Groupon reaches 83 million followers with new deals daily. For the small business owner, partnering with Groupon can be the opportunity of a lifetime—or the near-demise of a business. As such, working with a daily deal company requires some thoughtful consideration.
Groupon prepares businesses for the day of the deal by telling them to add a phone line for every 100,000 Groupon subscribers in the city, hire additional staff members, stock more merchandise, and anticipate five times the traffic for their websites. While some businesses profit from the newly-found fame and clientele, others are crushed by the time Groupon takes its half of winnings of an already discounted product—which is usually 50 percent.
Here's the good and the bad that comes along with these online deals, and how to prepare for them:
1. Free advertising
Once you set up a deal with Groupon you can forget about the rest. They handle all the promotion and purchases by customers. For many small businesses, this is the way to get noticed, without spending a dime on an ad. After the deal is sold, businesses receive three payments over three months, so in the end, little time needs to be invested. Carey Friedman, who owns Grandpa Eddie’s BBQ, told TechCrunch: "We were seen by tens of thousands of potential customers in our area and that didn’t cost a dime!" He said 70 percent of his Groupon customers returned to his restaurant.
2. Damage to the brand
This one is hard to measure, but still potentially there. Associating with deep discounts can possibly damage your brand. When a new customer first knows about your product through an online discount or coupon, he or she might wonder if there's something wrong with the company, or if the business is slow.
3. New customers
The day a coupon deal comes out, customers tend to flock the business for the following weeks. Sounds great, right? Not always. If your business is unprepared for the new surge of demand, this can really hurt you. It can disrupt the service for the customers paying full-price (who now can't book your services), or completely wipe out your resources. The owner of Posies Bakery and Cafe blogged after running a Groupon deal: "We met many, many terrible Groupon customers…customers who argued with you about it with disgusted looks on their faces, or who tipped based on what they owed."
4. Lasting effect
Even though you will get many new customers by offering a deal, not all will be returning customers. The trick is knowing how to price: You want customers to spend over the coupon's worth. This works well for restaurants, because customers tend to get an appetizer, or a dessert, knowing they already have a coupon for the value of an entree.
Gregg Gibbs, the owner of Chicago Bagel Authority, offers a cautionary tale. He told the Chicago Tribune that he sold nearly 10,000 Groupons, ten times more than he had expected to sell. After splitting the revenue, the shop sold about $15,000 for $80,000 worth of food, and got mostly one-time customers who would return items if it got them over the $8 coupon value.
Ultimately, every business is unique, and there's no sure-fire way to predict how each will respond to a daily deal. So do your research, and consider calling up some local business owners who have partnered with Groupon.
Image credit: Asia/Pacific American Heritage Festival via Flickr