The Groupon Effect on Small Business


With all the buzz around Groupon, entrepreneurs all over the country are wondering if they should offer deals on these popular discount sites to promote their small businesses.

Sure business owners have to offer their products for 50% off, and then split the remaining revenue with Groupon- but the ability to reach thousands of local deal-seekers, and the thought of selling hundreds of products off of one email- is enough for anyone to want to give it a try.

But does Groupon actually work? What impact are these coupon sites really having on companies? Are small businesses making money on these deals? And-Is the promise of new customers too good to be true?

To get to the bottom of this, the BrandMakerNews team asked dozens of entrepreneurs to discuss their experience using Groupon to promote their businesses.  Before extending your own offer on Groupon, read the insightful tips below to make sure that advertising on Groupon (and similar discount sites) is a smart move for you.

What motivated you to market your business on Groupon?

We were motivated by the buzz of Groupon and the idea of reaching numerous thousands of interested buyers at once with little cost.  -Jennifer Langley, Arts Card

We chose this outlet because it was a guaranteed way to get customers without putting any upfront money for advertising and marketing etc.. Being a new small business we needed to get our name out there. It has worked very well for us. -Michael Podlesny, Mike the Gardener Enterprises

We got into it for nothing. If you sell nothing it cost you nothing.  We could limit our loss by limiting the number of units we sold.  It is very targeted to one town which is great for a small company like us, we are not ready to sell product thousands of miles away. -Tom Gallo, GalloLea Organics

We were motivated because all of our marketing is done using social media. Groupon is another electronic outlet that seemed right. Some people think Groupon is great and others have horror stories. In my experience it’s all about margin and exposure. First, if giving 50% away to the consumer and then giving another 25% to Groupon works for you and you’re still under margin (minus any marketing costs, of course), then it’s a good idea. -Chris Sonjeow, Khom Fai

This was really an economies of scale decision. Of all the deal sites, Groupon has the largest network of subscribers. Their platform is clean and user-friendly and, while perhaps not the most stylish, if you want to reach the largest group of people, you use Groupon. -Collin Williams, Emerald Smoke

I thought this would be a good avenue for some of my clients for the exposure alone as long as there weren’t too many hard costs associated with the deal. Just the fact that 50,000+ (in Daytona) gets to see your business deal in their email is amazing branding at no cost to them. -Darlynn Nangano, Little Blog Dress Media

How did Groupon impact your company’s bottom line?

It has worked very well for us. We picked up a total with the 3 Groupons a little over 1,000 new customers. Many have said if not for Groupon they would have never heard about us and that is exactly the market we were looking for. Conducting all three Groupons have helped our bottom line not only from our sales, a small profit even though the cost was reduced, but many Groupon customers have recommended their friends to our club. -Michael Podlesny

Not much impact at all, but the PR value was worth the time investment in preparing for the Groupon advertisement. -Jennifer Langley

We sold 150 units to 53 different individuals and lost about $1 per unit.  So it cost us $150 to get 53 households to try our product.  Some people were surely repeat customers who already knew about us. -Tom Gallo

We just did Groupon three weeks ago. It resulted in 75% new customers, and 25% existing customers purchased the coupons. We are pleased with our results (new customers). The long term affect is still TBD.  -Champe Granger, Grease Monkey Quick Lubes

We sold 700 Groupons in a few hours. This was a smart play for us because we needed exposure, we don’t spend on “traditional” marketing and food costs are fairly inexpensive. Bottom line: It’s a break even at first (if it’s within your margins), if you have a business that thrives on repeat business you will see that it expanded your customer base and in turn will increase sales over the long run. We’ve seen an increase of 12% following the months after our Groupon ran. -Chris Sonjeow

We had over 250 certificates purchased. We are just in week two of those folks coming into the gym so we are not really sure what the impact on the bottom line will be, but if we can sign up 10% of those who purchased, it will be substantial. Our portion of the purchased certificates is also helpful. -Collin Williams

One of my clients, a Pizzeria in Bayside, NY, recently did a Groupon offer and it was very successful. The real value Groupon offers businesses is a way to get new customers in the door. If the business fails to implement strategies to get that customer to come back, they will have failed. -Michael Bloch, Michael Bloch Associates

What advice do you have for small business owners who are thinking about using Groupon for the first time?

If I could give any tips to first timers that would be to make sure you encourage new customers to join your newsletters and social networks. Many Groupon buyers are bargain hunters and if you would like to keep them as customers you have to be engaged with them in conversation and give them great customer service. -Michael Podlesny

Be the main deal for that day if you can, instead of a side deal.  Do it now as the market is going to get over run and the consumer burned out soon enough. -Tom Gallo

Everything is negotiable. You don’t have to accept the 50-50 earnings arrangement. It takes a while to get on Groupon’s calendar (anywhere from 30 - 90 days). You might not be approved - there are certain services that they will not post like landscapers, interior design, pet sitters. -Champe Granger

Be ready for the promotion. If your redemption will be online, have the processes in place to handle their Groupon requests. If by phone, be prepared for the calls. The bulk of buyers will contact you within a 48 hour time frame. -Jennifer Langley

Other small businesses need to keep in mind the three types of Groupon users. The first group are the “Nomads” they represent 1/3 of our Groupons. These are people just looking to save money. They have no loyalty and no intentions of coming back. The next group are the “Loyals.” These are your current base of customers. These folks would have purchased from you anyway because so basically it’s just a nice “thank you” to them.  Finally are the “Primes”. These last 1/3 are new people that never heard of you, they’re willing to try, and ready to add a new brand into their trusted circle. These are the guys you’re looking for. They represent growing that outer customer base. Follow the instructions Groupon lays out. Notify all relevant staff members about what’s going to happen, expect a huge rush, and be prepared to service all customers like they were your family…there is a chance you can turn some Nomads into Loyals. -Chris Sonjeow

Make sure you set a reasonable limit on the amount of certificates. If you overdo it, you’ll be inundated with too many customers and won’t be able to deliver. Along the same lines, make sure you are ready and prepared to deliver what you offer. At the end of the day, any failure to provide satisfactory goods or services is not Groupon’s fault, it’s the merchant’s. -Collin Williams

Groupons are definitely loss-leaders, and should not be expected to generate loyal customers. For service businesses, such as spas, it is the responsibility of the management and operators to convert respondents into repeat clients. I do not recommend repeated use of Groupons or similar e-marketing bargain tools, as customers will learn to patronize your establishment only when coupons are offered. Furthermore, if all your competitors in a market are offering similar deals, you will collectively devalue your public image and may cause you to drive down your prices. -Soraya Ali-Hope, Octagon Marketing Group

I think you have to think logically about what makes sense for the Groupon audience and what your expectations are. I had one client not take my advice and was disappointed when she only sold a couple of diet consultations that she insisted on….had she gone with a non hard cost like a facial, she could have introduced dozens of people to her, her facility and her business. -Darlynn Nangano

Groupon can be effective if done correctly. If not, it can be an expensive mistake. One of the keys to success using Groupon is what steps the business takes to convert the Groupon user to a regular customer. -Michael Bloch

Thanks to the entrepreneurs above for sharing their Groupon experience with us. Now that you’ve heard several perspectives on Groupon, does it seem like the right move for your small business? Share your thoughts below…

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