While Groupon may not be the Wall Street wonder boy that it had been, it still remains a marketing option for many small businesses across the country, but should it be? There is no arguing that the customer experience is great and the discounts are phenomenal, but someone has to pay the price and unfortunately it’s the small businesses that make up our communities. Need to drive traffic to launch a new store or product or to revive lagging sales? Groupon will most definitely succeed in those areas, but in terms of repeat business it just isn’t the go-to source businesses need, with only 22% of Groupon customers returning to businesses after using a coupon[i]. In this article we will discuss five reasons Groupon isn’t the right choice for small businesses. Groupon Pricing Model

5 Reasons Groupon isn’t the Right Choice for Small Business

1. The Discount Model

For a small business’ deal to be listed on Groupon, the business must discount the product/service by at least 50% off of the regular price. This devalues their product and brand by creating a sense of discount and high margin pricing flexibility that often times just isn’t there.

2. The Pricing Model

Groupon takes a 30%-60% share of the discounted price, regardless of the cost to the merchant. Meaning that the merchant who’s already discounting their services by at least 50% is in the end only taking home 15-30% of the original price.

3. The ‘Typical’ Customer

At driving feet into a small business’s doors Groupon is unparalleled, but that’s it. Customer interest in that business falls off rapidly once the discounts stop[ii]. It should be no wonder then that Groupon’s main customers are discount shoppers who are always looking for the best deal. Another interesting thing to take note of it that many of the people who purchase a Groupon for a business are already existing customers of that same business. A study by Lightspeed Research found that almost two-thirds of people purchased daily deal for businesses which they had previously visited[iii].

4. The Community Experience

Or lack thereof. Groupon, for a large part, focuses on the shopping experience and misses out on the opportunity to inform consumers about the community around them. This lack of information prevents many consumers from experiencing the community and the small businesses which occupy the community.

5. The Value of Small Businesses

Between the discounts, pricing, customers, experience, and national chains, Groupon isn’t necessarily the best choice for small businesses. In a recent study it was shown that 40% of small businesses wouldn’t use Groupon again[iv]. Growing small businesses and strengthening communities isn’t just about driving foot traffic through doors, it’s also about building repeat business and making personal connections with owners, customers, and community groups, something that Groupon just can’t do.

Are you a business owner that has either used or considered using Groupon? What are your thoughts? Were they good for your business?
[i] http://online.wsj.com/article/SB10001424052748703447004575449453225928136.html?mod=WSJ_article_MoreIn_Tech

[ii] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1696327&rec=1&srcabs=1727508

[iii] http://screenwerk.com/2011/05/03/deals-and-repeat-buying-is-it-happening/

[iv] http://blogs.wsj.com/digits/2010/09/30/rice-university-study-groupon-renewal-rate-not-so-hot/