Is Groupon Right for Your Business?

A growing debate continues as to whether Groupon, and other daily deal sites like Living Socialare good for businesses or are they a quick-fix marketing solution in a sluggish economy yielding short-lived, expensive, false hope.

While the jury is still out, there is no debating that the daily deal phenomenon continues to grow in popularity. According to an August 2011 article in Stores magazine, Groupon sold 30 million deals in 2010, and 28 million in only the first quarter of 2011.  Daily deal sites promise to send customers to your business, many of them new customers, but at a steep price. Groupon advertisers offer customers 50% or more discounts off all or select products and services.  What’s left over, Groupon then shares with the business. Thus, if a store were to sell $50 gift cards for $25, they would only keep $12.50 from every $50 in sales. What this means is you either have to have a product or service with very high profit margins (think food) or unlimited capacity and zero variable costs, like a museum or zoo.

Some companies treat daily deal sites like an advertising item, figuring it provides awareness and measurable sales, so it’s worth the expense to bring in new customers. You really need to look at your industry to determine if a daily deal promotion is a good use of your marketing and advertising budget. The restaurant industry appears to be a natural fit, and given the high margins and the rough patch they went through with declining sales in 2008 and 2009, daily deals continue to be embraced by many restaurateurs.

The convenience store industry is one that attracts customers primarily due to its location, curb appeal, and overall shopping experience. A daily deal at such a deep discount would probably only make sense if it were focused on a high margin category like food service that a store feels has a lot of upside growth potential and is worth the promotion cost to build awareness and trial.  But that alone is not enough. In order to maximize the return from a daily deal promotion, a company must also develop a strategy for enabling customer engagement and encouraging repeat business through other loyalty means such as text, e-mail, facebook or card based programs.  Figure out how to do this and you’ll likely be a daily deal advocate, otherwise expect to be disappointed like many merchants in a June 2011 Rice University study which complained that bargain shoppers come in for the deep discounts and never return.

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