Do Groupons hurt businesses?
Consumers who used promotion from Groupon – one of several popular deal-of-the-day websites – don’t make return visits to businesses offering discounts, don’t spend much and don’t tip well, said some businesses that use the service in a survey released this week.
One-third of the businesses surveyed didn’t earn profits from their Groupon promotions with restaurants faring the worst among service businesses.
“Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal. So employees need to be prepared for this type of customer and the sheer volume of customers that might come through,” said study author Utpal Dholakia, an associate marketing professor at Rice University’s Jesse H. Jones Graduate School of Business.
Ninety-two percent of the disgruntled businesses plan not to offer social promotions again.
“I think these findings show that social promotion companies need to better balance consumer appeal with positive outcomes for the small businesses offering them,” Dholakia said in a statement. "Right now, these deals are tilted too far in consumers’ favor.”
Groupon unveils a discount for a local good, service or event in many cities each day. The discount is valid only if a minimum number of consumers purchase the deal. Dholakia surveyed 150 businesses in 19 U.S. cities and 13 product categories that ran and completed Groupon promotions between June 2009 and August 2010.
Despite the unhappy businesses, the majority of Groupon users had success.
“I think (Groupon is) brilliant,” said one respondent in the survey, which also revealed 66 percent of businesses earned profits using Groupon. “Quick influx of cash. Great visibility for our business created amazing traffic to the site the day we were featured.”
Dholakia offered these tips for businesses that currently use social-promotions, want to give the service another shot or want to try the process for the first time:
-Use promotions for building relationships instead of creating one-time transactions. Instead of offering $60 worth of food for $30, parcel it out to offer $20 worth of food for $10 over the customer's next three visits.
-Don’t offer discounts on a total bill; rather, offer a specified discount for various products or services.
-Choose items judiciously to sell unpopular items or use unutilized services through the promotion.
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