Why Groupon is Bad For Your Business

Why Groupon is Bad For Your Business

Groupon markets their coupon service to small business owners as a way to quickly enhance their sales numbers, but most small businesses are unprepared for the actual impact that Groupon will have on their daily performance.

Unloyal Customers

While it is true that more people will come through your front door, they will typically be customers who were only enticed by a good deal, not those who will come back and continue to support your business.

It is possible to convert them into regular customers, of course, but statistics show the majority of Groupon holders prefer to frequent businesses that are offering a great deal, and it is impossible for any small business to continue giving such generous discounts over the long haul.

Overwhelming Numbers

The negative impact of using these daily deals as a marketing strategy can be devastating. Most small business owners fail to calculate just how much they will be giving away for free. It is not only about the product or service itself; it is also about having the proper staffing to take care of the upswing in traffic, the added wear-and-tear on equipment or machinery, and sometimes even space inside your restaurant or place of business. When these numbers are tied together, it is enough to force many small businesses to close up shop.

The Red Pepper Deli, a raw vegan restaurant that was located in Northville, Michigan, is a perfect recent example of the issues with using Groupon. The deli had a relatively inexpensive menu, and their Groupon gave people the opportunity to purchase $10 worth of food for only $5.

The Unwritten Fine Print

Trying out something new for $5 would have been enticing enough for most people, but Groupon offered a free $5 voucher towards all Groupon purchases of $5 or more during one day of the Red Pepper Deli promotion. Understandably, the now free Red Pepper Deli vouchers were picked up by a very large group of people.

After four years in business, the Red Pepper Deli’s brief advertising stint with Groupon depleted their profit margin to a point where they were unable to recover from an equipment failure.

Although they had successfully maintained a specialty restaurant since 2008, Groupon’s negative impact was enough to put them out of business in only three months. Unfortunately, this is not an isolated incident.

Many small business marketing consultants advise business owners to stay far away from Groupon, but the people who need this information the most are the ones who are the most likely to be pulled in by Groupon’s advertising pitch.

Instead of struggling through the Groupon effect, you’d be better off investing in a solid social media marketing plan and making sure to optimize your website for search engine traffic. These two tasks alone, while relatively inexpensive, are proven ways for small businesses to not only improve sales and revenue, but also help keep that number up for the long haul.

Affordable Alternatives

Rather than putting out thousands of dollars to cover Groupons from people who will only visit your store once, proper SEO tactics will generate recurring business by reaching those who are actually interested in what your specific company is selling.

Understanding the true needs of small business marketing, and by implementing a proven social media strategy or search engine optimization plan will increase traffic, sales and revenue, without risking your business going belly-up.

Social networking and SEO have been proven to generate business, while Groupon has been proven to be detrimental to small businesses. The choice is not only clear, but it is also cost effective. Start generating qualified leads today.

What do you think? Do you know of any businesses that couldn’t cope with the Groupon effect?

Comments for this post

  • July 23, 2012 at 9:06 am

    It depends on the product you sell. For restaurant it is a good way to fill the blank for example.

    • August 9, 2012 at 10:29 am

      Yes, it does depend on what products you sell. I think it can be beneficial (short term) for some restaurants, for example, if they know Tuesdays are slow days and they can line up their Groupon to coincide with this. But for the most part, most restaurants can’t handle the huge spike in traffic, and since their profit margins are so thin, they end up losing money by offering these specials.

  • July 24, 2012 at 5:11 am

    Hi Tarun,

    Personally, Groupon has some excellent backlink and marketing opportunities if a Business can find value in their services. If done right – like blogging, article marketing (and many more others you can choose from) along with a good visible link structure (like social recommendations) online can drive a lot of traffic to your website and Business establishment.

    • August 9, 2012 at 10:31 am

      Hey Anton,

      Thanks for the comment. You’re right: businesses can benefit in other ways (as you’ve laid out), such as link building and online marketing. if they know what they’re doing ahead of time. As for the reviews on sites like Yelp or UrbanSpoon, etc. I think a Groupon can have both a positive and negative effect.. you’ll most likely get the same amount of each (perhaps more negative reviews because people tend to be more vocal when they’re upset versus when their expectations have been matched).

  • July 30, 2012 at 7:38 pm

    Groupon offers different deals each day for a local good, service or event in a city where it operates. The cons of using it for business is because deals don’t generate repeat customers. You may never see the person again once they use your coupon. Or that person may not be willing to buy from you again without a coupon in hand.

    • August 9, 2012 at 10:33 am

      Very true, Becca. Most businesses (especially small businesses) struggle to figure out how to create loyal customers who will come back and make purchases week after week. With the type of customers that Groupons typically attract, it would not be a good strategy for this type of goal.

  • August 3, 2012 at 9:33 pm

    As I detailed in my blog series that began with Groupon Review: Worst Marketing for Your Small Business http://www.retaildoc.com/blog/groupon-worst-marketing-business/, no amount of hope or desperation can make these a win-win.

    Specifically it is a horrible way to market your restaurant rewarding the cheapskates with the coupon and paying for their deals on the backs of your loyal customers.

    • August 9, 2012 at 10:35 am

      I agree, Bob. It’s more than just the business that is losing out in this type of marketing; it’s also the business’s most loyal customers. Why should their experience suffer just so that a bunch of random people can get a cheap group deal?

      This article was partially inspired by your post, so thank you for reading and commenting.

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