Businesses Promoting Through Groupon to Change Strategy

Today’s consumers have shown a huge interest in social coupon promotions.  Industry leader Groupon has grown so quickly that analysts believe the company’s 2010 revenue picture is in the range of $100 to $300 million. The idea behind this coupon site is simple enough. Groupon works with local retailers to present bargains to consumers.  Because of the sheer mass of consumers interested in the bargain, local retailers get a sales bump and hopefully new customers,  consumers get a deal, and Groupon cuts a cut. But what seems like a no-​fail strategy has encountered some rough going.

A study out of the Rice School of Business, authored by Utpal Dholakia, indicates that some marketers are quite happy with their Groupon promotions. But not every business give the service high grades. In fact, 32% of businesses say they lost money on their Groupon experiment. And 40% of all surveyed businesses will not market themselves via Groupon again.

There were some bright spots in the study. Promotions tended to do well the longer the coupons were available. In addition, consumers were particularly interested in restaurant coupons. But many restaurant owners pointed out that the Groupon promotion  brought in deal-​seeking customers who did not spend more than the coupon value and did not tip employees.

Dholakia’s research indicates that commonly reported problems include:

  • Poorly run campaigns tend to cannibalize existing customers instead of bringing in new ones
  • Many of the promotions are set up to benefit customers more than the participating businesses
  • Businesses do not experience the expected return visits from customers at full price

Dholakia believes businesses could more creatively design promotions to profitably use coupons.  Examples include,

  • Design a promotion to give visitors declining discounts over a period of 3 or more visits and thus build a relationship over time
  • Offer a discount for only one product out of several on a typical bill
  • Offer discounts and promotions to sell slow-​moving products or services during typically slow times.

Dholakia writes “[t]here is widespread recognition among many business owners that social promotion users are not the relational customers that they had hoped for or the ones that are necessary for their business’ long-​term success.” But he believes there is a place for this type of marketing. Instead of wide-​spread deep discounting approaches, businesses will need to carefully consider the best way to use this tool to maximize both visits from long-​term customers and profits.

[Sources: Gobry, Pascal-​Emmanuel. Reports About Groupon’s Revenues. BusinessInsider​.com. 16 Apr. 2010. Web. 1 Nov. 2010; Dholakia, Utpal.  How Effective are Groupon Promotions for Businesses. Rice University. 28 Sept. 2010. Web. 2 Nov. 2010] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.