Use Groupon Lose Profit?
Kumar says that, as they are currently structured, daily deals don’t work for small businesses. “The retailers are attracting price-sensitive customers who are always looking for a deal. If there isn’t a deal on offer, they move on.
Our business is not in the retail space nor are we B2C so thankfully using Groupon or the like is not a consideration for us.
There are many nightmare stories of businesses using Groupon to attract new customers only to discover that Groupon users are a special breed of customer – “vultures” was used to describe Groupon users in one article.
Academia has also researched this sector with many research findings ending up as warnings for businesses. As the NZHerald pointed out in this article…
Academic research seems to suggest it’s not just shareholders who are getting burned. Dr V Kumar, executive director of the centre for excellence in brand and customer management at Georgia State University, and his colleague Bharath Rajan studied the impact of daily deal offers on three small local businesses: a restaurant, a car wash service and a beauty salon/spa.
The researchers tracked the businesses for a year and the results, published in MIT Sloan Management Review, were damning. In the first month, all three businesses lost money.
Daily deal sites argue that such losses are to be expected and that they will be made up by repeat business from the new customers brought in by the coupon. But this wasn’t the case, according to Kumar’s report. Every new customer visiting the restaurant with a coupon resulted in a US$14 decline in profits. For the car wash, the decline was US$17 and for the beauty salon US$39.
Kumar says that, as they are currently structured, daily deals don’t work for small businesses. “The retailers are attracting price-sensitive customers who are always looking for a deal. If there isn’t a deal on offer, they move on.”
Maybe business owners signup for services only because the service is reported by media as hugely successful and will become the next big thing. So the business owner is lead to believe that the service offered works – hell it must work if they are positively mentioned in media right?
The likes of Robert Scoble generating hype about some kid building a “business” in 3 days that will be enormously successful is irresponsible and highlights the BS world we now live in where people are branded “Entrepreneur” like it means they will become the next Steve Jobs or Bill Gates. I have seen many “Entrepreneurs” fail at every business they start but still they are praised highly in media and by “experts”. How a business failure can still be praised within the same breath as Steve Jobs, Richard Brandson, Bill Gates is a mystery to me.
So think carefully when considering coupon services as you may find they do more harm than good and don’t rely on media’s BS that the business offering the service have created some kind of win-win solution for your revenue worries.