner.
When it is all said and done, that local retail store will end up selling $40 worth of merchandise for $10. For most businesses, this represents a loss since the $40 in merchandise cost them more than $10. But despite this, and as Groupon’s pitch would have you believe, that loss is well worth it. And in many cases they force new partners to take less than half of the Groupon’s selling price. To continue the above example, instead of $10 the store may only be receiving $8 or $5 for $40 in merchandise.
Groupon’s pitch is undeniably brilliant. It convinces businesses they’re making a relatively small investment, with no upfront costs, in marketing their business to a massive audience without really having to pay anything other than whatever they might lose on their products or services. On top of that, and more importantly, the business believes that they’re going to gain valuable new repeat business. Even low customer retention rates from Groupon deals could result in massive increases to a business’ clientele. This is where it all goes wrong.
Groupon customer retention rates are not what they would have you believe. The fact is, the very large majority of people buying a deal are people who are attracted to the deal, not the business. Of course the business sells something they’re interested in, otherwise why spend the money? But these people never visited your business to begin with, maybe they frequent a competitor already or maybe they wanted to try something new. It doesn’t really matter in the end; they get their deal and a massive proportion of them will never return to your business.
We’ve heard the same from clients, other business owners we’ve talked to, other marketing professionals, and even customers themselves. As a result, Groupon is often too much of a gamble for a small business as they risk losing thousands of dollars for nothing in return. The investment in marketing isn’t an investment in marketing at all because it doesn’t work.
Furthermore, you’re risking your online reputation and reviews as well. According to research done by computer scientists at Boston University and Harvard that included an analysis of over 7 million Yelp posts, businesses tend to see their Yelp rankings decrease after offering a Groupon deal. The cause? Groupon subscribers, on average, give businesses a Yelp score that is 12% lower than non-subscribers. Plus there are plenty of horror stories to be found online about businesses that have to deal with unruly and entitled customers armed with a Groupon voucher, many of whom can’t be pleased and satisfied under any circumstances.
So when looking into ways to increase your local business’ exposure and earn new customers, don’t look at Groupon. You’ll only waste your time, your money, and you even risk harming your online reviews and reputation. Your online reputation is what will earn your business new and loyal customers. Do you really want to lose money only to attract a negligible amount of (if any) new customers and hurt one of the best tools you have available to legitimately attract new people to your business?