Groupon is very likely one of the fastest growing startups in history. There’s no denying how ably the company took popular trends by the reigns and molded them into an innovative and undeniably industry-changing service. And it’s easy to see why other businesses are quick to jump on board. The site says its subscribers are “one of the largest, most desirable audiences for any business – and one of the hardest to reach with traditional advertising.”
While the company’s got its demographics down pat, it fails to bring attention to the bigger picture effect it’s had on local businesses. And Groupon isn’t the only one to blame: We’re officially in the thick of deal-a-day culture – the knock-offs are too many to count and multiplying every day – and your average consumer’s purchasing habits could be described as hyper-local. But is Groupon the rising tide that lifts all boats, or the tsunami that sinks them?
It doesn’t work for everybody
If you’re a local business owner, there’s almost an expectation to use Groupon. There are too many success stories and statistics to ignore – but unfortunately it is not a catch-all. Isa ‘Glittergirl’ Isaacs owns and operates Temple of Poi, a fire dancing studio in the Bay Area. Isaacs explains her two Groupon offers were “super effective at getting me exposure in a mainstream market that I didn’t normally have exposure in,” but realized that many of these new customers were “window shoppers.” According to Isaacs, more than a few customers who purchased the Groupon weren’t all that interested in poi, and were more drawn to the idea of adding an experience to their resume, or simply attracted to the savings and not the product. Needless to say, these people didn’t become returning customers.Despite her focus on clarifying the expiration terms of her Groupon deal, Isaacs found that customers either called the first day or within the last two weeks of the coupon’s availability – a difficult timetable for a one-woman business to function on, considering classes cap at eight people. While Isaacs could schedule additional classes to satisfy user demand, she notes this isn’t possible for many businesses that defer to Groupon or similar services. Product-oriented business have a harder time meeting demand than service-oriented businesses do, something many of Groupon’s larger faux pas can be attributed to. Earlier this year, the site was overwhelmed with orders of a Japanese New Year’s meal that left many users demanding refunds.
Stuart Wall is the CEO of Signpost, an alternative to Groupon. Wall says that businesses with high margins have a big disadvantage when it comes to using Groupon. “If you’re a business where you can hit a max, you get in trouble with Groupons.” He notes that if you’re running a new business and need that initial influx of customers, the site will work for you: “For a subset I think it’s a great solution.” But for those that operate at peak situations – restaurants in particular – you risk cannibalizing your existing clientele.
Associate professor of management at Rice University Uptal Dholakia has spent 10 years studying online marketing issues and has been researching daily deal sites and their economic impact for the last eight to 10 months. He describes their very sudden popularity as a mania that has taken consumers by storm, and he realized there simply hasn’t been enough attention concerning how they are actually affecting businesses. Dholakia recently published a study assessing this very issue and determined that Groupon can be a benefit for business owners – as long as they do their research.
“Something like Groupon comes along, and [business owners] have really no idea what the potential loss or gain is,” he says. “A number of businesses just jump in without really thinking about what they are trying to accomplish.” Taking into account variables like customer caps and whether or not a deal should be exclusive to new customers is vital, Dholakia cautions, and business owners need to ask questions to find a deal with the most earning potential.
