Groupon, the nearly $15 billion behemoth of daily deal websites, is one of the hottest internet companies today. From their $6 billion Google acquisition offer to their purported IPO valuation of up to $25 billion, Groupon is making headlines everywhere. More recently, news about Groupon has been turning sour with articles from the New York Times, Reuters, and other numerous media outlets reporting horror stories of small business owners upset and traumatized with their Groupon experience.
How It Works
Groupon and the hundreds of Groupon-clones vying for you to strike a deal and sign up for their deep discount offering can be too much for any business owner to handle. Understanding how Groupon works and what to expect are the first steps in realizing whether Groupon is right for your business. Groupon and the likes provide a service where they offer potential customers a deep discount to a good or service. These discounts to the customer range from 50-90% off retail or face value. As a business, when you sign up for Groupon, they guarantee you increased customers. They do this in 2 ways, first the deal only goes “live” if a pre-determined minimum number of people purchase it and second, they send out your deal to their ever growing email list of subscribers which can be millions of new potential customers per city.
This sounds great for customers with huge savings on new places to discover and great for businesses with a huge wave of new customers walking through their door. In theory, this may seem like a match made in heaven, but after 3 years of existence, small business owners are figuring out the hard way what offering a Groupon or any type of daily deal means to their business and the bottom line. The economics behind Groupon is simple, but not always upfront and clearly understood. As an example, if a business offers $40 worth of goods or service at a 50% discount, the consumer only pays $20. From that $20, Groupon takes 50% or $10 and delivers $10 to the business owner. This $10 is multiplied by the number of deals sold in a 24 hour period and disbursed to the business owner in 3 installments over the lifetime of the Groupon.
Deal Offered To Customers: $20 for $40 at Business XYZ
Retail Value: $40
Customer Pays: $20 (50% off)
Groupon Takes: $10 (50%)
Business Takes: $10 (50%)
Outcome: Business delivers $40 worth of goods/services and receives only $10 in exchange
Ultimately, out of the $40 worth of goods or services redeemed by the customer, business owners only receive 25% of that. After personally speaking with hundreds of business owners and hearing both happy business owners who say they would sign up for another Groupon offering and disgruntled business owners who can barely cover the material cost of Groupon customers, the disgruntled seem to out-weigh the ecstatic. A common trend amongst the unsatisfied business owners is that most Groupon customers don’t purchase much more than the face value of the Groupon, they don’t tip on the full value of the Groupon, and that they notice most daily deal customers don’t return.
New Customer vs. Loyal Customers
This is one of the issues we are trying to solve at RewardMe. We have built a loyalty management solution designed to retain new customers and adequately reward them for turning into loyal customers. Groupon is great at driving new traffic to businesses and with RewardMe, you can retain and watch those new customers turn into repeat customers. Whether you decide to use a daily deal for your business or not, one of the key indicators to a successful business is their repeat customer base. RewardMe helps you track, manage, and maintain that with a simple solution for any size business. Best of luck to all small business owners out there!